Towards Global Benchmarking

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: The Reserve Bank of India’s Annual Policy Statement for fiscal 2005 signals a firm step to take forward the articulated policy stance of the central bank to continue to work on balancing the imperatives of growth and price stability in a rapidly evolving global economy and move the financial system to international benchmarks.

The policy’s stance clearly is aimed at supporting growth and improving the efficiency of the banking system.

While doing so, the RBI has sought to ensure that adequate liquidity is available to meet credit needs and support investment and export demand, while also seeking to maintain price stability.

The policy has also sought to give greater operational flexibility to banks, while moving towards better understanding and management of risks.

All these are efforts to continually bring the Indian financial system closer to global standards.

The RBI has signaled a positive outlook on the macroeconomic front, with a GDP growth forecast of up to 7.0 per cent, signifying, as the Governor has said, a structural acceleration in India’s rate of growth.

The policy has recognised the need for continuing to provide an enabling environment for investment.

As far as the banking sector is concerned, the RBI has reiterated its commitment to overcome the bottlenecks in flow of bank credit to agriculture and small & medium enterprises.

To meet this objective, the RBI has not only announced a number of steps for improving the credit delivery to all sections, but also has broadened the definition of infrastructure lending to include projects like construction of educational institutions, hospitals and agro-processing among others.

This measure should positively step up the investment activity in the infrastructure sector and directly augment the prospects for credit off-take in new sectors as well. RBI has also recognised the increasing emphasis on securatisation of agricultural loans and by proposing the inclusion of securitised agricultural loans in priority sector lending will yet again give an impetus to credit delivery to this sector.

Another major step forward has been the permission to banks to raise long-term bonds for infrastructure financing. This should contribute towards boosting of infrastructure lending by banks.

The flexibility given for the boards of banks to enhance exposure limits for individual borrowers and borrower groups is an important measure to permit increased flow of credit to corporates planning large investments.

At the same time, the RBI has tightened NPA provisioning norms as a prudential measure.