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The monkey and the cats reversed

Wednesday, March 07, 2018

Recall the story of a monkey dividing a loaf of bread between two cats and eating it all? But in the banking scenario, we have individuals as the monkey, and farmers and industrialists as the cats. Frauds and write-offs to both the cats come from taxpaying individual monkeys who immediately find their interest rates sagging and additional charges levied. Many solutions have been suggested, including re-privatising banks. The real solution lies in preventing cross subsidies. All nationalised banks and SBI must be split into three independent entities with no common ownership, holding company pattern, or Directors. There will be a Rural Banking Entity, a Corporate Banking Entity and a Retail Banking Entity. All branches in rural places will finance agriculture and other rural activities from deposits received only from rural areas and those who claim to have agricultural income. The Corporate Bank will receive only corporate deposits and finance industry. Retail Banks will receive deposits only from individuals in non-rural areas and give loans only to individuals for house, vehicle, education etc. Then let’s see whether each segment can sustain itself, accept the interest rates they get for deposits and pay the interest rates they are charged. If it is not viable to open three segments of each present bank, then merge them to make it viable. Then watch the fun. Tell each segment to maintain the stipulated credit deposit ratio, and that write-offs will come from their deposits. In fact, we can stretch this idea even to the taxes paid. Rural areas will get funds only from taxes collected from those areas.  Let us also have a special income tax levied for purchase of houses, cars, foreign travel, and precious metals/jewellery. This can be set off against any other income tax paid during the year. So genuine taxpayers will not be affected.

— T.R. Ramaswami, Kandivali

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