THE state-owned Janata Bank is planning to lower lending rates to single digit in 2016 to bring spur to investment by expansion of private sector credit at a time the banks are sitting with huge liquidity in hand. The other target to reduce the lending rate is to hold back local business houses from going to global banking system for low cost loans at almost half of the interest charged by local banks. High lending rates is invariably allowing spill over of idle cash in banks in absence of demand for investment in one hand and causing long stagnation to business on the other. This in turn is slowing down in new job creation and income generation for common people. The Bank of Japan has recently ruled that banks must stop holding idle cash; which would be charged with negative interest. Countries like Sweden, Denmark and Switzerland are also charging negative interest on banks to discourage holding excess cash without investment. They are also fighting economic stagnation, however sitting on a higher level of development. Meanwhile as it appears the switching of big corporate borrowers to global banking is causing big setback to the local banking sector poising big threat to local banks in term of losing both investment business and clients who were so far the driving force in charting out business expansion in newer areas. The country has more than 56 banks with other non-banking financial institutions and as per experts they are not sustainable by the very size of the economy where around a dozen banks could do better. These banks are partly sick with huge stuck up loans and also because of huge cash without much new investment due to high lending rates. The decision of Janata Bank to lower the lending rates to single digit is a welcoming step and we hope that other banks would take similar action to start with new business development plans. They must decide whether charging higher interest on term loan, which was over 16 percent in recent past is good or lowering of interest to encourage investors to go for more borrowing is good for them. Janata Bank officials have been quoted as saying they have already started slashing the rates and will continue it step by step. It is really encouraging that many commercial banks have also pulled down lending rates in recent times to 13 percent and in some cases down to 10 percent. Banks are also drastically reducing interest on deposits however making marginal savers worst affected by the move. It appears that saving money in banks is going to be discouraged to put them to investment. Economists have welcomed reducing lending rates as a significant development but equally laid emphasis on removing political uncertainty and other risk factors to business. They say gas and electricity connection must be easily available and law and order situation must improve.
