While the Reserve Bank of India (RBI) has to contain inflation, its impact should not hamper demand for credit and investment as the economy, which is in on the path to recovery, needs a boost in investments. In this context, the clamour for a cut in interest rates is justifiable and is the need of the hour. Yet that has not happened, despite the fact that macroeconomic conditions are favourable.
Though the RBI reduced repo rate by 75 basis points in 2014-15 and brought down the repo to 7.25 per cent the full transmission of the cuts are yet to take place. Constraints being faced by banks are in terms of cost of funds and the rising impairment of loans and advances. Greater significance must be accorded for transforming the judicial system to support the banking industry.
While lending, banks must monitor projects and promoters to ensure the projects' on-time execution and cash generation. The utilisation of lenders' money for the specified purpose is of paramount importance. The RBI should take tough steps to prevent misuse of the 5/25 scheme for window-dressing impaired, ineligible loans. This apart, stringent action should be taken against banks, which camouflage bad loans and postpone identification of non-performing assets.
VSK Pillai Kottayam
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