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Jalan faces uphill task over Credit Policy

NetScribes/S Mukherjee

Uneasy lies the head that wears the crown. No one should know that better than Reserve Bank governor Bimal Jalan.

Come Thursday, Jalan has the unenviable task of unveiling the credit and monetary policy for fiscal 2001-02. And he probably already knows that it won't make a difference to either the markets or economic growth.

Credit growth has been a dismal 2.8 per cent in the last quarter and when Jalan declares that there will be no immediate cut in the Bank Rate, all that he is really trying to say is that lower interest rates will not translate into higher credit demand.

In fact, the reality of the situation is that the liquidity scenario in the markets is comfortable enough for the RBI to rush through with the government's borrowing programme.

The real action, however, is not on the policy front. It surrounds the repeated goof-ups of market regulators. The RBI has been caught napping once again as cooperative banks extended huge loans against shares to brokers.

The defence, as always, has been poor regulation processes and lack of powers, but the fact remains that the RBI has to accept responsibility.

"Questions are being asked about the effectiveness of both the banking and stock market regulators to anticipate and troubleshoot crises," says an investment banker.

"If the regulators are seen fumbling so often, what faith will foreign investors have in the system?"

While the Harshad Mehta scam has gone underground, so has the CRB Capital fiasco, he points out.

"That is no good news for a country that is a leader in the most progressive and transparent of industries - technology," he adds.

Policymakers don't seem to be learning from their mistakes either. The finance ministry says the rupee is overvalued. It tumbles to cross 47 in a panicky market.

The RBI steps in with a comment that this is not the real picture as the fall in inflation has not been factored in. The point is, who's fighting whom and isn't the market already confused enough? Or, for that matter, when has the RBI ever defended the rupee over a period of time?

"The credit policy has been totally discounted in this market. It can best be a face-saving exercise by the RBI to ensure that regulation and compliance in tightened, that all banks are put on the rack because the system failed to detect some errant ones and to introduce some long-term measures to develop the financial markets," says a public sector banker.

According to analysts, that the RBI is already jittery is apparent from the reaction to the fall in the rupee. The dollar was at 46.69 in January and just crossed 47 on Tuesday after firming up to 46.40 levels in February.

"That's hardly any movement, given the market meltdown that's happening worldwide," says a dealer. "Is there any need to panic even if the rupee goes to 47.50? If FIIs start selling and taking funds out of India, that's precisely what will happen and the RBI can halt it through intervention only for some time," he adds.

So, the credit policy has suddenly lost its steam. When Jalan faces the camera on Thursday, not many would be willing to tune in.

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