Anil Agarwal
Chairman, Sterlite Industries
While confirming the slowdown in gross domestic product (GDP) growth, the mid-term Credit Policy announced by the RBI governor Bimal Jalan clearly signals a benign interest scenario as well as control over inflationary pressures, as is evident by the reduction in the yields across all government and corporate papers, as well as control over M3 growth at 13.2 per cent.
CRR and bank rate cuts are welcome and should provide the necessary fillip to the industrial sector. Further, the completion of a large part of the government borrowings would enable corporates to access funds at competitive rates.
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The benign interest rate scenario is expected to be sustained over the medium term, which is a strong positive. The flexibility given to banks for fixation of floating interest rates for new deposits would enable adjustments in a timely manner, to the benefit of both the lender and the borrower.
However, a cause for concern is the skewed non-food credit offtake, indicative of continued recessive pressures in certain industries such as metal and metal products, engineering, power, petrochemicals and telecommunication.
The measures to expedite credit delivery, easing cumbersome procedures for individuals as well as automatic approvals under the foreign direct investment (FDI) route augur well for facilitating forex inflows.
However, significant work still needs to be done in this area. The relaxation in prepayment of external commercial borrowings (ECBs) up to $100 million will enable corporates to manage their forex exposures more effectively.
However, further liberalisation in external borrowings, specifically for participating in the governments divestment programme, would have greatly enhanced the number of prospective bidders and facilitated appropriate price discovery.
It is disappointing to note that there are no changes in the regulations relating to the bank funding of special purpose vehicles (SPVs), floated by companies for the acquisition of other companies including through the disinvestment programme of the government of India.
Such SPVs continue to be categorised as non-banking financial institutions (NBFCs) and thereby the stringent lending regulations applicable to NBFCs are also applicable to such companies despite their different character and purpose.
Liberalisation of interest rates on rupee export credit in two phases is very welcome. Flexibility in repayment/ prepayment of pre-shipment credit will also aid exporters. On the banking sector modernisation, the step to introduce electronic funds transfer on a large scale will mitigate risks as well as increase the efficiency and reduce costs.
Overall, the monetary policy is conducive to providing the necessary growth impetus to the economy and clearly reflects the sustainable easy liquidity and interest rate scenario.