This refers to the report "Banks set for lending rate action this week" (January 19). When banks have been experiencing sluggish credit growth combined with excess liquidity, a reduction in the repo rate becomes irrelevant. The big tamasha played by public sector lenders (PSLs) is the decision to hold asset-liability committee (Alco) meetings. Alcos have been formed with the objective of identifying asset-liability mismatches (ALMs) on an ongoing basis. The deliberations on asset-liability are completed through compliance of reports with the Reserve Bank of India. No PSL has been taking policy initiatives to set the ALMs right. ALMs have serious repercussions to PSLs.
Another tamasha of Alco meetings is to initiate rate action whenever the State Bank of India changes its base rate. Most PSLs follow the leader without studying their asset-liability portfolio. Tinkering with the base rate and changing deposit interest rates is all that is done during Alco meetings. Unfortunately, private sector banks, too, are no better in this respect.
K V Rao Bengaluru
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