Letters: No CRR cut impact

One wonders whether the cut in the cash reserve ratio (CRR) by the Reserve Bank of India is going to make any material change in the existing credit situation. In the quarterly review of developments, the central bank stated that the current credit slowdown largely indicates tepid demand conditions and distinctively lower credit expansion by public sector and foreign banks, partly reflecting their risk-aversion. Are the tepid demand conditions due to high interest rates, in which case a reduction thereof would have helped? The agriculture and export sectors are protected from interest rate changes due to subventions provided to banks by government. It is the industrial and service sectors that are mainly affected by changes. The big companies have been able to tap the commercial paper market on a large scale recently due to a fall in interest rates, besides accessing bank credit. It is the small and medium industries that have problems of credit, if one goes by anecdotal evidence. The increase in liquidity through the injection of Rs 175 billion is not a big deal for them. There are no detailed data available on credit conditions in the service sector.

A Seshan Mumbai

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