RBI to ensure benign, stable rate regime: Chakrabarty

RBI to ensure benign, stable rate regime: Chakrabarty
The Hindu Business Line, July 18, 2009, Page 6

Credit growth targets may be revised as banks report lower offtake.

Our Bureau, Mumbai

The Reserve Bank of India’s stance in the upcoming first quarter review of the Monetary Policy on July 28 would be to ensure a benign interest rate regime. It may also lower credit growth targets, given that banks are reporting lower credit offtake in the first quarter, Dr K.C. Chakrabarty, Deputy Governor, RBI, said.

In its annual Monetary Policy in April, the RBI had indicated a credit growth of 20 per cent for the current fiscal. But according to bankers, in the first quarter, credit offtake has been slow.

Dr Chakrabarty was speaking on the sidelines of a seminar on financial inclusion organised by SKOCH.

“Our aim is to maintain stable interest rates. What banks will do would depend on their cost of funds. Our job is to ensure adequate liquidity in the system,” said Dr Chakrabarty.

Economic recovery

Dr C. Rangarajan, former RBI Governor, said that India is likely to see an economic recovery in the second half of the current fiscal, but there will be substantial growth only by next fiscal.

Whether credit growth by banks will reach the target would depend on several factors including the growth momentum and the monsoon, he said.

As the government borrowing programme is four times higher than in 2007-08, there could be some upward pressure on interest rates, Dr Rangarajan said.

According to the schedule of the government borrowing programme, most of the borrowings will be in the first half of the fiscal.

The private sector borrowing may not be very large in the first half and will facilitate the huge government borrowing, Dr Rangarajan said.

On extending the deadline for banks to carry out the restructuring programme for corporates, Dr Chakrabarty said it may be allowed on a case-to-case basis.

Addressing the seminar, Dr Chakrabarty, emphasised on the need for big IT players to be actively involved for achieving greater financial inclusion. At present, the Banking Correspondent model is too restrictive.

The RBI is planning to bring out revised guidelines to make the BC model more flexible, he added.

At present, the model does not allow individuals and non-Section 25 companies to become BCs or Banking Facilitators. RBI may look to revise some of these guidelines.