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April 19, 2001
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Bankers, trade bodies welcome Credit Policy

BS Bureaus

Welcoming the Reserve Bank's Monetary and Credit Policy for the year 2001-02, leading bankers and trade bodies in Bombay on Thursday said that all these measures would improve the quality of assets in the banking industry with greater flexibility to the interest rate regime.

Just after the meeting on the policy with RBI Governor Bimal Jalan, bankers describing the policy statement said the 'comprehensive measures would lead Indian banks to a higher orbit of performance'.

Bankers cautious on policy measures

P S Shenoy, CMD of Bank of Baroda, said that the reduction in export credit rate will be met by better asset-liability management. He added that banks will have to reduce deposit rates for equivalent periods so that the drop in rates will not to affect the spreads.

He said that the proposed restrictions on urban co-operative banks will not lead to more business for public sector banks.

He also said that the increase in the interest rate of CRR to 6 per cent will boost the bottomline of banks.

R J Kamath, CMD of Canara Bank, opined that since there is a liquidity overhang in the system, any increase in export credit re-finance will not be of much use in the current scenario. Re-finance at 7% will not be of much significance, Kamath said, adding that short-term deposit rates are at lower levels. He also said that any impact on UCBs will not lead to any increase in business for other banks.

K Cherian Varghese, CMD of Corporation Bank, said that the move towards 90-day non-performing asset classification by 2004 is a significant move. The modalities of implementation of higher deposit rates for senior citizens' deposits will have to be examined in a more detailed manner, he added.

Punjab National Bank chairman S S Kohli said that the policy statement had hinted at a gradual reduction in PLR and other bank lending rates and this trend could be seen in the next fortnight. The rationalisation of export refinance would also boost demands for bank finance from the exporting community.

Appreciating RBI's action against the co-operative banks, analysts said that these measures were imperative in light of the recent scam in stock market where a couple of co-operative banks indulged in unethical practices.

"It was inevitable" said A G Joshi, chairman of Dena Bank.

J P Morgan vice president Ashish Pitale said that the policy basically addressed various structural issues related to the financial markets and indicated towards softening of interest rates amidst comfortable liquidity in the system.

Commenting on the RBI's Credit Policy, the Confederation of Indian Industry president Arun Bharat Ram welcomed the balanced approach of the RBI in tackling the current market situation.

The RBI Governor has rightly acknowledged the fact that the money as well as the government securities markets have functioned normally and there has been no reduction in market liquidity in spite of some cases of payment delays and defaults, he added.

The CII president welcomed the measures announced to strengthen the prudential measures for urban cooperative banks.

While these measures were particularly important in the light of recent developments, the CII president was of the opinion that there was a need to build enough expertise within the urban cooperative banks before they participate in the market indirectly through loans / advances to brokers.

The proposal to form a new supervisory structure for UCBs under the control of a separate high level supervisory board consisting of representatives of the Central Government, State governments, RBI and other experts, could be a step in the right direction, Bharat Ram stated.

The move to rationalise interest rates on export credit, the CII president said would introduce healthy competition and provide exporters a greater choice to avail of banking services in terms of interest rate, quality of service and transaction costs.

This would give a further boost to exports and help in removing the bottlenecks faced by exporters, he added.

Further flexibility to banks for lending below the PLR for exporters and other credit worthy borrowers were in line with international practices.

The CII president also welcomed the setting up of seven more debt recovery tribunals as announced in the Union budget proposals. This would facilitate quick recovery of dues from borrowers and also reduce the NPA levels, he said. In fact, the other measures such as the development of government securities market and for encouraging asset securitisation would complement the budget announcements.

The emphasis on technology upgradation for the banking system, the CII president added was welcome and would go a long way in strengthening financial system infrastructure in the country.

All India Association of Industries president Vijay Kalantri said that the RBI governor had struck a delicate balance by deferring guidelines on exposure of banks to stock market while initiating measures to reduce interest rates on export credit to carry forward reforms.

The policy has given a clean chit to the nationalised banks, contending that exposure of banks in capital markets continues to be modest. But this did not underscore the fact that stock markets were badly mauled by the collusion of bankers and brokers, Kalantri said.

He however, described the rationalisation of interest rates on export credit as a step in the right direction. Regarding the interest rate regime, Jalan desisted from making any sudden departure from the present stable environment, he added.

Terming Thursday's Credit Policy as 'bold', Federation of Indian Chambers of Commerce and Industry president Chirayu Amin said RBI's decision of allowing banks to lend at lower than PLR to select borrowers should help bring down the entire lending rate structure.

"This also aligns with the basic stance of the credit policy for providing adequate liquidity to support revival of the industry," he said, adding RBI's indication of further softening of rates during the year would help the industry.

Assocham president Raghu Mody said RBI's intention should have been matched by lowering of bank rate by at least one per cent and a further reduction in export credit rate viewing the current economic slowdown.

Pradeep Srivastav, chief economist, National Institute of Applied Economic Research, New Delhi:

"The RBI is clearly not trying to jumpstart the economy using monetary policy as the lever. Basically, the policy is staying on course and being watchful.

"The rupee's movement will be closely watched if they are to consider any monetary tightening. All in all, the policy's thrust seems to continue the course and be watchful for developments on the external front."

Kamal Sen, economist, BNP Paribas, Bombay:

"The policy is pretty much in line with expectations. They have shown a willingness to lower rates in the long run. We are looking forward to a lowering given the current environment. Most of what was expected has happened."

Vasan Sridharan, regional economist, Standrad Chartered Bank, Singapore:

"The RBI's monetary policy is intended to make available cheaper funds for industry and help the government's budget proposals bite deeper. The central bank is keeping the door open for further rate cuts in case global financial market conditions permit it to ease policy.

"Inflation seems to be the least of the worries for the RBI at this point. The risk of the economic slowdown outweighs that of inflation."

Mahesh Vyas, executive director at independent think-thank Centre for Monitoring the Indian Economy, Bombay:

"The 6-6.5 per cent real GDP growth seems to be quite a realistic forecast. As the central bank has noted the industrial outlook for 2001-02 is uncertain, but there is expectation of a rebound of the agricultural sector which has been down for the past two years.

"I did not expect any changes in the interest rates till the small savings interest changes were cleared by Parliament because that is the sticky part.

"The 5 per cent inflation projection is also quite okay."

Additional inputs: Reuters, UNI, PTI

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Monetary & Credit Policy 2001-2002 (First Half)


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