full article http://www.timesofindia.com/today/10busu1.htm RBI sees slower growth; interest rates unchanged NEW DELHI: The Reserve Bank of India (RBI) forecast slower than expected economic growth and left lending rates unchanged on Tuesday as it released its monetary and credit policy for the six months to March 2001. RBI governor Bimal Jalan told bankers as he released the half-yearly report that economic growth during the year to March 2001 would fall short of government targets. "As per present indications, the real GDP (gross domestic product) growth during 2000-2001 can be placed in the range of 6.0 to 6.5 percent, as against the projection of 6.5 to 7.0 percent," he said. Official interest rates would be left unchanged, Jalan said. "It is not proposed to make any change in some of the important monetary measures, such as the bank rate, the cash reserve ratio or the liquidity adjustment facility," he said. The RBI has laid emphasis on strengthening the financial markets, by coming out with final guidelines on issue of commercial papers (CPs), catergorisation and valuation of banks' investments and financing by them of equities and investments in shares. 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. With a view to provide flexibility and depth to the money markets, 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 those in the services sector, to easily meet short-term working capital needs. It has proposed to make rating mandatory for the term deposits accepted by FIs with effect from November 1, 2000 to improve the functional effeciences 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. The RBI has decided to constitute a group to suggest smooth phasing out by a planned reduction in the access to call/money markets by FIs and mutual funds. It has decided in principle to move over in due course to order-driven screen based trading in government securities on the stock exchanges. 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 approporiately accounted and kept safe. With a view to strengthen financial position of banks, it is proposed to include the general provision of standard assets in thier 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, RBI has asked banks to annex balance sheets of their subsidiaries to their own beginning from March 31, 2001. Due to improvements in the payment and settlement systems, recovery climate and upgradation of technology in the banking sector, the concept of past due for non-performing assets was being dispensed with effect from March 31, 2001. The RBI said it was moving towards a risk-based supervisory regime and an international consultant has submitted its project report (phase I) in this regard and their recommendations cover vital areas like data management, supervisory process, inspections, feedback to banks and external audit among others. A discussion paper regarding credit exposure limits of banks to individual and group borrowers is to be finalised by December that would address the concept of capital funds, credit exposure in particular the coverage of non-fund and other off-balance sheet exposures and the exposure limit itself. 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. In the context of the present policy of providing more flexibility and operational freedom to banks as well as government and other enterprises, it has been decided to undertake a review of the consortium arrangement for food credit which is presently disbursed under a single window led by the State Bank of India. (PTI)
