All Measures Taken

Chief Financial Officer,

Larsen & Toubro Ltd

The credit policy has taken all the possible measures on the monetary front to spur the economy by reducing the bank rate and the CRR, while banking on a recovery in GDP growth.

However, the lower interest rate regime suggested by these measures would pose a dilemma for banks especially on deposit rates.

Deposit growth has been around 12 per cent in the last 2 years which is much lower than the average growth rate of over 18 per cent in the preceding three years (FY99-FY01).

This is worrisome as a major source of funds for banks has not been growing at a rapid rate. This in turn could constrain banks from lending which can have a reverse upward effect on interest rates during the course of the year if the economy behaves as has been assumed by the policy.

 

I would be still a bit cautious on the inflation front. Inflation by the

end of fiscal 2003 had crossed 6.2 per cent and while the contribution of fuel prices has been highlighted, we have missed out on the 4.8 per cent rise seen in prices of manufactured products.

This segment needs to be watched in the current year Further, given the uncertainty surrounding fuel prices in future, which will depend a lot on the decisions taken by OPEC, there could be some inflationary pressure on this end too.

A positive feature that I see in this policy is the focus given on infrastructure. The RBI has sought to relax certain regulatory and prudential aspects for such finance so as to allow banks to increase their credit to this sector.

By assigning a concessional risk weight of 50 per cent on investment in securitised paper satisfying conditions pertaining to infrastructure activity, we can expect a flurry of activity in this segment.

The RBI