Concerns regarding MCLR
Concerns regarding MCLR
Apropos of the report “RBI issues norms for pricing banks’ advances” (FE, December 18), of course, with the new approach, borrowers will be benefited as interest rates are declining, but there are certain issues which need to be addressed. Against RBI’s rate cut of 125 basis points in the last one year, banks have pared their deposit rates by around 100 basis points and base rates by an average of 60 basis point. The reason? Decrease in deposit rates are applicable on future deposits only (immediately not impacting the average cost of deposits to banks) whereas change in base rate becomes applicable on existing loans as well. Since the latest card rates payable on deposits will be accounted for to calculate cost of deposits, it will put a strain over the profitability of banks in the short-term. In the present, falling-interest-rate scenario, the new approach suits the borrower, the regulator and the government. But what will happen after three-four years when average cost of deposits to the banks will be low (due to assimilation of present declining interest rate structure), but interest rates may start rising? This new approach may not be conducive to these stakeholders. Second, RBI has given a cushion to bankers by allowing the reset clause in interest rates on all loan accounts for a period of one year. This way, the adverse impact of base rate reduction will be gradual on the interest income of banks. Why can’t we think of floating rates on deposits with inbuilt re-set clause? This will be a more level playing field. To take care of small depositors, floating rates may be implemented above a cut-off limit of deposits, say R1 lakh. Moreover, banks have flexibility over interest rates on term deposits only. What about the savings deposits where rate is fixed at 4%, in spite of RBI deregulating it? Why is RBI not able to break this cartelisation or whatever it may be called, where weak banks are forced to toe the line drawn by big banks?
AGM (UCO Bank), Kolkata
Apropos of media reports on the doubling the salary of the MPs, now, it is the turn of our honourable members of Parilament to reap a rich “financial” harvest for their “toil” after the Delhi’s AAP government gave a similar financial bonanza to the national capital’s MLAs earlier this year. Does any one remember the ‘strange’ plea of the Delhi’s chief minister, Arvind Kejriwal, for seeking the Delhi Assembly’s approval in the matter? The central govt, led by political rival, the BJP, at that time, had quite conveniently chosen to adopt an ‘indifferent’ posture, knowing fully well that it would soon be toeing a similar line, with respect to the pay of our honourable MPs. What about the applicability of the Income Tax provisions on these salaries being paid for by the common man? Incidentally, how much time will it take for our Parliamentarians to pass the relevant Bill in the next session? Perhaps a few minutes only, and that too with a “voice vote”! What an irony for the common man! Is prime minister Narendra Modi listening? And if he is, will he do something about this?