Bank rate reduction

Sir, - The 1 per cent reduction in the bank rate and CRR (cash reserve ratio) as part of the credit policy would help to make our products competitive in export markets. The small scale industries, in particular, for whom relaxation has been provided in the budget on collaterals will have no cause for complaint.

With the removal of QRs (quantitative restrictions) on 714 items, the RBI announcement will give a level playing field for our industries to compete with the imported products in the domestic markets. But the big question is whether consumers will be benefited by the cheap credit policy. Will there be quid pro quo from the industries? The past record in this respect was negative. Unless the industries pass on the benefit to consumers, there is no point in the reduction of deposit rates (S.B.) announced by the RBI. It is certain that banks are going to cut the rates on time deposits also, and people who depend upon bank investments to supplement their income will be hit hard, unless the price line dips commensurately with the reduction in lending rates. There is a danger of banks losing deposits if the interest rates are further slashed and the price line does not come down.

A. Kalyanaraman,

Chennai

Sir, - While the steady fall in the bank lending rates may make borrowers smile all their way to banks, the corresponding nosediving of the interest rates on deposits will certainly cast a pall of gloom over the depositors who seek a decent return on their deposits in banks. Employees of banks and LIC were asked to exercise their option a few years ago between pension and PF contributions in full on retirement. Many of them calculating the possible income at the then prevailing deposits rates on the investment in banks of their terminal PF benefits, rejected pension. They should be regretting their decision now. In all fairness, they should now be given another chance to opt for pension.

S. S. Venkatraman,

Chennai

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