Mumbai, October 22
In a significant decision aimed at boosting the sagging market morale, the Reserve Bank of India (RBI) today effected a half point percentage cut in the bank rate to 6.5 per cent, while pumping an additional liquidity of Rs 8,000 crore into the banking system through a reduction of the cash reserve ratio (CRR) by 200 basis points to 5.50 per cent. It is the lowest bank rate since May 1973.Unveiling the half-yearly credit policy measures to the chiefs and CEOs of commercial banks, the RBI Governor, Dr Bimal Jalan, said, these changes would facilitate the development of a short-term yield curve, development of money market, reduce the regulatory arbitrage between bank and non-banks, enhance the availability of lending resources with the banks and improve their efficiency of indirect instrument in the conduct of the monetary policy.
Among other measures, the RBI has announced tightening of norms of bank investment in high cost project, including infrastructure, and also allowed the urban cooperative banks (UCBs) to grant loans to individual against securities of shares. It has also modified the timeframe for the UCBs for achieving the prescribed level of statutory liquidity ratio (SLR) holding, which is at higher proportion.
As per the revised timeframe, the minimum SLR holding of the UCBs in government and other securities should be at 17.50 per cent as on March 31, 2002 as against 20 per cent proposed earlier. Now the 20 per cent holding would be fixed from September 30, 2002.
The RBI also enhanced the interest on eligible cash balances of commercial banks under CRR to the level of bank rate at 6.5 per cent from the current level of 6 per cent, effective from the fortnight
beginning November 3, 2001.
The CRR will be reduced to 5.75 per cent and effective fortnight beginning December 29 2001 the CRR will be reduced further to 5.50 per cent of the net demand and time liabilities (NDTL). At the same time, all exemption on the liability will be withdrawn except inter bank liabilities for the computation of NDTL.
Expressing concern over the world economy sliding into a recessionary phase, particularly after September 11, Dr Jalan said the adverse external development had necessitated a quick response to provide an appropriate liquidity and comfort to the market.
He said the overall stance of the monetary policy for the current fiscal would be to meet credit growth and support revival of investment demand while continuing a vigil on movement in the price level.
Notwithstanding a high level of market borrowing by the government, it was also feasible to maintain stable interest rate environment with further softening of interest rates, Dr Jalan observed.
UNI
