IndusInd Bank No one can doubt the relevance of the issues upon which the Reserve Bank of India (RBI) has touched in its annual policy statement for 2005-06.
Their importance and urgency have been clearly recognised in the statement. However, the RBI somehow seems to have held itself back from full delivery on the issues.
To use one-day cricket jargon, it is almost as though RBI has preferred to play a defensive game during the slog overs, despite having all the wickets in hand.
The beginning was exciting, with the announcement of an increase in the Reverse Repo rate by 25 bps.
This was largely expected, and reflected Governor Reddy's delivery style (he seems to enjoy catching the market on the wrong foot!).
With the US interest rates likely to continue their upward movement by an additional 100 bps or so, the increase in the Reverse Repo rate has merit "" all the more so as a mechanism to contain inflationary pressures arising out of high oil prices.
Then again, the Policy Statement touches upon the need for change in credit delivery mechanisms, priority-sector loan eligibility, and lending rate de-regulation, but then goes no further.
Lending methods remain overwhelmingly oriented towards the manufacturing sector, even though the services sector now contributes nearly twice as much to the country's GDP.
The encouragement expected for superior methods of working capital finance "" particularly in respect of bills of exchange (which are self-liquidating, with a clear indication of end-use and recourse to two parties, besides being legally enforceable documents in themselves) "" has not materialised.
The Medium Enterprise sector "" for long a major sufferer, being denied the benefits allowed to SSIs and yet being too small to enjoy the advantages available to large units "" has been mentioned in the Policy Statement, but no specific guidelines announced to facilitate the flow of bank finance to it.
In respect of bank deposits, the focus in the statement is more on service quality issues (which are certainly required) and less on issues of safety and returns (which are arguably even more important).
Also, in respect of the call money market, it is not clear how the exclusion of mutual funds and financial institutions will really help, as it would only strengthen the position of lenders.
Potential borrowers would in any case not risk keeping large positions open with a reduction in the number of market participants.
