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The Finance Minister's justification for intervening on bank rate hikes is not logical.

The Government, merely by being the owner, cannot claim the right to intervene in the day-to-day management of banks.

The need to separate ownership and management was articulated many decades ago by several prominent management thinkers.

The Finance Minister's ill-advised intervention merely proves that point. The intervention is also unjustified for another reason.

Banks' spread on investments in gilts has now topped 2.9 per cent even for five-year gilts. If a risk-free investment fetches 2.9 per cent, bankers would obviously demand more from riskier loans.

If the Finance Minister, after having allowed the RBI to set the pace on the economy's interest rates, forces down spreads on riskier loan classes, bankers will have no option but to cut down on lending and invest more in gilts.

That would slow economic growth. This is what the Minister wants to avoid but is precisely what he will get.

There are no free lunches and our ministers have always learnt it the hard way.

Suresh Krishnamurthy

Chennai

Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in

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