28 april 2000

new credit policy, same old wine in new bottle - however fis can turn to banks and banks can enter insurance
mumbai: come april end and it is time for the governor of the reserve bank of india (rbi) to make the half yearly announcement called "credit policy" that will affect the ways banks and corporates function. this year was no different than the previous years.

obviously, the rbi governor seems gung-ho about the state of the economy. at least, on the surface: inflation is down, industrial production is picking up, gdp growth is expected to be around 6.5-7 per cent, and he has made it very clear that the central bank will do what it can to keep things this way.

however, there is an inherent fear that inflation rate has begun to rise. the drought in gujarat and rajasthan and the state of the fiscal deficit is still cause for concern. in keeping with these concerns, the new monetary and credit policy for ’00-01 continues to have the usual measures relaxing rules for markets, tightening prudential norms further — in line with global requirements — and laying down the roadmap for future reforms. with specific reference to prudential norms, rbi is moving towards international benchmarks, in a serious attempt to make the indian banks more globally competitive. it is asking banks to consolidate their subsidiary balance sheets with their own accounts.

predictably, the foreign exchange market, the government securities market and the money markets didn’t react at all to the policy statements. but remember one thing: liquidity taps will remain fully open for some more time. translation: easy money conditions will continue and interest rates signals are only southwards.