Industry, banks welcome RBI Guv's neutral stance in credit policy

Mumbai, April 18 (UNI) Reserve Bank of India's Annual Credit Policy for 2006-07 projects the image of a regulator that perhaps had intentions of raising key interest rates ''but for compulsions of its own'' finally decided not to do so.

The regulator's desire to tighten and control the flow of bank credit comes through strongly in all the other non-interest rate measures that it has announced in its policy, has been welcomed by of majority of trade and industry bodies besides commercial banks on the RBI's credit policy today.

IndusInd Bank Managing Director Bhaskar Ghose said RBI's concern is centered in particular around four areas of bank credit such as capital market exposure, non-priority home loans, commercial real estate loans, and personal loans. The last of these has largely been a surrogate means for individuals in recent months to raise money for investment in the capital markets or in real estate, said he.

Although key interest rates have remained unchanged for now, Mr Bose continued, they appear to be straining at the leash, ready to be released by RBI at the slightest hint that its non-interest rate measures have not yielded the expected results.

Echoing similar views, , Financial Markets and Financial Institutions at YES BANK President Ajay Mahajan said, ''RBI has chooses to take a pause.'' He explained that RBI has decided to leave all key rates unchanged in a bid to preserve the growth momentum, while placing increased focus on maintaining financial stability and high credit quality.

The decision to stay put is perhaps driven by the fact that the previous hike was meant to be somewhat pre-emptive while globally rates are edging up. With the FRBM (Fiscal Responsibility Budgetary Management) provisions, this is the first year, RBI will totally rely on primary dealers for subscription to the entire government borrowing program.

A reverse repo rate hike carries the risk of turning the bond market overly negative creating uncertainty for the government borrowing program this year. A risk, at this point in time, was perhaps worth avoiding, said Mr Mahajan.

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