Stance On Interest Rates Stands To Reason

Updated: Nov 4 2003, 05:30am hrs
The RBI has continued its policy of soft and flexible interest rates against the backdrop of favourable macro-economic environment and strong economic fundamentals.

In view of the comfortable liquidity in the system and bullish outlook on growth, RBIs stance on interest rates stands to reason. With credit poised to pick up in the second half of the year, on the back of expectations of higher GDP growth, RBI has continued its policy of provision of adequate liquidity to meet credit growth. The policy reaffirms the need for deciding single PLR by banks in consultation with IBA for better transparency and improving credit delivery to different sectors of the economy.

Against the backdrop of the need to manage the strong capital flows and its impact on the rupee, the compulsory hedging of foreign currency loans above $10 millon, except for export finance and loans for meeting forex expenditure, will help contain volatility in the forex market.

The large build-up of forex reserves and continuing capital inflows have enabled RBI to extend greater flexibility to exporters in realisation of export proceeds. The roadmap for adoption of 90-day norm for recognition of NPAs as the movement towards RTGS, along with measures to develop the securities market and debt market will bring the financial sector closer to international standards. Further build up of Investment Fluctuation Reserve, will reinforce the risk management architecture of banks.

The focus on customer service by ad hoc committees to be set up by each bank is timely. This measure, along with better use of technology, will help expand the range and quality of service to customers, while also reducing cost. Overall, the policy reflects confidence in the growth of the economy and strives to maintain an enabling environment to

support growth.

AK PURWAR, Chairman, State Bank of India