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Credit offtake stays poor

Calcutta, Sept. 24: Bankers today expressed concern that borrowers were not attracted towards credit even though the interest rate had gone down.

Chairman and managing director of United Bank of India Madhukar said, “The banking industry has not witnessed heavy credit offtake from the corporate sector even though the interest rate has gone down drastically over the years.”

He was speaking at a seminar on “Is the era of low interest regime an order of the day'” organised by the Bengal National Chamber of Commerce and Industry (BNCCI).

In the last couple of years, the prime lending rate has come down from 12.5 per cent to 10.5 per cent. Even the banks are lending to companies with creditworthiness at a rate as low as 6.5–7 per cent.

“But this has not created enough excitement among the borrowers,” Madhukar said.

Over the years there has been a downward trend in interest rates facilitated by adequate liquidity in the economy. The focus of the monetary policy has changed in the past few years and the shift is from direct to indirect instruments.

The liquidity adjustment facility combined with open market operations emerged as a major tool of liquidity management in the country.

The indirect instruments rely more on market forces and thus help in the development of financial market.

In the current financial year, the focus of on-going reforms in the banking sector is on soft interest rate regime, increasing operation efficiency of banks and financial institutions, said president of BNCCI Santosh Ranjan Saha.

However, the low rates have affected depositors. “Since the returns are low they are at a loss as to where to invest,” he added.

Due to the dismal performance of the stock market and absence of alternative avenues of investment, they continue to deposit in banks despite falling deposit rates.

BNCCI members expressed concern over the socio-economic impact of the low interest rate regime. The household sector, including the middle-class and retired people, are major savers.

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