RBI may revise ceiling on ECBs

RUN-UP TO THE MONETARY POLICY

In the run-up to the RBI Monetary Policy Review on April 24, a cross-section of banking sector experts share their views on what the policy needs to address.

What are the key issues being addressed by the RBI?

Inflation, which is expected to remain around 6 per cent in 2007-08, and runaway capital inflows remain primary concerns for the RBI. To tackle inflation, the RBI may increase the repo rate in a small dose but keep the reverse repo and the bank rate unchanged.

The cash reserve ratio (CRR) is also a relevant tool, the use of which would depend on the extent of money supply. To contain capital flows, the RBI may stipulate some conditions to ensure overseas borrowings do not increase money supply, besides considering a revision in the ceiling on external commercial borrowings (ECBs).

What are the steps likely to be taken by the bank to deal with flow of funds to sensitive sectors like commercial real estate and capital market?

Banks have already reported some slowing in the overall credit growth. But if the Reserve Bank of India finds that fund flow to sensitive sectors remains at higher levels, then some steps like further increase in risk weightage may be in order.

Do you expect the RBI to react to the sharp increase in banks' recourse to high cost, short-term bulk deposits to finance loan book expansion?

Though the RBI does not administer interest rates any longer, the central bank may raise concerns in its policy statement since it directly impacts asset-liability management. There might also be enhanced monitoring of recourse to such funds.