Compendium Of Numbers

The sole reason one looks forward to the report is the RBI insights into the dynamics of the financial sector in the current year. Unfortunately, such insights are few and far between. The report has been reduced to a spot comparison of various aggregates in the last three quarters or so, with the corresponding period of the previous year.

No attempt seems to have gone into rationalising any of the trends, and particularly, reversals.

As a consequence, the twin-volume currency and finance report is reduced to a compendium of numbers.

For example, the report notes that monetary expansion in the current year (10.60 per cent in the period April 1, 1996, to January 17, 1997) was driven by strong growth in time deposits.

This is in contrast with the situation last year when increasing stock of currency with the public accounted for a large part of the increase in money supply, thereby reducing the impact of changes in monetary policy. The report however does not attempt explanations for the wild swings in the public preference for currency. Indeed, searching through the report to spot trends in interest-elasticity of bank deposits is likely to end in disappointment. In 1995-96, the investor refused to park money in bank deposits despite high nominal and real interest rates.

A maturity profile of bank deposits would come in most handy in establishing investor's preferences, both over time and the interest rate slabs. Unfortunately, the report has data only till March 1993.

The problem with a simple listing of numbers and the relationships between them is that it tends to be repetitive, without any leads. Commenting on fiscal developments in the current year, the report says that the degree of monetisation of the deficit (Rs 3,735 crore in April-December 1996) is lower than Rs 6,839 crore in the same period last year. Banks flush with deposits and facing a slack demand for credit have, per force, been attracted to gilt flotations.

Correspondingly, the amount of devolvements on the RBI have been lower. Despite significant recourse to borrowing through ad hoc treasury bills, the overall level of monetisation is lower.

The fact that the government has completed 96 per cent of its target borrowings for the year follows from the fact of funds-flush banks, and the relative ease in raising borrowings reflects in the lower devolvements and lesser montetisation. At one point however, the RBI makes a categoric assertion that due to the increased liquidity precipitated by successive cash reserve ratio cuts, there is pressure on banks to cut interest rates further.

However, available evidence points to the contrary: rather than cut back interest rates beyond a point where it would start hurting the bottom line, banks are looking forward to investing more in gilts and even the secondary stock markets.