We don’t learn from our mistakes
Government has been putting pressure on banks to reduce the interest rates through the Finance Minster (FM) Chidabaram. Public sector banks seccumbed to the pressure and agreed but private banks were reluctant. It is surprising that FM has not learnt that it was politician’s pressure that pushed the two US housing companies to give credit for home loans which were risky and landed everybody in financial trouble and global recession. We should push any bank to lend more by assuming risk that they do not want to assume. The government can create conditions like lowering of CRR etc. which will encourage the banks to reduce interest rates and start lending. I am sure competitive forces will come into play and one of the banks will see the opportunity and will reduce rates. Once this happens other will follow or lose business.
The best example that supports what I am saying is the airline industry. Kingfisher and Jet are not reducing prices in spite of the tremendous drop in the oil prices. However, SpiceJet and other smaller airlines are looking at the low oil prices as an opportunity. They have reduced prices and also done away with the congestion charge. Ultimately, when Jet and Kingfisher find that they are losing business, they will also reduce prices.
So the best thing for FM to do is create the environment to encourage the banks to reduce interest rates and lend more rather than push them to do so.
avinash narula
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.

























I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Betty
http://www.my-foreclosures.info
Reply