Financial Scene: Falling interest rates, a concern for depositors - The Hindu

 Financial Scene: Falling interest rates, a concern for depositors - The Hindu


I wait to read this
column every Monday as it gives an overview of areas of concern affecting the
common man. This week, besides expressing anxiety about falling deposit rates
which affects savers, especially those dependent on interest income for
survival, the subjects covered include the timing of deliberations on EPFO’s
entry to equity markets, how scams originate and common man’s concern about the
safety of his deposits with banks in view of the pitiably low level of deposit
insurance available. The three issues need a pragmatic approach from
government. Briefly:
There is a case for government to loosen
the grip on funds kept captive for investment in government securities(both
central and state government) and for ‘diversion’ to sectors and areas
pre-decided by government, like meeting shortages when Centre go for
disinvestment. Like SIP spreads the risk in investment by individuals in Mutual
Funds, if organisations like EPFO and now managers of NPS get the expertise
they need, can reap the benefits of investing in equity.
Bank deposits, at any given point of time,
should earn a decent positive return(net of inflation). For the purpose, banks
(both private sector banks and public sector banks) need to manage their funds
judiciously. If government interference is reducing public sector banks’
earnings, it should be government’s responsibility to compensate. Similarly, if
big borrowers avail credit from private or public sector banks and build up
NPAs on banks’ books, as RBI Governor Dr Rajan said last year, there should be
clear distinction in the way banks handle wilful defaulters and government
supporting small borrowers in distress.
It is high time the deposit insurance
cover is enhanced. If there is a case for differentiated premium among
different categories of banks(depending on health), that should be examined.
But in the changing scenario, with all types of players entering the banking
business, the level of deposit insurance cover fixed long ago needs to be
revised upwards.

M G Warrier, Mumbai


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