Apropos A V Rajwade’s column, “The real reason for Rexit” (June 23), inflation targeting has to be the most important agenda of any central bank governor. He or she would be aware that the poor are hit the hardest by inflation and in a developing country like India that situation cannot be ignored. How many Indians are getting salary, pay or retirement benefits adjusted for inflation? Hence, even if Raghuram Rajan has a single-point agenda of controlling inflation, that is quite justified.
On the point of interest rate, it is an established fact that when sales are plummeting, lowering the interest rate from 9.15 per cent to 8.15 per cent will not induce firms to build a new factory or buy a new machine. This is because the real estate sector, which accounts for a major part of any economy, is at a low right now. Unsold inventory in this sector is a big headache for developers. Launching new projects is not their priority, even if banks are ready to finance these at the lowest possible rates.
The RBI can lower the interest rate but it cannot determine the interest rate business pays or ensure that banks are willing to lend. In his last speech in Mumbai, Rajan correctly pointed out that businesses were paying the premium of risk of default in the form of high interest rates. In Bengaluru, he reiterated that PSB lending in the personal segment was growing by more than 20 per cent vis-à-vis 10 per cent for business loans. This is because banks know that the risk of default in the P-segment is lower.
Ravi Kant, Gurgaon
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
<I>All letters must have a postal address and telephone number</I>
On the point of interest rate, it is an established fact that when sales are plummeting, lowering the interest rate from 9.15 per cent to 8.15 per cent will not induce firms to build a new factory or buy a new machine. This is because the real estate sector, which accounts for a major part of any economy, is at a low right now. Unsold inventory in this sector is a big headache for developers. Launching new projects is not their priority, even if banks are ready to finance these at the lowest possible rates.
The RBI can lower the interest rate but it cannot determine the interest rate business pays or ensure that banks are willing to lend. In his last speech in Mumbai, Rajan correctly pointed out that businesses were paying the premium of risk of default in the form of high interest rates. In Bengaluru, he reiterated that PSB lending in the personal segment was growing by more than 20 per cent vis-à-vis 10 per cent for business loans. This is because banks know that the risk of default in the P-segment is lower.
Also Read
The volume of non-performing assets is lower in private banks than in PSBs because the former have the least exposure to business loans in their balance sheets.
Ravi Kant, Gurgaon
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
<I>All letters must have a postal address and telephone number</I>