'Amendments afford Reserve Bank flexibility on CRR and SLR'

The Reserve Bank of India (RBI) will be able to carry out the government borrowing programme in the next fiscal without much difficulty, believes Shyamala Gopinath, deputy governor.

She was speaking after the Union Budget announcements came and the RBI released the guidelines on foreign direct investment in banking. Excerpts from the interview:

The Budget has called for amending the Banking Regulation Act as well as RBI Act for adopting flexible limits for cash reserve ratio (CRR) and statutory liquidity ratio (SLR). How will it impact monetary management of the RBI?

The amendments are to provide flexibility to the RBI over a medium-term period to align the CRR/SLR to internaltional levels subject to the economic conditions.

The Budget has also called for consolidated supervision of banks and their subsidiaries. How will it help the RBI in conducting its supervisory functions?

This is one of the Basel II core principles as per the international best practices. It gives the RBI the nlegal authority to supervise in a consolidated manner.

Even if now, we do supervise the domestic and foreign-based subsidiaries of Indian banks. The proposed amendment will provide a legal basis to it.

The Budget has announced the plan to use foreign exchange reserves for infrastructure financing. How does it it confirm to the current fiscal scenario, specially when the goverment has deferred adherence to FRBM by a year?

The Budget recommendations have explained the mechanism very elaborately . Moreover, the forex reserves will be used for import intensive infrastrcture projects

Coming back to FRBM, how well the expenditure envisaged in the budget complies with the sources of receipts? Will it have an impact on the govt's market borrowing?

All I can say is that the RBI will be able to carry out the governmemnt borrowing programme without much difficulty.

There is a proposal for revisiting the legal isues in the debt market in order to revitalsie the corporate debt market. The RBI has also set up a technical advisory committee to come out with a roadmap for corporate debt market. Could you outline the major changes proposed to boost the corporate debt market?

Amendment to Securities Contract and Regulation Act is a welcome change.

This will make trading of mortgage-based securities and asset-based securities a lot easier apart from leading to a soung debt market.

In the debt market, issues related to securitisation and securitised assets need to be addressed.

In future, could there be an enhancement of limit of investments by foreign institutional investors in the corporate debt market?

This is not part of the Budget proposals.