How Banks Un-ethically benefited with Rate Cut

The Banking system of our country is increasing continuously with the sustainable growth in GDP of the country. Currently the Banks have total lending of almost USD 2 Trillion or Rs. 134000 Billion which is quite significant. Any fraction of amount adjusted or retained in the banking system may look meagre percentage wise but in terms of amount it is abnormally high.

When NaMo govt. came into the power, RBI Lending rate or Repo Rate in technical terms was 8% which is currently reduced to 6.50% after lot of persuasion and requests.

In our our country major players are public sector banks covering about 80% market share and the balance 20% is shared by host of private banks including foreign banks. Currently our banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. These banks and institutions handle about $ 2 trillion funds.

After assuming the office by NDA, the interest rates were reduced from 8% to 6.50% by RBI. Indian banks collected huge sum in the form of Jan Dhan banking at dirt cheap cost and FDI also improved during this short tenure of 2 years.  Despite all these positive factors coupled with infusion of about INR 25000 Crs. to the Banks, the interest reduction is not passed fully to the borrowers who were genuine owners of this rate cut. As per the data available, the banks passed the rate cut benefit in the range of 0.60% to 1.00% and retained the remaining benefit with themselves. Thus Banks retained more than INR 100000 crs. or USD 15 billion and improved their own books by hiding the inefficiency.

Had this fund passed on to the borrowers many industries would have survived and grown further. Many small units could have been saved from getting into NPA or atleast this fund could have been properly utilised for the various government schemes for upliftment of poor and needy people. I wonder had this margin not adjusted in the books of the Banks, the NPA reported would have been substantially higher.

Such practice is not ethical and damages the business environment of the country. I am not sure under huge guidance and support, such decisions were taken. On one side NaMo govt. supports growth other side their own establishments are killing the plans. Is n’t it pathetic?

Above calculations may not be accurate but any time these are eye openers. Considering the total lending assets of the Banks of almost $ 2 trillion and RBI cut in the Repo rate in following manner during last two years after assuming the office by NaMo govt., the amount comes at very high level. Irrespective to the accuracy of the amount, the matter is quite serious:

15.1.2015    0.25%  ( In first seven months no rate cut.)

04.03.2015  0.25%

02.06.2015  0.25%

29.9.2015    0.50%

05.4.2016    0.25%

C P Jain