Special Correspondent

Says there is no shortage of liquidity

KOCHI: State general secretary of the Bank Employees Federation of India (BEFI) K.V. George has said that the recent steps by the Reserve Bank of India (RBI) to stabilise the economy are in fact meant to bail out the stock markets.

He said these steps, which were in fact copies of the U.S. government’s $700 billion bail-out for Wall Street, would only lead to economic recession in the country.

He pointed out that the RBI’s reduction of the reserve ratio and repo rate would infuse some Rs.2 lakh crore worth of liquidity into the money market. But, this was an unnecessary step as there was no liquidity shortage in the money market. The step would only help prop up Dalal Street and some new-generation private banks.

Mr. George noted that the banking system in the country was flush with funds and most banks had received huge deposits in the recent weeks because of the increase in the rate of interest on deposits. Moreover, following the depreciation of the value of the rupee, NRI remittances were flooding the banks. A large number of bank branches had already crossed their annual deposit targets two month ahead of the year-end closure. This showed that there was no shortage of liquidity in the banking system.

He said the strategy to infuse money into the economy by cutting interest rates would not work now because of the prevailing uncertainty in the wake of the global crisis. People were reluctant to borrow now.

Moreover, there was a fall in the demand for home loans and vehicle loans as these loans had already peaked, the union leader said.

Mr. George said RBI’s claim that pumping in Rs.2 lakh crore was to back up the country’s industrial and commercial development was totally baseless. It would only bolster the stock markets in the short run; but, in the long run, it would trigger recession and cause a lot of hardship to the people, Mr. George warned.