Industry, banks back mid-term credit policy

The mid-term credit policy announced by Reserve Bank governor Y V Reddy on Tuesday has evoked a positive reaction in the industry and banking circles in Pune.

Describing it as "good policy," Bank of Maharashtra Chairman and Managing Director M D Mallya said the banks will have to resort to a tighter management of their liquidity position as the RBI has increased the repo rate by 25 basis points. If the banks have to resort to borrowing from the apex bank they will have to readjust their lending rates to offset the 0.25 per cent increase in the repo rate, he pointed out.

Another significant aspect of the policy is the relaxation in the time frame to implement the Basel II norms for income recognition. "This will give some leeway to the banks who are not yet fully prepared for the implementation of Basel II," he said.

Mallya said the policy will not have any significant impact on Bank of Maharashtra's operations as the bank does not resort to the RBI window as a source of funds.

On the implementation of Basel II norms, Mallya said the bank is building up its preparedness for Basel II norms and will be in a position to follow them in April 2007, as originally proposed.

Gopal Patwardhan, managing partner of private equity firm Duke Equity, said the move to increase the foreign investment limit for Indian citizens from $25,000 to $50,000 is heartening.

"This shows that the apex bank, and ultimately the government, is committed to moving towards full convertibility," Patwardhan said.

According to him, the liberalisation of External Commercial Borrowing restrictions will also help propel growth capital infusion into companies, though this is not a huge relaxation or one that is unexpected.

"The 8 per cent GDP growth targeted is realistic, though I think the government needs to be more aggressive on debt market reform if double digit growth rates are to be achieved in the next few years, Patwardhan felt.