Finance & Economy
- Should savings bank interest rates be de-regulated?
- The savings bank (SB) deposits interest rate is the only regulated rate and has remained unchanged at 3.5 % since March 1, 2003 even as the RBI’s policy rates have varied. The RBI is reportedly toying with the idea of de-regulating SB interest rates. It is interesting to note in this connection that SB deposits account for about 13% of financial savings of the household sector and for 22% of total deposits of scheduled commercial banks.
- Deregulating the SB interest rate could enhance asset-liability mismatches, as banks treat a large part of these deposits as ‘core’ deposits and use them to make long-term loans. The share of term loans increased over 2000-09 even as the share of term deposits came down, suggesting maturity mismatches have increased.
- The other consequences of deregulation are more competition and volatility. More competition is good and volatility is part of the game.
- Some banking stats
- Currently, India has 89 scheduled commercial banks— 27 public sector banks, 31 private banks, and 31 foreign banks. Together they account for about 53,000 branches and 17,000 ATMs.
- PSU aided SWF in the works
- A government panel is considering forming an investment fund bankrolled by state-run companies to help India acquire large natural assets abroad.
- The committee of secretaries, which has members from various ministries, department of public enterprises and the Planning Commission, will discuss the composition and size of this fund later this month.
- Large state-run companies have huge free cash. Coal India, for instance, could have as much as $10 billion at the end of the 2010-11 financial year.
- The finance ministry is also not averse to the idea of setting a sovereign wealth fund given that India’s foreign exchange reserves now stand at about $300 billion. Last year, the government had abandoned its proposal for a $5b sovereign wealth fund, or SWF. Such funds invest globally and are usually funded by foreign exchange assets.
- China has aggressively backed its companies in their attempt to acquire natural assets abroad. It has a $300-billion sovereign wealth fund, China Investment Corp.
- At present, there are around 50 sovereign wealth funds managing assets worth nearly $3 trillion, the most notable ones being from Singapore, Kuwait and Norway.
- bromide: Noun
- A trite or obvious remark; Any of the salts of hydrobromic acid; formerly used as a sedative but now generally replaced by safer drugs
- eg: Despite rhetorical bromides about requiring “ministers to unlearn ingrained habits and focus on substance, not rhetoric,” and about “business associations engaging with the granular detail of what companies want”, this proposed Plan B would strengthen the bilateral and regional trade initiatives that have diverted energy and attention from Doha and the WTO.
- landau: Noun
- A four-wheel covered carriage with a roof divided into two parts (front and back) that can be let down separately
- straight as an arrow: idiom
- Honest, genuine
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