With reference to Devangshu Datta's column, "Rate cuts are not a panacea for all ills" (March 21), one of the root causes of all economic peril is persisting loan delinquencies, which obstruct the smooth flow of credit in the economy thereby hampering investment, consumption and demand.
In such a situation, any cut in policy rates is worthless due to the inability of banks to transmit the effects in time. Until and unless a reversal occurs in the diminishing returns of banks, they won't be able to transmit the effects of policy rate cuts without a downward revision in the interest rates of deposits. In case banks take this path, it would be at the cost of depositors; it would also adversely affect the resource mobilisation of banks.
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The current rate of interest on deposits of various tenures is not justifiable when compared to the cost of sustenance. It will negatively impact the segments dependent on interest earnings for their livelihood.
The need of the hour is to focus on the recovery of defaulted dues. For this a well-orchestrated collaboration between government, banking regulator, market regulator, legal system and banks is of paramount importance.
V S K Pillai, Changanacherry
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