High deposit rates deter lending rates coming down: Tiwari

Report by: 
2 Jan 2017

On the issue of reducing the lending rates, Arun Tiwari, Chairman and Managing Director of Union Bank of India stated that since deposit rates are high, lending rates cannot come down. MCCI organised an interactive session with Mr Tiwari on ‘Indian Banking: Towards 8 p.c. Growth’.

The condition of Indian banks reflects the state of the overall economy. So, if the economy is not doing well, the balance sheets of banks cannot look good. One problem area prior to demonetization was that the cash to GDP ratio at 12 p.c. in India was higher than that in other countries, he said.

Public sector banks have done a good job in nation building. They have been at the fore front of public-private partnerships. Public sector banks have been on a mission mode with Jan Dhan Yojana and other schemes launched by the Government, he added. 

The Indian economy is in good shape with low inflation, minor current account deficit and other positive factors. The country has impressive forex reserves. The IMF had projected Indian growth at 7.6 p.c. for this financial year. The economy could have touched growth rates of 8 p.c. if demonetization had not happened. However, demonetization will be good for the economy in the medium term. The Indian economy is expected to grow manifold by 2030. A growth rate of 9 p.c. to 11 p.c. CAGR is necessary to grow the economy in such a manifold manner, Mr Tiwari added. 

Indian banks have long struggled with Asset – Liability mismatch with projects with a maturity of 15 years often being funded with short term deposits. Only PSU banks can handle such severe Asset – Liability mismatch. In this regard, the 5:25 scheme augurs well for the banking industry, he said.

On the issue of reducing the lending rates, Mr Tiwari stated that since deposit rates are high, lending rates cannot come down.

Credit rating is an important tool. Rating improves transparency of companies and it reduces their cost of borrowing. The bond market is gradually maturing in India which is evident from large over-subscription of rated bond issues of late, he opined.