MUMBAI, OCT 19: Even as the Reserve Bank of India is all set to unveil the monetary policy for the second half of fiscal 1997-98, many proposals of the `big bang' credit policy announced six months ago have remained unfulfilled. However, the central bank has succeeded in achieving its objectives on some fronts - especially the inflation rate, interest rate decline and availability of bank credit.For starters, the RBI's efforts to create a term money market have come to naught. Its decision to abolish the three-decades-old concept of maximum permissible bank finance (MPBF) by allowing "full operational freedom" to banks in the assessment of working capital requirement of borrowers has also failed to yield any spectacular results. Many banks have not yet scrapped MPBF and worked out independent working capital requirements.The central bank's policy of introducing "flexibility in the credit delivery system" has not succeeded as none of the Indian corporates has replaced the consortium route with loan syndications, so far.In the previous credit policy, the Reserve Bank exempted liabilities to the banking system from the maintenance of 10 per cent cash reserve ratio (CRR) with effect from the fortnight beginning April 26. The objective behind the move was to develop a more realistic rupee yield curve and term money market. The CRR reduction released Rs 950 crore into the system, but barring a few stray deals, there is little indication of a term money market developing.The Reserve Bank's efforts to develop the government securities (gilts) market have also been a non-starter. Six months after the announcement, the Reserve Bank is yet to issue guidelines on how non-bank entities can enter into reverse repo transactions with banks and primary dealers. None of the foreign institutional investors (FIIs) has yet taken the plunge in the gilts market even though the government has allowed them to trade in dated securities.On the plus side, the RBI has, however, succeeded in containment of inflation. The annual rate of inflation, which was pegged at 6.99 per cent for the week ended April 5, has come down below the four per cent level. The policy envisaged the inflation rate at around 6 per cent in 1997-98.The policy has also succeeded in ensuring "availability of adequate bank credit" as the growth in deposits in the first half of the current fiscal has been spectacular. In April-September, aggregate deposits of the banking sector swelled by Rs 36,321 crore as against Rs 30,599 crore in the corresponding period of the previous fiscal registering a 7.2 per cent growth.The interest rate has come down since banks have revised their prime lending rates downward twice since the credit policy was announced on April 15. It is, however, another story that bank credit has not picked up despite the lowering of interest rates.Non-food credit up to September 26, 1997 showed a decline of Rs 1,361 crore compared with a decline of Rs 552 crore in the last year. However, taken into account banks' investments in other instruments like commercial papers, bonds and debentures, the total flow of funds into the commercial sector is pegged at Rs 5,646 crore this year against Rs 597 crore last year.The twin objectives of the policy were "maintaining reasonable price stability" and "ensuring availability of adequate bank credit to support the growth of the real sector." Given the real GDP growth of six-seven per cent, the policy sought to maintain the expansion in M3 in the range of 15-15.5 per cent to keep the inflation rate at around six per cent in the current fiscal. The inflation rate has been kept in tight leash and the money supply growth which consistently overshot the targeted limit finally came down to the targeted level.
