Page 44 - Banking Finance June 2020

ARTICLE

NEGATIVE

INTEREST RATES

IN INDIA - A

REVIVAL GAME?

The Buildup… In the context of the battered Indian economy, the public
sector banks play a pivotal role of forbearance. It is only
The ongoing mayhem and panic created by coronavirus
through banks that the masses can be reached and the crisis
around the globe is well exhibited. Economies and businesses
can be arrested.
are shrinking by the day on account of lockdowns and
retrenchment and people are waking up to uncertainty but
While we have heard of proposals to defer loan repayments
with a hope to see light at the end of the tunnel.
and loan waivers in the times of crisis, why cannot we move
towards negative interest rates like Japan?
India in the scheme of things isn’t isolated and thus,
understandably affected. Our economy isn't in the best of
This may help us revive our economy and steer the country
shapes and a continued deceleration due to the outbreak
out of this mess. Can this be a heroic pull off? A reference
of coronavirus may further push it into an abyss. Many
point in turnaround management?
economists believe that the world shall witness a global
depression if the respective governments don't scramble at
Let's first understand the meaning of negative interest rates.
the earliest and put the pieces together. In a recent
Consider you paying a fee for banks to hold on to your cash
interview the IMF Chief suggested that the situation is
deposits and banks paying you a fee to opt for loans.
feared to be more severe than 2007-09 sub-prime crisis.
About the author Seems weird! One would perhaps scratch his / her chin and
make an attempt to comprehend it, which for many is an
Siddharth Mahanty unfathomable concept! The underlying idea is to incentivize
Faculty and Senior Manager loaning & spending rather than saving and consuming.
Sir SorabjiPochkhanawala Bankers' Training College,
Mumbai, Maharashtra The next logical question is why would banks do it?

44 | 2020 | JUNE | BANKING FINANCE