'Accord treatment to SMEs in Monetory Policy'

New Delhi, Oct 27: As the Review of Monetary Policy 2006-07 is due to be unveiled by the Reserve Bank of India (RBI) on October 31, industry body Assocham today suggested priority treatment to SMEs and agri-business in line with budget proposals for the fiscal 2006-07.

Besides, the chamber has also urged the premier bank to adopt a measured approach towards normalisation of interest rates.

In a representation submitted to RBI, Assocham President Anil K Agarwal has urged that the premier bank should also evolve special financial schemes to provide affordable and timely credit to sectors such as agriculture and agri-business, village electricity scheme, Small and Medium Enterprises (SMEs) and tiny industries, micro and self-help groups, rural housing and infrastructure development.

The Assocham President has pointed out that the RBI in its Monetary Policy should also lay down regulatory framework for lending to farmers and rural dwellers by commercial banks for which the lending norms should be stringent enough to have check on misuse of subsidised financing.

In addition, there should be a supportive environment to encourage new investments in the core sector, particularly in neglected areas of infrastructure development. Resource flow including long term funding to productive and green field projects should also be enhanced, Mr Agarwal added.

In order to achieve macro-economic stability, there is a need to adopt a measured approach towards modernisation of interest rates.

High credit off-take, trade deficit, incipient inflationary pressures, interest rate hikes by the US Fed and ECB, all these suggest that the RBI would maintain a tightening bias, the chamber said.

It also demanded that CRR should be reduced to 3 per cent and SLR be cut down progressively to 10-12 per cent.

It said that all banks should follow a uniform strategy for arriving at their respective benchmark lending rates, ensuring that borrowers understand how the rate is arrived.

''Thus, RBI/IBA must suggest uniform methodology for all banks.

There should be BPLR for the benefit of the customers, if banks can announce a SPREAD either upwards or downwards for different sectors,'' it added.

SMEs contribution to the GDP is high and they help in creation of jobs in the local economy, thus banks should also reduce their PLRs to ensure a level playing ground for all borrowers.

RBI may introduce STRIPS in Government securities to meet the requirement of investors with different time horizons. Introduction of strips will also help in development of a Zero-coupon yield curve.

This particular curve will help in pricing of interest rate derivatives. This will also help in bridging the wide gap in yields on off-the-run and on-the-run securities, Assocham suggested.

UNI