The Hindu : No role for Govt. in fixing interest rates: Sinha

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Sunday, May 05, 2002

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No role for Govt. in fixing interest rates: Sinha

By Our Special Correspondent

NEW DELHI MAY 4. The Union Finance Minister, Yashwant Sinha, today reiterated that the Government would not have any role in fixing interest rates and would only endeavour to create a soft interest rate regime in the country.

Explaining the rationale behind the low interest rates, Mr. Sinha said that inflation was well within control and low inflation warranted a softer interest rate regime. "We want the economy to move in that direction,'' he said at a function organised by the National Cooperative Union of India (NCUI) here today.

Mr. Sinha clarified that the Government had no intention of determining interest rates which would be dependent on market conditions.

"Interest rates have been totally deregulated, though in certain areas we intervene as and when necessary.''

Stressing the need for competition among banks, Mr. Sinha said they had to be competitive in order to meet the challenges thrown up by the rapidly changing economic scenario.

Developmental financial institutions were also facing problems in raising cheap money, as there was a cost involved in attracting deposits from the market.

Describing the multi-layer structure in cooperative banks as a cost escalating mechanism, the Minister said the three-tier system at the State, district and primary levels was adding to the cost substantially. "It is important to deal with the challenge caused by high cost of intermediation. We are holding discussions on how the ultimate beneficiary will be able to get the benefit of a lower interest rate regime through reduction of intermediation.''

On the NCUI demand for continuance of RBI supervision on cooperative banks, Mr. Sinha said no decision had been taken yet on the proposal to set up a separate supervisory authority exclusively for cooperative banks.

Emphasising on the Government's intention to promote the cooperative movement, he said it was because of this determination that the Government had taken on the burden of recapitalisation of cooperative banks.

Though Rs. 100 crores had been provided in the first instance, more funds could be given through supplementary demands if necessary.

''On their part, the cooperative banks had to ensure their viability by introducing professional management and rising above party politics, he added.

"The cooperative movement must not remain a tool of politicians.''

Asking the cooperative sector to change its mindset in view of increasing competition, globalisation and liberalisation, Mr. Sinha said the objective should be to provide consumers with quality products and services, besides protecting the interests of the country.

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