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Showing posts from 2014

Interest rate reduction - a myth

A lot has been written about the impact of interest rate reduction on growth. I think the noise is a result of a mis-understanding of basics. Economic growth is an extension of demand generation. A project's viability depends on whether the goods produced can be sold, and of course at what cost. While computing the cost of goods for the manufacturer, interest component plays a much smaller role as compared to other costs viz. raw material, labour, fuel etc etc If the cost is 100, raw material may be 70 %, labour may be 5 %, power and fuel may be 5 % and other manufacturing costs may contribute another 5%. Suppose the financial costs are also 5 % of total costs, a reduction in 1 % in the interest cost may result in saving of 0.40 % to 0.45 % app. Though this may add to the profits of the manufacturer, it definitely cannot be the guiding factor for the manufacturer to decide as to whether the project per se should be established or not. Therefore to say that a reduction in interest ...
I earn my living as a professional Banker. In fact sometimes I wonder that I do not know anything except for Banking and if I have to make a living through some other means or trade or vocation, I'll probably die hungry. Not that I know everything about Banking. In my 34 years of experience in Banking industry, I have found that this is the most mis-understood subject. Persons or professionals, who may know Accountancy, try to pass off as Bankers. So that brings me to the real issue. Accountancy and Banking are entirely different. In our schools and colleges and professional courses, we teach accountancy but don't teach Banking. In life every activity, be it manufacturing or trade or services or profession or for that matter pure household work, gets converted into money at the end, and everybody has to deal with a Bank. So it is extremely important for everybody, whatever he or she is doing in life, to learn elements of Banking. Our education system does not take care of th...