Letters: Don't cut interest rates

With reference to the editorial, "The problem of savings" (January 29), there are millions of senior citizens in India whose only source of income is the interest accrued on their savings accumulated over 30 to 40 years of their work life. They do not have anything akin to social security like their counterparts in the West. A single hospitalisation may use up their entire savings. Very few of them have health insurance. If the government reduces interest rates on provident fund balances and other small savings schemes, banks will reduce their deposit rates further. As it is, after paying tax on the interest and discounting for inflation, bank deposits yield negative returns.

Reducing interest rates will only benefit the corporate sector, which in many cases default on payment or do not pay interest at all. Some estimates put the quantum of stressed assets of the banking sector at 15 per cent. Unless bank balance sheets are cleaned up, monetary policy transmission will remain poor or, at best, half-baked.

The least the government can do is to exempt interest on bank deposits from income tax for senior citizens who have no other source of income.

K Nandakumar New Delhi

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