The following are the main points made by RBI Governor Bimal Jalan at a news conference held after the credit policy was unveiled on Friday. Excerpts:

On the backdrop to the credit policy and specific measures taken:
The view (of the economy) is favourable. Inflation is under control. Forex reserves are at a record high. The Reserve Bank will continue with its liberal credit policy. We will continue to ensure that there is enough liquidity to promote industrial growth. Our priority is to provide sufficient liquidity so that interest rates remain stable. We have cut the cash reserve ratio (CRR). This will release roughly around Rs 9,000 crore. So there is enough liquidity to match credit requirements and promote growth. We have also taken additional steps like withdrawing the surcharge of 30 per cent on import finance as also the minimum interest rate of 20 per cent on overdue export bills. Measures have also been taken to simplify the credit delivery system... like simplification of procedures and cutting delays for NRIs, foreign direct investment, exporters, agriculture and small scale industry... and finally the Y2K issue. The measures are in line with international best practices. All banks have reported Y2K compliance.

On the apparent ambiguity of claiming enough liquidity and announcing a CRR cut. Also, the logic of wanting banks to soften interest rates even while stating that they are unable to do so:
There is no contradiction as we see it. What we have said is that liquidity conditions have been kept fairly comfortable. As you know, only 10 days ago, we had open market operations with T-bills. It was a special action. After taking the outlook for credit and overall inflation, we reduced the CRR to give them (banks) greater freedom in their credit planning...There were no subscriptions to the repos, unlike last year, so banks are not flush with liquidity. As we said in our policy, we will ensure additional liquidity if required and so we have cut the CRR. It is also part of our overall policy to move to a lower level of CRR.

As for interest rates, since April there has been a downward movement in yields on T-bills, government securities and CDs (certificates of deposit). What we have said is that we would like the interest rates system in the country to remain much more flexible. We had pointed out a few constraints, but that does not mean you have to be inflexible.

On whether he expects banks to reduce their PLR now:
That is for them to decide... they have to go home, do their homework and work out their arithmetic on costs. We have enabled them to do that (reduce PLRs).

On why a bank rate cut was not announced:
The bank rate is now at eight per cent... much lower than the PLRs of banks. The repos rate is five per cent. And it was felt that a bank rate cut will not have that kind of a response. The bank rate has also only recently been activated.

On whether the government borrowing programme will go through smoothly:
At this point in time, I foresee no problem.

On whether there would be an explosion in non-food credit with a cut in CRR:
You see, explosion is an explosive word, so let us not use that. (Peals of laughter). Our medium-term objective is a of a lower CRR. We have a circumstance where the inflationary environment is reasonable. We do not have excess liquidity with the banks...as evidenced by the subscriptions to the repos. So if we take repos, call rates, outlook for inflation and credit growth, the CRR cut gives flexibility to the banks. So, should demand pick up, banks will be able to match it. And if demand were not to pick up, they (banks) can go to the call money market, and if rates (call) were to come down, they can go and invest in repos.

On the way ahead following the Verma panel’s recommendations for weaker banks:
The report has just been released and the government is examining it.

On the issuance of new private banking licences for corporates:
The Reserve Bank is not thinking of any such move just now... we had a committee, which looked into it. They made several recommendations. One of them was that if a wall could be created between a large corporate’s normal operations and the banking business, then it could be considered. That was all. The Reserve Bank is not giving licences to large corporate houses just now.

On whether there would be a large drawdown of foreign exchange reserves over the next few months:
No.