The Hindu Business Line : Bankers seek RBI help to tackle rising yields

RBI could adopt an approach now when the yields are rising rapidly, similar to what it does through the open market operations window when the yields fall rapidly, bankers suggested.

Mumbai , Aug. 26

BANKERS and other participants in the financial markets, at a meeting with the Reserve Bank of India on Wednesday, made several suggestions to the central bank to provide comfort to financial markets, at a time when hardening yields are threatening to impact their bottom lines.

Select bankers and representatives of industry associations, such as the Indian Banks Association (IBA), the Primary Dealers Association of India (PDAI), the Fixed Income Money Market and Derivative Association of India (FIMMDA) and the Foreign Exchange Dealers' Association of India (FEDAI), attended the meeting held at the RBI, which was chaired by the RBI Governor, Dr Y.V. Reddy, and other key RBI officials.

Participants at the meeting recommended that unwinding of overhang of liquidity should be allowed to take place gradually. They also suggested that liquidity management by the RBI could include careful calibration in the conduct of the market stabilisation scheme and the Central as well as the States' borrowing programmes, which may include a review of the calendar, in order to provide some comfort to the financial markets.

It was suggested that RBI could adopt an approach now when the yields are rising rapidly, similar to what it does through the OMO (open market operation) window when the yields fall rapidly, said a press release.

The various issues discussed in the meeting included the global and the domestic economic environment, as well as financial markets, the divergence in the measurement of inflation as reflected in the WPI/PPI and the CPI globally and the recent trends in the external sector.

Several suggestions were made in regard to the extant accounting norms applicable to the banks' investments and innovations in the Government securities market, said a press release.

It was also indicated that stability in the Government securities market will have a positive impact on corporate bond markets also.

Bankers raised the issue of the tightening of provisioning norms for the State-guaranteed loans and requested that they be deferred beyond one year to give time to the State Governments and banks to adjust to the proposed norms, the release said.

Dr Reddy assured participants that suggestions relating to operational aspects would be considered on a priority basis. More intense consultations on medium term issues flagged in the meeting will be held with the respective advisory committees of the RBI in which market participants are also represented.

The Governor reiterated the importance accorded to the primary objective of maintaining price stability and consequently containing inflationary expectations, while giving due consideration to growth in output and employment.

He added that the progress made in moderating inflationary expectations would have to be maintained, the release said.

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