RBI carries forward financial sector reforms
Mumbai: Against a backdrop of an uncertain outlook on the rate of inflation and the rising oil pool deficit, the mid-term credit policy, announced by the RBI governor yesterday, predictably refrains from announcing any monetary measures but takes financial sector reforms a small step forward.

The policy statement, laced with caution on the growth front, has revised the growth rate of the real gross domestic product from its earlier estimate of 6.5 – 7 per cent to 6 – 6.5 per cent. The central bank’s revised forecast is based on the Central Statistical Organisation’s having stated that GDP grew in the first (April-June) quarter by 5.8 per cent, down from the 6.9 per cent in the corresponding quarter of 1999-2000.

The other two main factors that may impact the macro projections are the slow pace of government disinvestment in public sector undertakings and the budgetary outgo to meet the shortfall in the oil pool account.

The statement also made a strong pitch for a reduction in government borrowing to keep interest rates stable. The positive side to this was the fact that the Centre’s fiscal deficit up to August was significantly lower at Rs 36,447 crore – a 24.3 per cent improvement over the deficit during the same period last year.

The other favourable factors are the good performance of software exports, foreign direct investment (FDI) in information technology and telecommunications and a relatively low level of external commercial debt.

In theory at least, the RBI’s nod to banks to invest up to five per cent of their outstanding credit portfolio in the stock markets will release Rs 23,000 crore into the market. To give a fillip to the money market, the RBI has also revised the guidelines on issuing commercial paper (CP) which will enable corporates to meet their short term fund requirements.

It has also extended the corporates’ access to the call market by six months up to June 2001. In yet another market related move, rating has been made mandatory for financial institutions’ term deposits.

Banks have also been allowed to include 25 per cent general provision on standard assets in Tier-II capital. The RBI has called for continuous "caution and vigilance" on the external front in the second half of the year.
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IFCI pulls out of insurance foray
New Delhi: The IFCI, which was among the leading financial institutions that announced plans to enter the insurance sector when it was opened to private participation, announced that it was shelving its plans to enter the sector.

The move follows the financial institution’s decision to first complete its capital expansion plans before undertaking any fresh investments. The FI had been planning to join hands with one of the foreign insurance majors to form a joint venture for its proposed entry into the insurance sector and was reportedly even held exploratory talks with some of the foreign companies on this.

IFCI is the second financial institution to announce withdrawal of its planned entry into the newly opened insurance sector. Earlier, UTI has indicated dropping of its planned entry into this sector, after signing a MoU with the Australian financial major AMP group for working together on a variety of areas including the insurance sector.
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