Rbi Tells Banks To Alter Credit Budget Focus

The Reserve Bank of India (RBI) has directed all commercial banks to alter the focus in their credit budget, and highlight subjects like asset liability management instead of merely the qualitative credit aspects as was the practice till date.

A recent RBI circular said that the shift in focus is required because of the changes announced in the monetary and credit policy in April 1997 and the new information needs thereof.

Banks usually prepare detailed credit budgets after the monetary and credit policy is announced for the first half of the financial year. Discussions are then held between the RBI and the respective banks on these credit budgets. This year, while discussing the credit budgets of banks, RBI will focus on resource management of banks which would have implications for monetary management, said the circular sent by RBI.

 

The format on the basis of which discussions will be held has also been simplified and rationalised by RBI. This is to aid RBI in collecting up to date quantitative information on banking aspects, get qualitative assessments and evolve a mechanism for regular monitoring of performance indicators.

The circular from RBI, however, said that the changes in the format are exploratory in nature, and may be altered depending on discussions and feedback from the banks. RBI has also directed banks to prepare the statements for fiscal 1997-98 after considering the projections of broad monetary and banking aggregates and the monetary policy measures announced by the RBI Governor.

The central bank has also asked for details of banks which will help them in qualitative assessment. Discussions will be held with banks on qualitative aspects of a banks performance, outlook and risk perceptions.

As part of the simplification and reorientation exercise, a statement on performance indicators has been devised by RBI, and banks have been instructed to provide this to the apex bank on a monthly basis. This information system will help monitor the asset liability structure, risk perceptions as well as the overall bank performance. This information bank is also meant to act as a guidepost for action by banks.

The central bank feels that banks would be better equipped as a result of these moves to detect deviations in major parameters, and initiate necessary corrective measures as and when required.

The RBI will also encourage banks to promptly report any significant deviations that may occur in the major variables.

The critical parameters and the criteria for significant deviations will, however, vary from bank to bank and each bank will be notified about the specifics when discussions take place.

Banks have been urged to submit all the relevant information regarding resource management for 1997-98 to RBI as soon as possible, preferably by end June, as the discussions between RBI and the banks regarding credit budget and resource management will start very soon.