Letter to BS: Why shouldn't bankers take instructions directly from FinMin?

This refers to the report “Das, bankers may not be on the same page over passing rate cuts” (February 21). Let us face the reality. Time was when interest rates were regulated, but banks respected and listened to the Reserve Bank of India (RBI) sermons. Today, rates are deregulated and bankers know that the RBI is in captivity and is parroting the government of India’s wishes without applying its own institutional mind. In such a situation, why shouldn’t bankers take instructions directly from the finance ministry or from the politicians?
 

Coming to the facts and figures, the 25 basis point reduction in repo rate works out to just 4 per cent reduction in the rate. The banking system is availing of a negligible percentage of its total resource needs from the RBI. This explains the poor impact of changes in base rates on lending/deposit rates. Put bluntly, the use of the phrase “passing rate cuts” is fallacious. The five basis points token reduction, only for small home loans, by the State Bank of India following the rate cut is an example. Forcing banks to reduce both deposit rates and lending rates accepting the RBI’s rate cut as a signal can have wide-ranging implications on other crucial variables including credit flow and inflation.

M G Warrier, Mumbai

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