Ever wondered why the Indian banks pay you 8-9% on your domestic deposits (savings account) whereas when you take a education loan or a car loan you end up paying anywhere between 12-20%?
This has to do with the banking honchos nexus with the corporate lords. Today's senior bankers especially the heads of nationalized banks favor the corporate elite of India in their lending decisions even if it doesn't make the slightest of business sense. Take for example Mr. Vijay Mallya's extravagant entry into the aviation business, it was all over the news when it was launched in 2004 and he went to to such lengths to display extravagance and vulgarity that Mr. Mallya himself mentioned in a interview that he had spent much time in ensuring that the design of the attire of the airline air hostesses gave the perfect view when they bent to serve you your in-flight meal. Now at that time any common man who read the newspaper would believe that Mr. Mallya was foraying into the new business with his own money from his liquor empire. Unfortunately, as you would know today it is completely wrong. The aviation business was financed by the nationalized bank with the hard earned money deposited by the commoners of India. Banks like to finance businesses which involve significant amount of glamour floated by a well known corporate name and since most of the big financing decisions are taken by the big daddies of the Banks (CEO's) there seems to be certain amount of Veto power yielded in overriding internal controls in lending decisions.
But, what has this to do with the interest rates? For that we need to understand the concept of spread. Spread is basically what the banks earn through lending and borrowing. Bank borrow money from us (Our deposits) and pay us around 8%, they lend the same money to people for car /personal loans and charge interest of 14%, so basically spread is the money which the banks make in this process (14-8=6%). So how can banks make 6% by exchanging money and still quarrel with RBI to increase charges on ATM withdrawals and call themselves crippled if they do not charge the savings bank account holders at every given opportunity? To understand this we need to comeback to the business of Kingfisher airlines as the spread which the banks earns goes into financing the unicorns which the elite come up with. Today, Kingfisher airlines has failed and owes nearly Rs. 5000 crores in Debt. The lending banks have not taken a single action to recover this money and by the looks of it, these debts if not all at least some portion of it will be written off. (Which obviously the banks will earn back through the spread).
RBI has no strict control measures to drive banks to recover debts in a timely manner and has left to the discretion of the banks to manage their lending/borrowing decisions. The flaw in the regulation around bad debts and lending by commercial banks is what is driving high interest rates when the common man borrows, and it is also the factor which enables the rich to squander.
This whole setup enables passing back the losses to the commoner and finance the rich on their lavish endeavors. This scenario yet again proves the old adage 'the common man never has a say'
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