Letters: Time for aggressive steps

With reference to the editorial, “Reform floating rates” (October 6), cost of resources, overheads, risks and quality of assets generated as well as profits have direct bearing on lending rates. The basic need is to cut costs and improve efficiency and productivity, particularly in the case of public sector banks that account for over 70 per cent of the banking space.
 
While shrinking the cost of resources, banks should mobilise the more cost-effective ones, instead of cutting interest rates on term resources. This is necessary to ensure growth of household savings, which are significant for ushering in inclusive economic growth.

 
The most important point is to drastically reduce credit costs. Credit cost is a function of the quality of funds deployed by lenders. Any reduction in credit cost will improve the net interest margin and enable the lender to pare lending rates. Public sector banks are particularly unable to reduce lending rates due to their high level of non-performing assets.
 

The government and the banking regulator need to adopt aggressive measures to resolve the issues related to bad assets. Speedy resolution and control of non-performing assets are crucial for fixing lending rates. Banks are not fixing interest rates arbitrarily. Current stresses in their financial statements are not allowing them to cut lending rates.

 
The present system of floating lending rates is fraught with discrimination and is less transparent, too. The Monetary Policy Committee fixes policy rates to transmit them quickly into the economy, but banks being financial intermediaries are only complying partially and that, too, belatedly. V S K Pillai   Changanacherry
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