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Stable inflation, low PLR to help reduce interest rate: Jalan

Reserve Bank of India governor Bimal Jalan said on Thursday a stable inflation scenario and freedom for banks to lend at below prime lending rate will help reduce the interest rate as well as revive credit offtake.

"With the inflation scenario remaining as it is, making available credit at below PLR and decline in short term rates by 180 basis points, the interest rates will soften further," Jalan told newspersons after announcing the monetary and credit policy for 2001-02 in Bombay.

Asked about the time-frame for reduction in interest rate, he said, 'there is no such fixed time period but if you take time frame as one year, certainly'.

"It is a positive step for liquidity in the current situation," he added.

RBI has initiated steps to make banks follow prudential norms like provisioning, cash reserve ratio and statutory liquidity ratio to provide comfort to depositors of co-operative banks, Jalan said.

Elaborating on package for export credit, he said reduction in interest rates by one to 1.5 per cent would help exporters to gain competitive advantage.

The prime focus of the credit policy was structural reforms and introduction of 'long term steps for deeper, broader and free financial market which is less dependent on RBI,' he said.

"While performing their role, they have to manage the working in such a manner as to gain depositors' confidence," he added.

Jalan, in an apparent reference to the pay order scam involving Ahmedabad-based Madhavpura Mercantile Co-operative Bank, said one bank has breached the norm that bars lending to brokers leading to the problem.

He did not rule out the option for co-operative banks to turn themselves into regular banks, provided they fulfil the criteria.

Referring to the failed merger proposal of UTI Bank and Global Trust Bank, the governor said, 'RBI does not sponsor mergers'. Due process had to be carried out, despite some people wishing it to be completed before March 31, 2001, to ensure that merger was through in that fiscal, he added.

On capital market exposure of the private sector bank, he said, 'if somebody violates prudential norms, calls stocks as commodities and calls firms to which he has lent as corporation what will you do'?

Stressing the need for sound, safe and strong banks, he said, 'you will not be able to prevent frauds, losses and failures because someone has been imprudent'.

The economy was expected to grow at a rate between 6 and 6.5 per cent in 2001-02, Jalan said.

Referring to recovery of non-performing assets under one time settlement scheme, deputy governor S P Talwar said public sector banks had recovered Rs 16.65 billion as on March 31.

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Monetary & Credit Policy 2001-2002 (First Half)

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