1. Letters to the editor

Letters to the editor

Passing on the rate-cut

By: | Published: October 1, 2015 12:10 AM

Passing on the rate-cut
Apropos of the edit “Diwali before Dusshera” (FE, September 30), the RBI Governor has taken a pragmatic approach in bringing down the repo rate from 7.25% to 6.75%. Followed by the repo cut, the country’s largest lender, SBI, immediately transmitted 40 basis points by reducing its base rate to 9.3%. This is a welcome move and should set an example for other lenders in passing on the benefits of repo cut without lag. At this juncture, the public and private sector lenders need to revisit the status with regard to transmission of previous rate-cuts by RBI in FY15 and must act fast to ensure full transmission of the repo cuts to have the desired results. While passing the effects of the rate-cuts, banks need to refrain from cutting deposit rates, else it will adversely affect the growth of household savings. The multiple effects of the cut in lending rates, on the one hand, will ease servicing of debts. On the other, it will reduce the incidence of loan delinquencies which, in turn, will augment the yeild on these assets. In fact, lenders need to be more focussed on the recovery of bad assets to enable them to realise the pending interest income and consequently refrain from reducing the deposit rates. Any cut in the deposit rates may lead to reduction in financial assets and will adversely affect the resources of the banks as well as the growth of productive investments. The government must give more significance to implementing result-oriented measures to extend maximum support to the banking industry in recovering the huge bad assets. The repo rate cuts should be used as one of the tool to achieve that goal.
VSK Pillai, Kottayam

Rate-cuts key to growth
This refers to the editorial “Diwali before Dussehra” (FE, September 30). The surprising rate cut of 50 bps in the repo-rate announced by the RBI Governor has been whole-heartedly welcomed by all across the country. It seems that RBI’s latest policy announcement also takes due care of other key areas which could be of prime concern for the Indian economy. However, it’s also time for the the banks to quickly deliver. One hopes that the nation’s sagging demand and investment scenario get a strong boost. However, we should not immediately set our eyes on the rate-cuts likely windfalls as the relevant results may take little longer to accrue. The moot question arises: Will everything in our economy change for the better—that too on the much expected lines? Only time will bear testimony to all over-optimistic and self-serving presumptions. The biggest losers, in the process, could be those individuals who survive solely on their meagre interest income earned from safe deposits or various term deposits and/or (largely tax-oriented) small savings schemes.
Kumar Gupt
Panchkula, Haryana

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