Mr FM, managing banks is best left to bankers

Finance Minister P Chidambaram is at it again-micro-managing the business of banks.

According to media reports he has asked public sector banks to reduce interest rates on deposits, and in turn loan rates.

The minister had met chiefs of state-run banks on Thursday to take stock of banks’ performance regarding credit deployment, cost of funds, asset quality and capital requirement.

He even held a press conference after the meeting where he gave out minimum details of capital infusion and other issues.

He, however, kept his directive to banks out of the press conference’s preview, for obvious reasons.

Quoting bankers who attended the meeting, a report in Business Standard has said the finance minister wanted to know which banks were offering 9 percent or more for one-year deposits.

“Clearly, the message from the ministry is to have a control on costs, a pre-condition to reducing lending rates,” the report quoted a bank chairman as saying.

After failing to push the RBI to toe his line on cutting rates, Chidambaram now seems to be resorting to different tactics.

After all, his ultimate aim is to see a fall in interest rates.

But this is sure to have disastrous consequences on the business of banks, which are already reeling under the adverse impact of government interventions.

Loan rates are high not because deposit rates are high, but because banks are nursing huge bad loans, and need the extra spread over deposit rates to provide for them. And deposit rates are high because banks need resources to lend.

It would be better for the government to leave banks alone as far as running their business is concerned. Bankers should know how to run banks better than finance ministers.