The Hindu : `RBI may cut Bank Rate in credit policy'

Online edition of India's National Newspaper
Tuesday, Apr 15, 2003

Business

Business

`RBI may cut Bank Rate in credit policy'

MUMBAI APRIL 14. Banking experts expect the Reserve Bank of India to effect a marginal downward revision in the Bank Rate in its forthcoming Credit and Monetary Policy for the first six months to be announced on April 29.

"We are expecting 0.25-0.50 percentage point cut in the Bank Rate,'' said P. Venugopal, Executive Director of the public sector Union Bank. The current Bank Rate is at 6.25 per cent.

These expectations gathered momentum in the wake of improvement in the bank credit off-take, particularly by the manufacturing sector.

"Certainly, there are some signs of credit pick-up by the industry in the last quarter of 2002-03,'' said P. Mukherjee, Director (credit) of the private sector ICICI Bank.

The RBI had last effected a downward revision of 25 basis points to 6.25 per cent in the Bank Rate during the mid-term credit policy announcement on October 29, 2002.

However, there was no reciprocal cut in the prime lending rate of major banks mainly because of low demand of credit from the corporate sector induced by the recessionary trend in the economy.

Citing various `feel good factors' in the economy, bankers said that the banking industry has managed to come out unscathed by many internal and external factors including severe drought raging in many parts of the country, the declining trend in agriculture production and the Gulf war.

The Deputy General Manager of Bank of Baroda, A. C. Suri, said there were several anomalies in the credit policy of the banking sector that continued to deprive certain low-income groups from the assistance of bank finances.

For instance, it is easy to get bank finance at a competitive rate to buy a luxury car for personal comfort while if the same person goes for purchasing tractors to enhance his farm's productivity, he needs to provide several documents and fill up forms to get a loan at a relatively higher interest rate.

Similar is the case for small and medium enterprises which find it difficult to get bank loans because of weak financial health. Mr. Suri felt that the RBI needed to address such anomalies to improve the overall health of the economy.

There is a need for the banking sector to consolidate its position in respect of loan profotio that is largely exposed to personal consumer borrowings and government securities investments. — UNI

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