Confusion

MID-TERM REVIEW OF ANNUAL POLICY 2004-05/ GUEST WRITERS: O N SINGH

O N Singh

The credit policy talks of enhancing credit flow to the housing segment as priority sector. It has also enhanced risk weight for loans disbursed to the segment. These seem to be contradictory announcements.

On one hand, RBI has allowed banks, with the approval of their boards, to extend direct finance to the housing sector up to Rs 15 lakh, irrespective of location, as part of their priority sector lending.

On the other, it has also increased risk weight on credit disbursed to the sector to 75 per cent. While the first measure would provide a fillip to the loans disbursed to the segment, the second would act as a dampener.

"This contradiction needs to be clarified by the central bank, which I am sure will come in the next few days".