Jalan Allays Fears Over Moody'S Downgrading
In an attempt to restore confidence among the business community, the Reserve Bank of India (RBI) governor, Bimal Jalan, said on Saturday that there was no need to be alarmed by the impact of Moody's downgrade of the sovereign rating, especially on infrastructure projects. "If your infrastructure project is hit by sanctions, please approach the domestic financial institutions, they will help you," he said at a meeting of the Indian Merchant's Chamber here.
Concurring that banks will not be able to lend their funds for equity of infrastructure projects, he said financial institutions will be able to provide assistance for such projects since they had the suitable investible resources. Banks, on the other hand, cannot afford to expose their unsecured public deposits carrying fixed interest rates to undue risks, he added.
On the issue of exports, he said, it was difficult to further bring down the interest rate on export credit by banks. However, RBI had directed banks and exporters to thrash out a viable solution. The apex bank would also extend support where it could, he reassured.
The rising inflation rate was a temporary phenomenon due to the rise in prices of vegetables and fruits, which should abate with a good monsoon, he said. Jalan warned against self-feeding panic and said, "economic activity is no exception to the phenomenon of self-fulfilling prophecy...therefore, I request you to nurse a robust confidence in our country's future." The IMC president, Y P Trivedi, submitted various proposals to enhance the flow of funds into the vital area of infrastructure. He suggested that the central bank should encourage venture capital funds so that projects languishing from lack of equity can reach financial closure.
The cash reserve ratio and the statutory liquidity ratio should be further reduced in order to pressurise banks into augmenting credit delivery, he said.
He also suggested that the ceiling on bank advances against demat shares be further raised and banks be allowed to put in five per cent of their lendable resources in new infrastructure projects. Among other suggestions, he has submitted that pension, insurance and provident funds should be allowed to invest 5-10 per cent of their accumulated resources in equities of government-sponsored or sound private sector infrastructure projects.