This refers to the report "Banks set for lending rate action this week" (January 19). After the Reserve Bank of India cut its benchmark rate by 25 basis points to 7.75, some of the banks have reduced their lending rates to pass on the benefit to the borrowers. Many banks are flooded with excess liquidity because of the tepid growth of credit. Banks are, obviously, under pressure to look for opportunities to cut the deposit rates, to bring down the cost of funds. In the last quarter, some banks cut rates on deposits across various maturity periods.
The government is laying a lot of emphasis on connecting every household with the banking system for inclusive growth. Saving with banks is considered a secure and gainful investment by a majority of people, so they should not be deprived of any reasonable returns. Any cut in the rate of interest on deposits will negatively effect the livelihood of these depositors.
It is easy to cut the rate of interest on deposits than look for alternative measures such as converting non-interest earning defaulted loans into income-generating assets. The recovery of these huge non-performing loans and the reduction in the number stressed assets will have many positive effects. Bankers need to protect the interest of depositors as well.
V S K Pillai Kottayam
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