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The apex bank said equity prices were at record highs and although inflation, in terms of wholesale prices appears to have eased, remains high in terms of consumer prices. To curb the menace of recovery agents, RBI has asked banks to prescribe specific considerations while engaging recovery agents. This will improve lender – borrower relationship. In view of rapid integration of the financial markets and the high pace of M&A activity globally, the apex bank will set up a working group to lay down the roadmap for adoption of a suitable framework for cross-border supervision and supervisory cooperation with overseas regulators. This will boost cross border M&A’s in the banking industry which can be seen as a positive move for smooth migration towards Basel II from March 31 2008 onwards.

After a long time RBI took some policy level initiatives for strengthening RRBs. In order to prepare RRBs to adopt appropriate technology and migrate to core banking solutions for better customer services, it is proposed to prepare a road-map for migration to core banking solutions (CBS) by RRBs. This will improve the credit disbursement process at the ground level.

Jharkhand and Himachal Pradesh are direct beneficiaries of this policy, with a view to improving banking facilities in certain less developed States/regions; the Reserve Bank had earlier constituted State-specific working groups to suggest necessary developmental initiatives. In pursuance of this policy, a working group for the State of Jharkhand has since been constituted to recommend measures to enhance the outreach of banking services in the State. This will certainly improve the credit distribution in the state of Jharkhand. This will also have a positive effect on the growth of SME and unorganized sector in the state of Jharkhand.

For achieving the overall objectives of enhancing the flow of bank finance to the priority sector and promoting banks’ role in overall development of the rural sector, it is proposed in this policy to constitute a High Level Committee to review the Lead Bank Scheme. This will help to achieve 100% financial inclusion and will improve the Scheme’s effectiveness.

Conclusion

It is a continuation of the previous policy except that RBI has recognised that there is excess liquidity, and has raised the CRR to mop up excess liquidity. I think this is not the correct thing to do now as it will have its negative affect on growth. There is no signal on policy rates. It is a status quo. I am sure that banks will draw the correct message from the RBI policy and Banks’ Profitability will not be adversely affected. In this policy RBI has emphasised two important matters. One is the need to be vigilant on the expenditure side and prudent expenditure management. The second aspect is that RBI has emphasised to respond through short-term and medium-term measures in the event of any changes in global shocks.

Concluded.

* Contributed by: -
Dr. Gourav Vallabh holds Certified Financial Risk Manager (GARP, USA), Chartered Accountant (ICAI, India), Company Secretary (ICSI, India), Ph. D. (UoR), M. Com., L. L. B. qualifications, and is currently Professor (Finance) at XLRI, Jamshedpur .