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'RBI steps will boost financial marts, industry'

Indian corporate and financial leaders welcomed the central bank's new credit policy, which aims to promote industrial growth and push the domestic banking sector towards global standards.

The new measures will allow large financial institutions, such as the giant ICICI, to apply to the RBI to convert into full-fledged banks.

"This is a move in the right direction," said ICICI managing director and chief executive officer K V Kamath.

"Though we have several options, the direction in which we intend moving -- towards becoming a bank -- is clear," Kamath said.

The RBI policy statement left interest rates untouched, and was largely ignored by India's capital markets, which remained focused on sentiment on Wall Street.

Shanti Ekambaram, executive director of one of India's largest investment banks, Kotak Mahindra, said the policy unveiled on Thursday by the Reserve Bank of India, or RBI, was 'sound if undramatic'.

"It indicates the RBI's commitment to boost industry and financial markets," Ekambaram said.

"Its concerns towards the fiscal deficit, government borrowing and inflation are also timely and welcome."

In his policy statement for the year to March 2001, RBI Governor Bimal Jalan said that interest rates could be kept low in the coming fiscal year, ensuring continued industrial growth. However, he sounded alarm bells over the growing fiscal deficit.

He also announced measures to increase liquidity and steps towards a new regulatory regime of "universal banking," where all players would either be banks or restructured non-banking finance companies.

"If one was expecting some interest cuts and drastic policy announcements, then yes, the sting is missing from this policy," said Bank of Baroda chairman P Shenoy.

"But the RBI governor indicated that changes would be made whenever required and we welcome the universal banking strategy."

"The policy was pretty much as expected," said Sunil Singhania, director of Advani Share Broking.

"It's a good policy, although it doesn't really address the possible failure of the monsoon this year, which could render the government's target of seven percent economic growth unachievable," Singhania said.

The RBI predicted economic growth of between 6.5 and 7.0 percent in 2000-01.

Ekambaram at Kotak Mahindra felt the long-term effect of the RBI measures on the stock markets would be positive.

"The RBI has never framed a policy which will see a immediate knee-jerk reaction on the bourses. But, with additional liquidity, sentiment should definitely be boosted," he said.

India's premier trade body, the Confederation of Indian Industry, or CII, said in a statement that the RBI policy would help "carry forward the process of financial sector reforms and help develop money and debt markets."