FM talks of higher rates for fixed savings

Finance Minister P Chidambaram has stressed on the need to increase the rate of fixed assets savings. He has also announced that C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, is looking into the issue of mismatch between the deposit rate and the lending rate.

Saying that higher investments in fixed assets will directly affect the banking and the agriculture sectors, the minister said: "We need to look at what is discouraging people from saving in financial assets and analyse the impact of administered interest rates in some areas."

Chidambaram was speaking at the release of a book, "India's Financial Sector -- Recent Reforms, Future Challenges", edited by Priya Basu, lead financial specialist at the World Bank.

He disagreed with the view that the Indian banking system was affected by a weak credit culture. Indian banking was intrinsically strong and had reduced the level of non-performing assets, he asserted.

On financial sector reforms, he said that there was much to be done but one had to negotiate through the political and economic systems. Referring to the recommendations in the book made by Raghuram Rajan, chief economist at the International Monetary Fund, and Ajay Shah, consultant finance ministry, Chidambaram said their suggestions on banking reforms were impractical.

Rajan and Shah had recommended that the pay scales in the public sector banks should be freed and government should not interfere in lending and promotion decisions.

They further suggested that government holdings in public sector banks should be put equally in 10 separate funds and the fund manager of each fund should manage the portfolio to maximise returns.

According to them, fund managers who hold out against political pressures are likely to perform best and it will be hard for the government to fire such managers.

In response to a report on Intel dropping its plans to set up a wafer testing facility in India in the absence of tax benefits, Chidambaram said that he had not received any proposal.

Praising the working of the Indian rural banks, the minister pointed out that their recovery rate was 98 per cent.