Tinkering with figures

 Inflation is rising and would continue to rise for the next one year, the Reserve Bank of India (RBI) says in the latest monetary policy review but refuses to increase the lending rate. The policy rates remain unchanged for the third time this year in the bi-monthly monetary policy announced on December 4. The repo rate remains at 4 per cent. The reverse repo rate, the rate at which the RBI gets funds from banks, stands unchanged at 3.35 per cent. RBI governor Shaktikanta Das said that it is an “accommodative stance”. Keeping the rates low may be a “good accommodative gesture” for those who take large loans and are responsible for the poor health of banks. The public sector banks are not in the pink of their health, despite repeated mergers. The large outages due to high lending and poor repayments have put the banking sector in distress. It cannot be about having lending rates steady Equated Monthly Instalments (EMIs) for home, auto or personal loan. Rate tinkering is always small but that gives the signal of difficult situation. The larger concern is seemingly that of corporate, who do not want any rise in lending rates as the banks of late have been tightening their purses for them in the wake of high Non Performing Assets (NPAs), unfortunately from the large companies. The inflation touched a six-year high in October at 7.61 percent. Inflation rate even at 6.8 percent, projected almost a year ahead is also beyond the RBI tolerance rate. Das, however, does not mention why the policy rates should remain low. It seems he is giving the large businesses a signal that for the next one year there would not be any change in rates. Banks are losing almost on all operations, including ATM operations and losses due to digital transactions. The only positive is the interest earnings. This too has been cut by the RBI leading the banks to incur losses continuously leading to poorly manned banks and customer services. Low lending rates on daily basis facilitate immoral practices at virtually no cost. The public sector banks slip into losses and it is tried to be covered up through mergers. Whether it disguises many critical crises or not, are matters of probe. In such situation, how all the six members of the Monetary Policy Committee unanimously vote is beyond comprehension. It should have ensued a proper discussion and not to continue with the accommodative stance of monetary policy as long as necessary- at least through the current financial year and into the next year -to revive growth on a durable basis and mitigate the impact of covid19, while ensuring that inflation remains within the target going forward. They know it well that for the next one year the chance of remaining it contained is virtually not possible. The RBI must have its own assessment but it should have listened to the Moody’s Investors Service warnings about the banking sector in Asia and particularly in India. It warns of fall in investments in India and Sri Lanka affecting the capacity of banks to extend loans. The Fitch rating agency says consumer spending to reduce by 12.6 percent. The Standard & Poor’s(S&P) also does not project a very promising picture. Amid such scenario the RBI decision is fraught with risk for the banking sector and the economy as a whole.