Source Name: RAWS (Rise Always Welfare Society) |
Reducing the Gap in Differential Rates of Interest is the Need of the Hour
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Gurugram, Haryana, India Undeterred by pressure, Prime Minister Narendra Modi has expressed his government’s strong will for reforms to spur economic growth and create an environment conducive towards making India a developed country. As a pro-growth government, its intentions are in the right direction. It is, however, also important that it introduces other measures that have the potential to play a catalytic role. No doubt, the Centre has shown foresight and iron will while fighting a global pandemic, described as the most challenging this century. During the COVID-19 crisis, he extended a helping hand to the common man, and also took measures towards creating a better environment for businesses and corporates simultaneously.
Landmark measures like universal financial inclusion and the slashing of corporate tax rates show that the government firmly believes in “sabka saath, sabka vikas”. But, then, the Modi government’s commitment to overall inclusive growth has never been in question. In the immediate context of COVID-19, the government has responded well, and given a call for “Aatmanirbhar Bharat”, ensured food security for the poorest, and announced a much-needed fiscal stimulus package.
While the government has been encouraging banks to lend to corporates, at times they face some unlikely roadblocks – an issue that is best addressed urgently.
After the RBI directed banks to link retail loans to an external benchmark, some public sector banks have begun offering differential interest rates, guided by the consumers’ CIBIL scores. The interest rate differentiation goes up to 2 per cent in select categories, while it usually varies between 0.5 and 1 per cent.
Why shouldn’t then corporate loans’ interest rate differentiation should be, say, up to 1 per cent, and not the unreasonable 5-6 per cent? Credit cards, on the other hand, look at the past and immediate track record, while offering cards, card limits, and other offers. This provides a viable model for the banks while offering corporate loans. Plus, banks should do their own ratings of customers and corporates, based on their records. There have been many instances where credit-rating agencies have been seen to be doing half-baked jobs. Why leave the future of corporates in the hands of these agencies alone? Banks should look at the companies’ performance, business model and track record.
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