CREDIT POLICY-Time to Break with Conventional Wisdom

Time to Break with Conventional Wisdom WHAT is termed the 'busy' season for commercial bunks began this month. The Reserve Bank has been performing the customery exercises deemed necessary for the formulation of its credit policy for the busy season. On the eve of the 1972-73 busy season, the Reserve Bank had estimated, in what it subsequently described as a "realistic and comprehensive credit plan", that bank credit woidd expand by Rs 480-500 crores, while banks' deposits would go up by over Rs 650 crores. Banks were thus expected to meet the demand for credit out of their own resources, without recourse to borrowing from the Reserve Bank. Following this line of thinking, the Reserve Bank had made minimal changes in its general credit controls: liquidity requirements were raised by one "percentage point to 30 per cent so as to absorb a part of the liquid funds with banks 'and the net liquidity ratio (NLR), which determines the penal rate on borrowings from the Reserve Bank, was raised by 2 percentage points to 36 per cent. Some changes were also made in (he structure of selective credit controls. Bank-wise limits on advances against specified commodities were replaced by party-wise limits. However, the limits themselves were set high