Gunit Chadha
CEO
Deutsche Bank
Market participants were eagerly awaiting the policy to gauge the interest rate bias and its implication. The stated objective of continuing soft stance on interest rate environment along with providing adequate liquidity to meet credit growth is quite welcome. It will spur investment demand necessary to support economic growth.
The next few months are quite crucial for Indian economy "" factors that will influence it include political developments and their impact on the stock markets, the slackness which has crept in the economy during long election process, the onset of monsoon and its impact on the agriculture sector.
The external environment continues to remain uncertain with interest rates on rise globally. Large expansion plans have been on anvil for Indian corporate sector and expected to materialise over the next year.
Given that background, this policy achieves two objectives "" provide domestic liquidity to needy Indian corporates who may find liquidity tightening globally just when their plans are underway and secondly, retaining the confidence of Indian investors / banking system in the wake of global volatility in interest and exchange rates.
It is important to maintain a vigil on the inflation, which can change rapidly in a developing country like ours. Given the unprecedented deluge of liquidity in the past year, the monetary implications of inflation have been well managed.
This front is likely to be more manageable in the foreseeable future given the direction of global currencies and the course taken by the rupee in the past month.
The concession in prudential credit exposure limits in exceptional circumstances is encouraging though further relaxation will be welcome.
Measures such as issuance of long-term bonds by banks for infrastructure financing, withdrawal of limits for unsecured exposure, capital charge for market risk further deepens reforms in terms of strengthening banking system, credit delivery process & improvement in risk management systems of the banks.
Permission of sophisticated products such as credit derivatives and further leeway in rupee derivatives will be the logical next steps and would help a long way towards credit and interest rate risk management. Further strengthening of the role of CIBIL will facilitate sharing of credit information.
Overall, highly satisfactory outcome for everyone involved.
