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What to expect in the Credit Policy

Reserve Bank of India Governor Bimal Jalan will present the RBI's annual Monetary and Credit Policy statement on Thursday.

Following are some of the measures expected to be announced in the policy.

Monetary measures

• Jalan has said there will be no changes in the bank rate, at which the central bank lends to commercial banks, or in banks' cash reserve ratio.
• The RBI governor has also said the central bank is considering the restoration of export refinance limits, which were cut in July to support a weakening rupee, and lowering of export finance rates.

• The RBI is expected to apply minimum capital adequacy requirements for cooperative banks in the wake of the crisis being faced by Madhavpura Mercantile Cooperative Bank, which is facing liquidation after it faced a cash crunch following excessive exposure in falling stock markets.
• The RBI is expected to fix a time frame of March 2002 for scheduled cooperative banks to achieve a capital adequacy ratio of 9 per cent.
• The central bank is likely to direct co-operative banks to strengthen their capital base, tighten asset classification norms and make off-site surveillance mandatory for them.
• The RBI is likely to focus on banks' risk management mechanisms and fine tune their exposure limits to individual companies and industrial groups. It is also expected to lay down a plan for the implementation of the real time gross settlement system.

• To add depth to the government debt market, the RBI is likely to put out a discussion paper on Separate Trading of Registered Interest and Principal Securities -- or STRIPS --in the credit policy. (Usha Thorat, RBI chief general manager, told a money market and fixed income dealers' meeting last month).
• The RBI is likely to start the phasing out of non-banks from the call money market and allow them to operate only in the repo market.
• Dealers expect the central bank to introduce an additional repo facility specially for primary dealers at a rate linked to the daily repo auction held under the liquidity adjustment facility. This is expected to be balanced by a reduction in their current refinance limits, which are determined on the basis of their net worth, secondary market operations in the previous financial year and bidding commitments towards auctions in the current year.
• The collateralised lending facility, under which commercial banks can avail refinance from the central bank against their deposits, is expected to be phased out, dealers said.

Following are key facts and figures for the banking sector:

Key numbers:
Bank rate: 7.0%
Cash reserve ratio: 8.0%
Money supply growth in 2000-01 (to March 23): 15.8%
Deposits with commercial banks on March 30: Rs 9,832.68 billion
Deposit growth with banks in 2000-01: 20.9%
Commercial bank credit outstanding Mar 30: Rs 5,249.45 billion
Credit growth with commercial banks in 2000-01: 20.4%

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