Mpbf Removal To Improve Bank Flexibility

The interest rate cut on domestic term deposits from 30 days upto one year from 11 to 9 per cent is a welcome measure and its linking with the bank rate ensures that it does not have to be revised each time the bank rate is reduced.

It is specially good for corporates like us which have to borrow frequently for setting up new units or for new projects. The PLR should come down by around half per cent for a start and should reduce by at least one per cent later.

The move to make formation of consortiums non-obligatory and allowing banks to form syndicates instead, will make borrowing easier for corporates. Earlier, you had to convince all banks in the consortium of your credit worthiness. Now, you can deal with and convince only one bank.

 

The removal of maximum permissible bank finance (MPBF) will improve the flexibility to banks. The lending will now be more asset based instead of being based on conservative norms.

One irritant in the policy is the move to increase the loan component from 75 to 80 per cent. We did not like it as corporates need flexibility in their working capital plans and need finance for various projects. This hampers our freedom and particularly in cyclic industries, the company cannot tie up funds.

The move to allow banks to invest upto five per cent of their incremental deposits during the previous year in shares of corporates will boost the capital market. Allowing conversion of rupee liabilities into forex liabilities was expected by the industry.

The lowering of interest rate on domestic term deposits with a maturity of 30 days and upto one year is good but we also expected the time limit itself to be brought down to 15 days. This would have given us a parking avenue for the funds available to us for short periods.

The post shipment export credit limit of 13 per cent on export credit upto 90 days is good. Banks are ready to lend at lower rates to sound companies and this measure will benefit such companies. However, we wanted the restoration of cash credit limit for 90 days. It means that we will have to go to banks again after 30 days.