People's Democracy

RBI GOVERNOR SPEAKS OUT

Banks Favour Corporates At Small Depositors’ Cost

SPEAKING at the National Institute of Bank Management (NIBM) in Pune on January 6, Dr Y V Reddy, governor of the Reserve Bank of India (RBI), has made very significant statements. He said that low interest rates on bank deposits would dissuade the savers from accessing banking channels which, if happens, would put the banks out of business. He deplored the policy of credit deployment of the bankers, which is more oriented towards the corporates and deny loans to small borrowers.

According to Dr Reddy, while the interest rates on bank deposits have fallen by three percentage points in the past 18 months, the interest rate on lending for small borrowers has fallen by only one per cent. He expressed concern over the non-availability of credit at reasonable interest rates to small scale industries, rural people and agriculture as well as government backed enterprises, at a time when big borrowers were reaping the benefit of lower interest rates. He also warned the banks of a “backlash” arising from these “aberrations.”

The RBI governor took exception to the fact that banks were lending money to corporate houses at below the prime lending rate (PLR) while these very corporates are responsible for creation of non-performing assets (NPAs) in banks. On the other hand, banks were denying credit to small borrowers who have not defaulted in repayment. He said that corporate debt restructuring by bankers is a mechanism to charge lower rates of interest from big borrowers at the cost of small borrowers.

Pointing to these observations in a statement issued from Kolkata on January 8, the All India Reserve Bank Employees Association (AIRBEA) said what Dr Reddy actually meant to say was that it is the small borrowers who are virtually subsidising the corporate borrowers. This, the AIRBEA said, is extremely undesirable and is against the principles of equity and of social banking. Coming from the governor of the apex bank of the country, these matter of fact observations substantiate what the bank employees’ unions including the AIRBEA have been saying for long. The AIRBEA have already written to Dr Reddy about its opinion, while thanking him for his candid exposure of the current scenario in the banking sector.

However, the AIRBEA said it was extremely surprised to note that that while the RBI, in its credit policy, has retained the bank rate unchanged, most of the commercial banks have preferred to ignore the signal for maintaining status quo on the interest rates on deposits. Rather, the commercial banks have brought these rates down sharply, even below the current inflation rate. Small depositors are suffering a heavy erosion in their savings due to this fact. The AIRBEA had demanded that, having made the situation clear and having expressed his displeasure, Dr Reddy and the RBI should prevail over the banks, not by statement alone, but by concrete steps through the RBI’s Department of Banking Operations and Development (DBOD) and Department of Banking Supervision (DBS). This is essential to ensure that the aberrations are taken care of, credit flows to the priority sectors at a reasonable rate, and the economy gets a real boost.

On their part, while heartily welcoming Dr Reddy’s observations, bank employees have assured him to assist in the much needed corrections in the interest of banking public. (INN)