Banks, particularly public sector banks seem reluctant to increase interest rates on housing loans in tune with market rates out of fear that higher rates may lead to increased defaults on EMIs. Instead, the banks try to safeguard their margin by reducing interest on deposits.

This is nothing but penalising an important segment, namely ‘depositors’, and is devoid of sound economic logic as well.

Considering that housing stocks have recorded phenomenal appreciation in value over the last three to four years, besides benefiting from various IT concessions, the housing sector can afford to pay higher interest rates.

Banks should also go by the principle that ‘those who gain more should pay more’.

This is necessary to serve the interests of depositors, as they are the ultimate contributors of funds to the banks.

It is their interests that should be taken care of when inflation eats into the real value of money and results in capital erosion over time.

V. Ramasubramanian Chennai

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