Skewed credit flow

Apropos ‘Credit balance’ (December 13), no lender would like to have credit flow skewed towards a few industries or some section of borrowers. So yes, a more balanced credit flow would augur well for both lenders as well as the economy in general. Growth in unsecured loans like personal loans and credit cards can definitely cause more than a few troubles for lenders because sectors like IT are witnessing a lot of volatility. Hopefully, lenders are exercising all due diligence in this segment of lending. If sectors like sugar, textiles, gems, food and processing have shown credit decline, then it is a sign of worry too. And this strong growth of credit is not the true reflection of credit in our economy. So it would be better if the government looked closely into these sectors where actual de-growth has taken place, and take some action to revive growth to balance out the overall situation.

Bal Govind

Noida

Step up due diligence

Notwithstanding the partial transmission of the monetary policy rate through a hike in lending rates across the banking system, the demand for credit is still expanding. High credit growth in sectors like credit card dues and personal loans are riskier on account of the lack of collateral against the outstanding exposures. Infrastructure-related projects generally have long gestation and skewing credit deployment to those projects will disturb the equilibrium between assets and liabilities.

While banks are not fully out of the consequences of such type of credit deployment, they need to be extra prudent in all spheres of credit creation and monitoring to prevent further deterioration in the quality of the assets. The likelihood of increasing default risk is in the vicinity due to the emerging threat of increasing interest rates and the flow of capital toward higher returns.

VSK Pillai

Changanacherry, Kerala

Strong dollar

This refers to the Finance Minister’s statement in Parliament on rising forex FDI/FPI inflows to prevent a fall in the value of rupee against the dollar. While it is a fact that rupee-dollar exchange rate primarily revolves around forex inflows into India, at the global level there are some key reasons that contribute to the strengthening of dollar against various currencies — tight monetary policy pursued by the US Fed through frequent rate hikes and the dollar being a chosen invoicing currency in global trade. These apart, an overwhelming majority of forex market transactions are dealt in the dollar.

Srinivasan Velamur

Chennai

Easing of inflation

While the steep contraction in industrial growth in October is a matter of concern, the significant decline in retail inflation in November falling below the upper tolerance limit set by RBI, as expected, has brought some cheer, though the decrease is mainly due to a seasonal decline in food prices. The fall in IIP is an indication of slowing growth and may trigger a further revision downward of GDP growth projections for the current fiscal.

A quick policy intervention from the government may be in order to boost the manufacturing sector, in the face of the continuing volatile international situation. The fact that retail inflation has declined below 6 per cent cannot allow any complacency and the tightening measures by the RBI through monetary policy may need to be continued, as the core inflation remains above the tolerance limit.

Kosaraju Chandramouli

Hyderabad