Boost For Efficiencies

Updated: Nov 4 2003, 05:30am hrs
The larger impact of the policy is towards creating greater banking efficiencies, superior deliverables and credit mechanisms particularly in the food and agri-business and micro credit segments which are key to unleashing a higher economic multiplier effect. These segments are vital for accelerating economic growth to achieve a targeted sustainable 8 to 8.5 per cent GDP growth. The Policy, while ensuring adequate credit availability to meet credit growth and support investment demand with price level restraint, continues to foster a soft and flexible interest rate environment.

Several balanced and integrated measures, superior corporate governance and transparency in the banking sector, prudent risk management, higher accountability of developmental institutions and SIFIs are geared towards improving the role and effectiveness of financial participants. RBI definitely appears conducive to provide necessary impetus to the banking sector, and a favourable macroeconomic environment to facilitate the growth trends emerging solidly in the economy. The upward revision in GDP forecast is consistent with the forecasts of other independent agencies and should give positive reinforcement to the markets.

The banks and the fixed income players may be somewhat disappointed with the lack of repo/bank rate and CRR cut, especially in the event that a significant part of the government borrowing programme has already been contracted. However, the RBI has reiterated its stance of maintaining a soft interest rate policy, which clearly indicates that the apex bank is keeping its options open to cut interest rates further, when required.

Significant steps have been taken to further deepen the debt market by relaxing the norm for selling of government securities contracted for purchase on the same day, and by introducing the RTGS system shortly. RBI has not taken any visible measures to address the interest rate arbitrage between the rupee and dollar markets, which is rapidly converging on a hedged basis, which implies that the thinking of RBI on the capital account convertibility continues to be conservative, as this will also minimise uncertainty. Overall, the Policy ensures continuity with augmentation of credit systems while substantially supporting economic growth and minimising inflationary conditions.

The author is CEO & Managing Director, Rabo India Finance