Miles of smiles but problems await | Business Line

Miles of smiles but problems await | Business Line


2, 2015
who’s smiling!
This refers to the
article “Miles of smiles but problems await” (Maverick View, HBL, October 2).
Coming out on World Smiles Day, cheers to the writer and The Hindu business
Line for the caption! As brought out in the article, the longer and tougher
journey begins here. Having tasted blood, the pressure on RBI to cut base rates
further will now become more vigorous. As there is no direct relationship
between ground level interest rate realities and RBI’s base rates, there will
be more scope for banks managing to protect their gross interest income from
depletion and reduce their cost on resources by downward revision of deposit
rates. Believing the example of the impact of 5 percentage points reduction in
interest costs at one percentage point, one can only imagine the effect of rate
cut on prices.
The agony of savers is
real. The finance ministry announced on September 29 itself that government
will review the interest rates on small savings, which ‘banks say, come in the
way of lowering interest rates.’ The message is loud and clear. There will be a
quick downward revision of interest rates on small savings and PF. Those who
are responsible to pay interest have every right to review the rates and bring
it down to their advantage. But, those who have invested their savings with a
long term perspective considering the security and liquidity concerns, should
not be given a shock, just because there is a temporary change in the movement
of wholesale prices.
Some analysts console
savers that return on investments have become ‘positive’ these days with
inflation getting tamed. May be true. But I am unaware of a single household
budget, which has come down because prices have come down. Even now, interest
paid by bigger banks on long term FDs is less than 8 per cent per annum, post
office term deposits earn between 8.40(3 year Term Deposits)  and 8.80 per cent (10 year National Savings
Certificates) and Public Provident Fund Scheme fetches 8.70 per cent per annum.
A revision of these rates downward will move savers from safe and secure
investments to other riskier avenues which again will involve a social cost to
the nation in the long run.
One cannot dispute the fear that the way in which Dr Rajan has purchased
peace with finance ministry, India Inc and his own ‘friend-economists’ can
boomerang. Dr Rajan must be, by now, aware of the rules of the game politicians
and their helpers play in India. The coming months, I expect the RBI Governor to
do what his conscience dictates, not only in regard to monetary policy
management, but on several other concerns he has expressed in the chapter
“Governor’s Overview” in the RBI Annual Report 2014-15. It will not cost him
his position, because it would be tough to find another person to continue the
initiatives he has taken in reforming the financial sector in the near future
and GOI will opt by default to retain him longer.

M G Warrier, Mumbai


Popular posts from this blog


The King of Ragas: Sankarabharanam