At the outset, I would like to commend RBI for a very positive and forward looking policy. The measures aim at strengthening our financial sector in the long term. Development of the debt markets would also get a boost from the measures announced.

The immediate response to the measures would be a lower yield curve. The corporate sector will benefit in the form of lower short term interest rates. The combined effect of these moves would aid India’s industrial recovery.

RBI’s review of the economy and measures for the debt market has given a fresh dirction to interest rates. The measures would give a boost to the gilt maerket. It would infuse liquidity to the extent of Rs 8061 cr in the month of November.With CRR being allowed to be maintained on a lag basis, there would be lower volatility in the movement of call rates as players woud know reserve requirements much in advance. The combined effect of the moves would bring down the government yield curve. Interest rates would be moving down in the 3Q of FY 2000.

Other measures in the debt market pertain to increasing retail participation in gilts, widening the repo market and facilitating flow of information and transparency in the functioning of money markets to help enable market participants to gauge liquidity conditions more effectively. In effect, the measures would aid further development of the debt markets in India.

The main thrust of the policy has been on supporting industrial recovery through increasing the lendable resources of banks.The RBI has not cut the Bank Rate, which is taken as an indicator for PLR movement by banks, on the considerations of the inability of banks to lower lending rates further given the pressure on their spreads. Instead, the CRR has been cut. The CRR cut has met the long-standing demand of the banking and corporate sectors. The cut in CRR will increase lendable resources of banks and help meet the increased demand for credit.

In light of the large borrowing programme of the government, the enhancement of lendable resources is a good move to ensure that the incipient revival in industry is not snuffed out. Banks would also benefit in terms of the higher yield that they can earn on the released funds.A rough estimate of the incremental earnings for banks would be to the tune of Rs.680 cr.

There are a number of measures to increase the flexibility of banks in fixing rates. RBI has taken steps to move towards international practices in areas of valuation of securities and prudential exposure norms. Overall, the thrust of the policy has been to further the reform process in the financial sector and ensure availability of funds for the industry which is at the initial stages of a recovery.