Rediff Logo
Money
Line
Channels: Astrology | Broadband | Contests | E-cards | Money | Movies | Romance | Search | Weather | Wedding | Women
Partner Channels: Auctions | Auto | Bill Pay | IT Education | Jobs | Lifestyle | Technology | Travel
Line
Home > Money > Reuters > Report
April 19, 2001
Feedback  
  Money Matters

 -  Business Special
 -  Business Headlines
 -  Corporate Headlines
 -  Columns
 -  IPO Center
 -  Message Boards
 -  Mutual Funds
 -  Personal Finance
 -  Stocks
 -  Tutorials
 -  Search rediff

    
      



 
Reuters
 Search the Internet
         Tips
 Sites: Finance, Investment
E-Mail this report to a friend
Print this page

RBI expected to tighten banking norms

The Reserve Bank of India is expected to announce measures to make the debt market more vibrant and liquid and restructure existing funding mechanisms for banks and primary dealers.

The bank is scheduled to unveil monetary and credit policy for 2001-02 at 12:30 p.m.

RBI Governor Bimal Jalan has already announced that it will not change the benchmark bank rate of seven percent or banks' cash reserve ratio of eight percent.

But Wednesday's surprise half point rate cuts by the US Federal Reserve will add to pressure on the RBI to follow suit to reduce the interest rate differentials between the two countries, and the central bank could act after the policy, bankers say.

While Jalan's comments on rates last week may have allayed any speculative build-up in markets ahead of the policy release, traders are still looking for clues on the RBI's stance.

Most traders expect the central bank to announce it will maintain a steady to easing monetary stance, given the urgent need to revive sluggish economic growth.

Gross domestic product growth is expected to ease to 6 per cent in 2000-01 (April-March) from 6.4 per cent and 6.6 per cent in the two preceding years.

Latest government data show that growth in both industrial output and exports has slumped in February, the latest month for which data are available.

Scandal weighs

Bankers close to the central bank's thinking say the policy will contain a stiff dose of regulatory measures, reflecting concern over a recent scandal in which bank funds were allegedly diverted illegally to the stock market to ramp up prices.

While that would represent a partial reversal of moves towards deregulation and greater autonomy for the banking sector started in the 1990s as part of India's economic reforms, the central bank may have no choice after widespread media criticism that it was caught napping by the scandal.

Bankers also expect the central bank to lay out roadmaps for debt market development, including a move towards screen-based electronic trading, real time settlement and restructuring of the call money market.

The central bank is also expected to tinker with its existing funding mechanisms to commercial banks and primary dealers.

Export refinance limits halved last July when the rupee came under pressure are expected to be restored.

The RBI is also expected to axe existing refinance limits for primary dealers and scrap refinance banks get against deposit holdings to limit the amount of funds accessible at fixed rates. It is expected to introduce a new repo facility for primary dealers to encourage a move to market-related funding rates.

YOU MAY ALSO WANT TO SEE:
RBI seen juggling market funding policies: Reuters
What to expect in the Credit Policy: Reuters
Debt market sees development push in policy: Reuters
Jalan faces uphill task over Credit Policy
Credit Policy may have tough norms for banks: Reuters
RBI likely to cut export finance rates: Reuters
RBI must not curb banks' exposure to shares, says CII

Back to top
(c) Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Tell us what you think of this report