The data that you have shared suggests that the issue is systemic and sooner or later other banks would also hit the wall w.r.t CD Ratio. HDFC Bank has merely acted as the canary of the mines due to its merger
Reminds me of Andrew Lo’s quote in the book – Adaptive Market “Government is a source of systemic risk”
Let me elaborate, in a country where the real inflation is way above the official one, tax on Fixed deposits or Recurring Deposits never made sense when the interest fetched by such instruments were too low.
In fact, taxing Recurring Deposits itself shows that RBI/FM is not aware of the utility of the product. Recurring Deposits are a form of compulsory savings and encourage individuals to save periodically. They do not earn the kind of interest as in FDs. By taxing them, you are effectively discouraging the public and telling them to go find some other avenues.
Why would anyone put their money in bank to allow the Govt to tax whatever peanuts (Interest minus Inflation) they got from their deposits.
By stating that Banks should think outside the box, RBI is merely passing the buck instead of suggesting correction in Taxation norms for such banking products.
RBI, Finance Ministry are at the moment disconnected from reality. Lets see how the things pan out.
Thank you all for your comments/posts/feedback. … this is what Valupickr forum is all about – all your thesis and anti-thesis related discussions in one page and it goes on …and on …enlightening all of us.
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