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Debt market expected to remain unaffected

The mid-term review of the Monetary and Credit Policy for 1998-99 announced by the Reserve Bank of India is not likely to have any significant impact on the debt market, and its effect would be limited to the banking sector over the long term in tune with the policy pronouncements of the apex bank.

Echoing these sentiments, debt market analysts felt that the credit policy would not effect the short-term interest rates and yields on government paper.

''There will be no immediate impact on the short-term interest rates. The interest rates may tighten after a while as bank credit to the economy and the corporate sector picks up,'' I-Sec's M R Madhavan said.

''The impact would be on the banking sector during the next couple of years, when the higher capital adequacy ratio comes into force,'' he added.

J P Morgan's Ashish Pitale felt that the credit policy has been a policy of 'caution'. He too felt that the credit policy did not have much to offer to the debt market.

Speaking on the policy, another analyst remarked, ''Governor Jalan has kept his word by making the policy a non-event.''

According to analysts, the tighter capital-risk assets ratio would result in a number of banks (especially the high-growth private sector banks) accessing Tier-II capital.

Some public sector banks at the margin may need to augment Tier-II capital as well. Also, investments in Provident Fund India guaranteed bonds being considered as the exposure to the PFI would impact bank investments.

With the busy season starting, the RBI would like to complete the sovereign borrowing programme as fast as possible as that credit to the commercial sector is not pre-empted.

The RBI's Credit and Monetary Policy 1998-99