Letters: Other than rate cuts

The Reserve Bank of India (RBI) maintained the status quo by keeping the policy rates unchanged at the policy review held on Tuesday. One view of the industry was that a rate cut would have improved the operating profits of businesses, which would have led to a comfortable debt servicing position. However, the substance in the argument is very thin since in many cases of reduction, the benefit was not passed on to the business entities.

Without a rate cut, banks are able to reduce the rate of interest since a reduction in avoidable expenses will improve their operating profits. Growing stressed assets and non-performing assets (NPAs) need to be arrested to improve the banks' profitability and capital adequacy.

The proposed plan to amend the SARFAESI Act will also be a boon for the banking sector. The recovery of written-off loans and huge NPAs will push the industry for a reduction in the interest rates and banks need not depend solely on the change in RBI's policy rates.

V S K Pillai Kottayam

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