Govt's cheap loan plan can have adverse effect: RBI deputy governor KC Chakrabarty

Govt's cheap loan plan can have adverse effect
Even as government plans to shore up demand through lower rates of interest for auto and consumer loans, senior-most RBI Deputy Governor K C Chakrabarty said this can have an adverse impact on their asset quality as "no one can force" lenders to selectively cut rates.

"You cannot lure the people (to buy goods) by lowering interest rates. If interest rate goes up, then they will suffer. If they have the requirement of the asset then only they will pay back," he told reporters on the sidelines of a conference.

"It is not a very prudent measure to increase consumption by lowering interest rates. If the rate goes up it will become NPA," he told students of a leading business school here earlier, alluding to the US sub-prime crisis wherein a lot of delinquencies were observed in mortgage loans which ultimately led to global credit crisis of 2008-09.

Asked if it is impractical to implement such a scheme, the Deputy Governor answered in the affirmative, saying there is no such 'scheme' as yet.

Dion Global Solutions Ltd.

Story first published: Monday, October 7, 2013, 9:13 [IST]
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