The most direct and therefore extremely crucial for the markets comes in the decision to permit a bank's total exposure to the capital market not exceeding five per cent of the banks outstanding credit as on March 31 of the previous year. This measure alone, if acted upon in earnest, can have an amazing impact on the markets.

This apart RBI's assurance to continue to maintain the stable monetary conditions should augur well. This means that barring unforeseen contingencies, the interest rates would remain stable, a scenario conducive for the capital markets.

However, policy intent is one thing and their effective implementation another. Though LIC chairman Mr Bajpai is quite keen on enhancing his corporation's exposure to the markets, one remains apprehensive about the willingness of other banks and institutions. The pschye of those controlling the purse strings of banks will have to under go a change before the desired impact of this is felt.

The cause of worry, as elucidated in the policy, is on account of realising the projected receipts from disinvestments, the shortfall in the oil pool account and the volatility in the international currency and equity markets.

Some of the external factors have stemmed Foreign Institutional Investors inflow. During May-August 2000, there has been a net outflow of $ 505 million against a net inflow of $ 948 million during the first quarter of the current calendar year.

This factor can be effectively countered if the local institutions are developed and banks invest in a manner the RBI wants them to.

Though the credit policy in normal set of circumstances should have had a positive impact on the market, the sword of Damocles hanging in the nature of the "Rolling settlement in the specified group" continues to dampen sentiments and ignore any favourable developments. The Sensex show no signs of taking a breather from its free fall and the market capitalisation has eroded by over a whopping Rs 1,25,000 crore. It is high time that the regulator rethink on this issue in the interest of the economy and the investors. Till that time it is difficult to fathom on what will help turn around the market sentiments.

The author is Chairman & Mg. Director, Central Depository Services India Ltd