ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

monetary and credit policySubscribe to monetary and credit policy

Need to Resurrect Rural Credit Institutions

A determined effort is called for to strengthen the rural credit system by creating new institutions if necessary and strengthening the multi-agency arrangement of commercial banks, regional rural banks and credit cooperatives and assigning to them specific regional, sectoral and functional responsibilities.

Credit Policy: Beyond Expansionary Signals

There are clear pointers in the Budget for 2002-03 to the stance likely to be adopted in the credit and monetary policy to be announced next month. However, mere expansionary signals from the RBI through reduction of the repo rate and the Bank rate and through money market instruments will not be enough. The RBI will need to address structural disabilities and distorted commercial banking behaviour in response to financial sector reforms.

Structural Deterioration of Banking Development

The Reserve Bank seems to be stuck between the two stools of reform and facing structural disabilities. It is being forced to accept the trend towards 'universal banking', despite its expressed misgivings. Worse, serious structural deterioration has occurred in the pattern of banking development.

Modest Ambitions

The mid-term review of the monetary and credit policy for the current year springs no major surprises. It has, in the main, lowered the Bank rate by 50 basis points to 6.5 per cent and proposes to bring down, over the next two months, the cash reserve ratio to 5.5 per cent from the current effective rate (taking into account various exemptions and variable reserve ratios for particular segments of liabilities) of 6.3 per cent for the banking system as a whole. It has made further refinements of the various processes of strengthening prudential regulation of the banking system. More pertinently, it serves to highlight the constraints within which monetary policy operates in India, even going to the extent of drawing explicit reference to some of the structural impediments arising from government policy.
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