Singh praises Credit Policy
Delhi: Indian Finance Minister Jaswant Singh has termed
the Reserve Bank of Indias (RBI) Credit Policy as
progessive. The policy is progressive. I think it
is a forward-looking and appropriate Credit Policy. If
interest rates are lowered, it will benefit the common
Stating the RBI would have factored in the monsoon failure
while unveiling its Credit Policy, Singh said the loss
in food grain production during the kharif season
due to a poor monsoon is expected to be made up during
the rabi season. I am hopeful that the rabi
food grain output will improve.
BoB, Central Bank of India cut rates
Following the RBIs lowering of Bank Rates, State
Bank of India has cut deposit rates by 50 basis points
with effect from 1 November 2002. Deposit rates for senior
citizens have also been lowered by 25 basis points.
Bank of Baroda (BoB) has cut the deposit rates of the
three-year period by 25 basis points. The bank had already
cut deposit rates by 25 basis points in the one-to-two-year
categories a week prior to the Credit Policy.
Central Bank of India has lowered the prime lending rate
(PLR) by one percentage point in two tranches. Immediately,
the PLR will come down from 12 per cent to 11.50 per cent
and go down further to 11 per cent in three months. The
bank will also reduce its deposit rates, particularly
in the longer tenor fixed deposits, by around 50 basis
points. Variable interest rate deposits are being retained
at their present levels.
not pleased with 25 basis points cut
Delhi: Industry associations were expecting a higher
cut in the Rates, which would have provided a thrust to
the economy. So they are disappointed.
The Federation of Indian Chambers of Commerce and Industry
described the policy as being one of abundant caution
and the Bank Rate cut fell short of industry expectations.
The Associated Chambers of Commerce and Industry said
in view of the tough global competition and comparatively
poor infrastructure, the industry was hoping for a reduction
of 0.50 percentage point in the Bank Rate and cash reserve
ratio to reinvigorate the economy.
The PHD Chamber also felt that not enough has been done
to bring down the lending rates.
The Confederation of Indian Industry said the 25 basis
point cut was on expected lines but wondered whether commercial
banks would reduce their lending rates to reflect the
The Federation of Indian Export Organisations (FIEO) pointed
out that the policy offered no respite to exporters. It
felt that the comfortable foreign exchange position had
made the government confident that it does not need any
support from the export sector.
focus on agriculture, small businesses
In order to provide impetus to agriculture and small
businesses, RBI governor Bimal Jalan proposed that the
limit of advances granted to dealers in drip irrigation
/ sprinkler irrigation system / agricultural machinery,
located in rural / semi-urban areas has been increased
from Rs 10 lakh to Rs 20 lakh under priority sector lending
For small businesses, Jalan proposed to increase the existing
limit of Rs 10 lakh to Rs 20 lakh without any ceiling
for working capital. Banks will now be free to fix individual
limits for working capital depending on the requirement
of different activities.
The individual credit limit to artisans, village and cottage
industries have been raised to Rs 50,000 from Rs 25,000
and the limit will be under the overall limit of 25 per
cent advances to weaker sections under the priority sector
or 10 per cent of the net bank credit and to increase
the existing limit of housing loans for repairing damaged
houses from Rs 50,000 to Rs 1 lakh in rural and semi-urban
areas and to Rs 2 lakh in urban areas.
rates on export credit liberalised
Mumbai: In order to encourage competition among
banks and also to increase the flow of credit to the export
sector, Jalan proposed to liberalise interest rates on
rupee export credit in two phases.
Accordingly, in the first phase, it is proposed that the
ceiling rate of the PLR plus 0.5 percentage point on the
pre-shipment credit beyond 180 days and up to 270 days
and post-shipment credit beyond 90 days and up to 180
days will be deregulated with effect from 1 May 2003.
Banks will have the freedom to charge PLR or sub-PLR rates
subject to approval of their boards.
In the second phase, with effect from a date to be announced
later, it will be considered whether the ceiling rates
on pre-shipment credit up to 180 days and post-shipment
credit up to 90 days should also be discontinued to encourage
greater competition in the interest of exports.
Imparting flexibility in the repayment of export credit,
the government proposed that subject to mutual agreement
between the exporter and the banker, the repayment / prepayment
of the pre-shipment credit will henceforth be permitted.
For this purpose, balances held in the EEFC account of
the exporter can also be used.
Banks are now free to decide FCNR (B) deposit rates denominated
in Japanese yen, which may be equal to or less than Libor/Swap
rates of corresponding maturities till a further notice.
The interest rate ceiling on FCNR (B) deposits denominated
in other currencies will remain unchanged at the prevailing
level of Libor/Swap rates of corresponding maturities
minus 25 basis points.
of urban cooperative banks
The RBI had earlier suggested a separate supervisory
authority for urban cooperative banks (UCBs) in the interests
of public depositors, with representatives of the centre,
the state and other interested elements.
This issue was examined recently by a committee under
the chairmanship of the minister of state for finance
and the committee, while agreeing that the duality of
control should be done away with recommended that the
RBI should be vested with full powers for regulation and
supervision of UCBs.
The RBI governor assured that while the RBI will do its
best in implementing the decisions of the government in
this regard, it might be kept in view that in case immediate
measures are not taken to remove the duality of control,
it would be difficult to make the supervisory system effective.
The RBI has also urged UCBs, regional rural banks and
local area banks to reduce the interest rates offered
on saving and current accounts in order to rationalise
rates in the banking sector.