M A I N   N E W S

RBI policy to boost markets
No change in bank rate, CRR

MUMBAI, Oct 10 (PTI) — The Reserve Bank of India (RBI) in its mid-term review of the monetary and credit policy for 2000-01 has laid emphasis on strengthening the financial markets by coming out with final guidelines on issue of commercial papers (CPs), categorisation and valuation of banks’ investments and financing by them of equities and investments in shares.

As announced earlier by the RBI Governor, Dr Bimal Jalan, no changes were effected today in the mid-term review of monetary measures such as the bank rate, cash reserve ratio and the liquidity adjustment facility.

In a bid to boost exports, banks have been permitted to credit 70 per cent of inward remittances in exchange earners foreign currency accounts of export oriented units in export processing zones, software technology/electronic hardware parks and 50 per cent in respect of others, thus restoring fully the exporters’ entitlements.

With a view to providing flexibility and depth to the money markets, the RBI has proposed to withdraw restrictions on transferability period for certificates of deposits issued by both banks and financial institutions (FIs).

The apex bank has issued guidelines on commercial papers (CPs), enabling companies, particularly in the services sector, to easily meet short-term working capital needs and at the same time banks and FIs would have the flexibility working capital limits duly taking into account the resource pattern of companies’ finances, including CPs.

It has proposed to make rating mandatory for the term deposits accepted by all-India FIs with effect from November 1, to improve the functional efficiency of the money markets.

The RBI has decided to extend the permission granted to select companies, which have been given specific permission to route call money transactions through primary dealers (PDs), currently available up to December, 2000, for a further period of six months.

Guidelines governing the maintenance of the constituents’ securities general ledger (SGL) accounts would be framed to encourage investors to hold securities in scripless form and ensure that entities holding securities in custody employ practices and procedures so that constituents’ securities are appropriately accounted for and kept safe.

With a view to strengthening the financial position of banks, it is proposed to include the general provision of standard assets in their two capital in line with the international best practices.

To bring about more transparency to the balance sheets of public sector banks and to provide additional disclosures, the RBI has asked banks to annex balance sheets of their subsidiaries to their own beginning from March 31, 2001.

The RBI said it was moving towards a risk-based supervisory regime and an international consultant had submitted its project report (phase i) in this regard and their recommendations covered vital areas like data management, supervisory process, inspections, feedback to banks and external audit among others.

On banks’ financing equities and investment in shares, the RBI said the guidelines would enable the bank boards to frame suitable operational guidelines for each bank, taking into account their individual risk profiles, and provide for investments by banks in the equity market on a more stable and long-term basis, subject to appropriate prudential norms.

Banks may formulate transparent policy for charging penal interest rates with the approval of the boards and such policy should be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to genuine difficulties of customers.

The Regulations Review Authority (RRA), set up by the RBI last year to review several of its rules, regulations and reporting systems, would formally cease to operate on march 31, 2001. However, various departments of the apex bank would continue with their efforts to further simplify procedures, reduce paper work and improve service.

All public sector banks have been advised by the RBI to set monthly targets for the Kisan credit card and draw an action plan for achieving the overall target for the card.

On the implementation of the Swarn Jayanti Gram Swarozgar Yojana, it has advised banks to monitor the progress of the scheme periodically and put in earnest efforts for its success.

The RBI was working on proposals for amendments to the RBI Act, 1934, and the Banking Regulation Act, 1949, to help it keep pace with rapid advancements in the IT sector so as to provide it flexibility in reorienting its operative regulatory and supervisory frameworks.

It was also preparing a payment system vision document that would detail the payment system agenda proposed to be followed for the next two to three years.

Highlights

MUMBAI, Oct 10 (PTI) — The following are the highlights of the Reserve Bank of India’s mid-term review of the monetary and credit policy for 2000-01.

« No changes in the monetary policy measures such as bank rate and Cash Reserve Ratio.

« RBI expects interest rate environment to remain stable, as per current indications.

« RBI to ensure adequate availability of liquidity and credit to support growth.

« Money supply growth, reserve money and government borrowing are on a trajectory, RBI urges a strong framework to build up positive expectations on the fiscal front.

« LAF (Liquidity Adjustment Facility) will continue to be operated in a flexible manner.

« New guidelines for bank’s participation in capital market.

« New norms for valuation of banks’ investments.

« EEFC (Exchange Earners’ Foreign Currency Account) facility of earlier entitlements of 70 per cent and 50 per cent on export related payments and reduction of transaction costs respectively to continue.

« Much greater flexibility to corporates for raising resources through commercial paper, transferability of CDs (certificate of deposits) made easier.

Mixed response to RBI policy

NEW DELHI, Oct 10 (PTI, UNI) — The industry today gave a mixed verdict on the mid-term credit policy announced by the RBI, saying the measures would improve liquidity in the money market, but cut in interest rates and CRR was required to boost growth.

The RBI announcement of allowing banks to invest up to 5 per cent of their outstanding advances in shares, restoration of exchange earners foreign currency (EEFC) account facility and extension of bills discounting facility to the services sector were widely welcomed.

However, no announcement on reduction in bank interest rate and CRR dampened the spirit.

Allowing non-banks to lend in the call money market would go a long way in pumping the much-needed funds into the call money market and reducing the call money rates, Confederation of Indian Industry (CII) said.

Federation of Indian Chambers of Commerce and Industries (FICCI) said that norms for the NBFCS should be modified further as the present norms included even those NBFCS which were not accepting the deposits. On the other hand, the Associated Chambers of Commerce and Industry (ASSOCHAM) suggested reduction in interest rates and CRR. ASSOCHAM President Shekhar Bajaj wanted banks to bring down statutory liquidity ratio (SLR) to the mandated rate of 25 per cent to improve availability of funds to the industry.

Leading bankers have welcomed the mid-term monetary policy measures.

Talking to newsmen after meeting with the RBI Governor Bimal Jalan, Bank of Baroda’s Chairman and Managing Director (CMD) Mr p.s. shenoy expressing satisfaction over the RBI'S monetary policy said that the measures announced by the RBI Governor were quite encouraging for the bankers. The RBI had indicated stability in the interest rates for another six months, which was enough to forecast positive outlook for the future.

GDP pegged at 6 pc

MUMBAI, Oct 10 (PTI) — The Reserve Bank of India has pared the country’s real gross domestic product (GDP) down in the current fiscal to around 6-6.5 per cent as against the previous projection of 6.5-7 per cent in its April monetary and credit policy.

The GDP figure had been arrived at by the apex bank, by taking first quarter (April-June) data of the Central Statistical Organisation, which placed the real GDP growth at 5.8 per cent as against 6.9 per cent observed in the first quarter of 1999-2000, the RBI said in its mid-term review of monetary and credit policy for 2000-01.

The bank said the rate of inflation on a point-to-point basis, as on September 23, 2000 had almost doubled to 6.06 per cent as against 3.20 per cent a year ago.