This refers to T N Ninan’s column “What about depositors?” (Weekend Ruminations, November 24). The writer’s concern for bank depositors is quite refreshing. Every time, the monetary policy is about to be announced, there are only talks about reducing the lending rate; nobody has taken up the cause of depositors the way Ninan has. No doubt, the solution for a bank’s profitability is maintaining a competitive net interest margin (NIM). But banks have to improve efficiency in other fields of banking operations. Public sector banks still suffer from bloated staff. This is quite clear when we compare public sector banks’ staff costs to total business (total advances and deposits) with that of private sector banks. Private sector banks not only have higher NIMs, but have also gained staff productivity. Since the real interest rates have become negative owing to continuing inflation, the government may have to offer tax incentives to make bank deposits attractive for high net worth individuals (HNIs). HNIs would then, perhaps, divert a portion of their wealth to banks. Lowering rates for loans to boost growth is not the real issue. Corporations have been harping on this issue and the government should not have joined hands with them. The government’s inability to rein in fiscal deficit is the real culprit.
K V Rao Bangalore
…and attract depositors
It appears that everyone except, of course, depositors, believes that the depositor meekly accepts whatever rates banks offer. This may be based on the fact that most bank depositors put their money in banks only for the safety of the principle. So, for most bank depositors, the rate of interest on the bank deposit is not really a very critical deciding factor while investing. So, it is only when and if banks start feeling a crying need to attract more deposits, that the rate of interest on deposits may be determined first and lending rate fixed appropriately thereafter.
Kishor Kulkarni Mumbai
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