22 October, 2020

Towards A Swifter Tempo

The new three-pronged credit policy aims to spur a sluggish economy into snowball mode

Towards A Swifter Tempo

ACCORDING to RBI governor Chakravarthy Rangarajan, the three-pronged objective of the busy season credit policy announced by the Reserve Bank of India on October 21 is to continue money supply growth, accelerate flow of credit and carry forward financial sector reforms. Whether he meets that objective is crucial—the economy's health may hinge on it.

Sluggish industrial growth and low credit off take in the first few months of 1997-98 have already led the RBI to lower its GDP growth estimate from 7 per cent to about six. Now Rangarajan has cut the banks' mandatory cash reserve ratio by two percentage points to release an additional Rs 9,600 crore into the banking system. Indian banks can now easily earn a differential interest of Rs 480 crore in the six months left of the current fiscal year. The extra disbursable funds with banks, Rangarajan believes, will now force banks to lend. A persistent charge from industry has been about the reluctance of banks to lend to any but the safest of projects.

Simultaneously, to bring...



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