FinMin asks RBI to ease infra funding norms | Business Standard News

FinMin asks RBI to ease infra funding norms | Business Standard News
Online comments posted on November , 2014:

In the present
communication, finance ministry seems to have clearly advised RBI to make changes in its
policy stance on a specific issue. Under RBI Act, GOI has powers to give
directions to RBI and therefore, when a communication goes from finance
ministry to RBI, the later will make efforts to comply  with the requirements
This read with the report
“Finance Minister Arun Jaitley favours interest rate cut”(October 26) makes
disturbing reading. In an interview given to Times of India Finance Minister
said that “…but other expansion in real estate will take place significantly
only if the interest rates come down a little. Currently interest rates are a
disincentive. Now that inflation seems to be stabilising somewhat, the time
seems to have come to moderate the interest rates.” Such views, if followed
up  with letters from finance ministry to
RBI which could be interpreted as advice for compliance impairs the institution
of central bank.

Across sectors, lending
rates are high in India. One is tempted to add, compared to lending rates,
deposit rates are relatively low, as margins are high( may be, higher than the
deposit rates in some countries). Let us remember interest rates remain
deregulated in India for a long time now. FM’s reference to high lending rates
in a particular sector(real estate) should be seen in this context as a concern
over higher interest rates and linking it to RBI’s policy rate, just diverts
attention from the main issue.

Let us hope, the proposed
meeting of PM with Bank Chiefs mentioned in the interview by Arun Jaitley will
bring clarity on how banks should be allowed to function without incurring
losses and meet national priorities. Especially for Public Sector Banks, the
support promised by FM is crucial. A proactive policy support will help banks
to bring down NPAs, helping them to do their business on lesser margins and
bringing down lending rates.

M G Warrier, Mumbai



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