Reformist government of the Congress pushed the banks to reduce interest rates. Being the owner of the banks, it may be within their powers and authority to 'order' banks. But a point to note that such orders don't look good in the market place when compared to the 'signals' given by the central bankers. Especially when the central bankers have followed a long drawn strategy of cautious movement and strict money management with tight control on the liquidity in the economy for a last couple of years, the government intervention cannot be taken lightly.

However, the things are to be seen in light of what Manmohan did in 1990s. In late 90s the banks lost their balance sheet sizes to new rules and regulations making taxpayers by way of recapitalisation of expenses. This is all to be seen in the context of the uncertain times in which we are trying to survive along with our financial system. As of now, everybody is sure of growth in loan defaults in domestic economy. With this background in mind the question becomes imperative that who will pay for the growth in non-performing assets of the banks. Typically, the public sector banks work on higher spreads – the difference between the rate of borrowing and rate of lending. But this may not help if the non-performing assets loom large.

At the same time, there are little options the public sector banks have if we keep aside the sovereign guarantee, of course, that too mean helpless taxpayers' money. The private sector banks have efficient treasury systems and have got access to foreign capital, which are not available with their public sector counterparts. On one hand, protagonist politicians talk operational freedom but act otherwise. If at all a administrator comes out with all these issues and still manage to think beyond the boundaries there are labour unions active to kill the management desire to progress.
 
There is a need to identify a transparent system in the banking system where the balance sheets of the banks – either public or private – disclose as much as possible and help understand the stress situations. Instead of making everybody fall in line to the wishes of the 'owners', the owners should be made aware of what is to be wished for or what too expect for.

There is a need is a need to find out mechanism such as MIBOR linked movement of rate of interest, which will also provide a respite to the borrowers when the rate of interest falls. Instead of making it an arbitrary act, it should have some transparency. Of course, some would question independence of the underlying variable – such as MIBOR as there is always a scope for manipulation.

The last thing the bankers are thinking of the 'rate of interest' on fixed deposits. On the one hand the government is asking them to reduce the interest rates, but what if the government asks to maintain the fixed deposits rates? This is not a billion dollar question.... as billion dollars can be earned over a long period of time. (ask Americans, they would say it is a time of fraction of minute as 700 billion dollars packages are announced in an hours time). But this question is of survival. The double blow may lead to crash of few banks.