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Will noises translate into action?

H. S. Rajashekhar

NO RBI Governor's job is enviable, especially when it comes to ensuring the effectiveness of monetary polices. The autonomy of the RBI and the Government's fiscal responsibility (or the lack of it), have, more often than not, worked at cross-purposes tha n complement the monetary policies. The push towards lowering interest rates is a case in point about the kind of pressures the Government exerts on the RBI.

The business lobby continuously hankers for a reduction in interest rates (for reasons known to everyone) and the Government finds it convenient to support this lobby. According to the RBI Governor, Mr Bimal Jalan, with the current reduction of 50 basis points, the bank rate, at 6.50 per cent, is at its lowest since May 1973. The only certain impact is that the Government can borrow cheaper. What happens to general economic activity is now all too familiar -- there no talk of even kick-starting the econ omy. If banks decide to respond to the Bank Rate cut, they will reduce lending rates and then pass on the burden to depositors. It is not fashionable to argue for the depositor, and nobody does anyway.

With uncertainties all around, especially post-September 11, none did expect much from Mr Jalan. The statement is just a review and nothing more. And, no one is going to complain.

The CRR cut was, however, beyond all expectations. But coupled with Open Market Operations of the RBI, it may ultimately mean nothing from a liquidity perspective. An increase in the return on CRR balances was expected. And, rationalisation by removing v arious exemptions is also apt.

Mr Jalan rightly reminds that a number of draft bills are with the Government for action. The list is long and has important bills on securitisation, amendments to the Negotiable Instruments Act, and so on. One hopes the Government finds time to take the se up.

The flexibility introduced in the loan system of delivery of credit is logical. In fact, the RBI should keep out of such areas. It is for the banks to design and deliver loan products appropriate to each customer's cash-flow needs. Few years back, when t he Indian banking system believed that working capital meant only cash credit, the RBI was needed to initially introduce loans as a mode of delivery of working capital finance.

It is indeed painful to see nothing has happened since April in setting up credit bureaus. The April policy statement had referred to some MoU between the SBI and HDFC for setting up the bureau and almost endorsed the proposed bureau (which came in for p rompt criticism immediately). The RBI had gone ahead and asked banks to be ready for collecting and transmitting information to the bureau. It is October, and no bureau is in sight. Once again, the current statement makes some noises. One has to wait and see.

Co-op banks is an area where everyone always knew that the RBI can do little. It is in the fitness of things that the RBI has suggested a separate apex regulator who can then be held responsible for a safe and sound co-op banking system. Knowing how the sector works, it is a tall order, but that is all the more reason for a separate regulator.

Technology upgradation is one area where one just cannot afford to lose time. The need is for a payments system. What the policy promises is the final version of a Payments System Vision Document. Mr Jalan once again promises a Vision Document. Can we no w move further?

(The author is with i-Flex Consulting, Bangalore. The views are personal and do not necessarily represent those of his organisation.)