IBA planning to set up forum of economists

An economists' forum is being set up at the Indian Banks' Association (IBA) to help removing the disconnect between commercial bankers and the RBI on macro-economic issues.

The forum has become an urgency now with the finance minister prodding bank chiefs to have a more considered view on macro-economic conditions as bankers' reading of the situation could be clouded by commercial interests.

"At the management committee meeting of IBA in July, the decision had been taken to form an economists forum. The idea is to have an IBA view on issues. The meeting with the finance minister has only given it urgency," said an IBA official. The forum will consist of bank economists and treasury heads.

Chairmen and managing directors of public sector banks had met the finance minister on August 1. The implications arising out of RBI's quarterly review of the monetary policy was discussed in the meeting.

The central bank raised the cash reserve ratio (CRR) to 7 per cent by 50 basis points and removed the cap on the bids it accepts through the reverse repo window.

The finance minister had urged banks to deliberate at the IBA level on macro-economic issues. "The chairman of a bank might have his own opinion but this may not be related to the Reserve Bank of India's or the government's objectives and be driven by the bank's business objectives. Banks can now articulate a crystallised view," said the official.

The forum would study various macro-economic indicators on an on-going basis and evaluate the various policy options at a given point in time. Banks could then represent their view to the government and the central bank.

"The forum would consider policy measures to contain inflation within the specified target and at the same time ensuring that the growth momentum is sustained. The policy issues arising out of buoyant foreign inflows like ways to sterilise the flows, alternatives to raising the CRR every few months and implications of letting the rupee appreciate would be taken up," said the official.