A Deft Statement

President and CFO,

Indian Rayon & Industries

Overall, the credit policy presented by the Reserve Bank of India governor is a good one. To start with, a cut of 0.25 percentage points in the bank rate and 0.25 percentage cut in CRR are welcome steps and in line with expectations considering the present rise in inflation and the uncertainty of monsoons.

The promise to keep it stable up to October 2003 is worth appreciating. It will help in containing volatility and bring in stability to interest rates.

Giving housing loans upto Rs 10 lakh in rural semi-urban areas, status of priority sector lending and the relaxation in regulatory and prudential aspects to infrastructure financing should help in infrastructure development.

 

Reporting of call/notice money market transactions on NDS platform and the introduction of new OTC rupee derivatives, general permission of overseas investment by mutual funds after Sebi approval, forward cover for inflows under FDI and cross currency forward cover for FCNR deposits are some of the other salutary moves.

By permitting the guarantee for CP issued by non-banking entities, having lower rating than the guarantor, the CP market will be further activated and low-rated entities will find it easier to raise short-term funds.

The rationale for the proposal to discontinue tenor-based PLR and instead inclusion of the cost of premia depending on the cost of funds and risk perception of the borrower in the spread will not change the position substantially.

While the policy says that cost of borrowings is relevant for deciding PLR, it ignores that cost of borrowings rises with the tenor of deposit and lending.

The increasing restriction on non-banks