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+Credit Policy (2003-04)

Ms Chanda Kochhar, Joint Managing Director, ICICI Bank :

THE credit policy presents a comprehensive analysis of developments in both the global and domestic markets and underscores the strong fundamentals of India ’s economic development. The mid term review sets the stance of monetary policy as striking an optimal balance between preserving financial stability, maintaining price stability, anchoring inflation expectations and sustaining the growth momentum.

While growth projections for our economy have been revised from 8.0% to the range of 7.5 per cent to 8.0 per cent, we still remain one of the fastest growing economies in the world. This should also be seen in context of the overall slowdown in global economic growth – China ’s growth rate in the third quarter this year has declined to less than 10.0 per cent for the first time in more than five years.

The mid term review of the annual policy statement comes at a time of increased uncertainty in global markets. The domestic impact of these conditions has been visible in the liquidity situation in India and RBI has been addressing the domestic liquidity requirements. During October 2008, RBI has affected a 250 bps cut in the CRR , 100 bps cut in the repo rate and instituted additional LAF facilities. Such measures have addressed the immediate liquidity shortages in the system and also indicate RBI’s policy of active management of financial market developments.

RBI has also recently liberalized the external commercial borrowing regulations in an effort to increase capital inflows. However, the impact of these measures remains to be seen given the continued risk aversion in global markets. In the credit policy statement, RBI has indicated that it will “continue to deploy both conventional and unconventional tools” to manage the current challenges. Such measures would indeed be needed on an ongoing basis, particularly in providing continuous liquidity support in the form of both domestic and foreign currency liquidity, as and when the need arises.

ASSOCHAM president, Mr. Sajjan Jindal :

THOUGH the Central bank has constantly been reviewing the monetary development in the wake of current downturn, it should have reduced the Repo Rate by 100 basis points and brought down CRR at 6 per cent.

The suggested measures would have infused required liquidity in the system as the ASSOCHAM has been constantly receiving reports from all segments of Indian industry that banks are still scared to lend.

Mr. Jindal suggested that the RBI should urgently create a mechanism for weekly monitoring of banks lending to ensure smooth extension of finances to Indian Inc.

The Chamber, however, is confident that the GDP growth in current fiscal would be close to 8 per cent in current fiscal and inflation would be moderated at 7 per cent by March 2009.

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