Thursday, 14 July 2016

RBI Reduces Interest Rates

Under pressure from Finance Ministry and Industry & Businesses, in the name of reducing borrowing rates competitive & affordable and to push growth rate, RBI announced its interest rate deduction. It has its side effects as well.
  1. Lowering rates makes more cash available in the market and pushes inflation upward which hurts middle class, lower class & daily wage earners very badly.
  2. Banks saddled with more cash will be under pressure to do market lending and eventually gets easily entangled in the hands of cheaters and looters, especially from high value business class thus pushing NPAs.
  3. Banks will reduce deposit & lending rates. This would hurt savers and benefit borrowers.
    Not a great idea in our country.
  4. Most depositors are retired people & senior citizens and their budgets gets effected.
We need to remember that "Culture of a person / society / government is the way they treat their weaker sections, women, children , old people, handicapped & minorities". In the absence adequate social security & affordable healthcare, in India, reduction of interest rates will adversely effect lifestyle of senior citizens.

Inflation increase is nothing but RBI Abrogating its primary responsibility.

My view: In order to protect senior citizens dependent on fixed deposit interest amount for their living, banks should pay for fixed deposits up to Rs. 50 lakhs, for Indians resident in India aged 60 and above, at minimum of 12% per annum interest payable monthly and deposit amount locked for 5 years or death which ever is earlier. Premature withdrawal of deposits should be settled at 3/4th interest rate or 9% p.a.

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