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This refers to the editorial `A question of spreads' (Business Line, June 12). The banks fall back on retail business such as consumer and housing loans for the sake of higher income. As the spread is substantially narrowed, banks are forced to concentrate on larger incomes.

As the political scenario, especially with regard to border tensions, is likely to change, the Reserve Bank of India can swiftly act on its April 29 promise of cutting the bank rate by 50 percentage points. As pointed out, the banks cannot merely depend on treasury incomes by setting aside the loans and advances portfolio. Though the credit take-off may pick up in October, it may not bring in much income, as the `market interest rates' are low. The heavy influx of NPAs further lowers the profitability.

Hence one cannot blame the banks for giving more thrust to retail loans, where the interest rates are relatively high. The proposed second dose of VRS may cut the costs of banks, but without proper plans for redeployment of the remaining employees, it may prove a futile effort. Banks may witness a tough phase for the next two-three years.

C. P. Velayudhan Nair

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