Can FM tell banks to cut interest rates?

Finance Minister P Chidambaram has asked PSU banks to keep rate hikes in abeyance. Hence, banks might have to roll back hikes that were announced recently.

Industry veteran N Vaghul believes that the finance minister is concerned about the higher interest rates scenario.

According to him, the finance minister's step is neither positive nor regressive. He feels that banks and the finance ministry need to find a middle path.

Excerpts of CNBC-TV18's exclusive interview with N Vaghul:

How would you read this? Given the realities of the market today, would you say it is a regressive step?

I have not seen this news item. But if what is said is true, then it is interesting to note that the finance ministry is concerned about the higher interest rate scenario. The Reserve Bank of India is concerned about inflation and banks are concerned about their net interest margin.

We had a period of two years where there was a happy convergence of these three factors but today there is a divergence. One cannot call it a regressive or a progressive step, but we have to find a center point in all these three points of difference and somehow work things out.

Can there be a center point; because the rates are hardening across the world, they probably need to harden in India as well? What can be a middle point for banks, do they raise rates or not?

I look at it not only from the point of view of someone who is connected with the banking industry but also as a person interested in economy. I had gone through this period of high interest rates in the mid-90s and have seen what damage it could do to the economy. I do not want this to happen again.

So, somehow, we have to work towards finding a solution to the problem. In a way, the ball has been thrown into the court, I do not think that we can just ignore it; we have to find solution to it.

All banks have businesses to run and they need to raise rates because of that. Does the government really have a right to step in and stop them from doing so?

I'm not sure of what the government had said as I haven't seen the facts. But I agree that the government cannot give a direction on this front for banks. It is mockery of autonomy.

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