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Our Bureau

Five-member panel to meet RBI Governor next week

New Delhi , March 23

The Finance Minister, Mr P. Chidambaram, said on Thursday that the Government and the Reserve Bank of India would come up with an action plan by the month-end to improve liquidity in the banking system and also implement the Budget statement of making available short-term farm credit at 7 per cent during kharif 2006.

"I have taken on board the suggestions made by the chief executives of PSU banks today. I intend to speak to the RBI Governor. A five-member committee of Chairmen of banks would meet the RBI Governor this coming Monday or Tuesday and after that we expect the RBI to take some action on issues relating to liquidity and interest rates," Mr Chidambaram told presspersons after a meeting with the chief executives of PSU banks here today.

Suggestions given

The Chief Executives made a host of suggestions to the Finance Minister on the issue of improving liquidity. The suggestions include relaxation of the rates on Non-Resident Indian deposits to make them more attractive, cut in cash reserve ratio by 1 per cent and policy action on the excess statutory liquidity ratio maintained by the banking system.

Among those who attended the meeting were the RBI Deputy Governor, Ms Usha Thorat, and the Chief Executives of State Bank of India, Bank of Baroda, Indian Overseas Bank, Union Bank of India.

On the issue of 7 per cent funding of short-term farm credit for the next year, the Chief Executives have presented a slew of policy options that could be adopted by the Government and the RBI to implement this budget pronouncement.

"We asked whether the Government can think in terms of a subvention for next year. It was suggested that there could either be a subvention or a tax break on this portfolio or cheaper refinance from Nabard or lesser risk weight for agriculture," Mr H.N. Sinor, Chief Executive, IBA, told presspersons.

Liquidity gap

Stating that there would be a liquidity gap during 2006-07, Mr Sinor, however, said that the entire amount would not be required immediately and that it would be spaced out over time depending on the seasonality.

He said the five-member Chairmen committee, under the aegis of IBA, would meet the RBI Governor, Dr Y.V. Reddy, on March 28. Besides Mr Sinor, the IBA members who are to meet the RBI Governor are the Chief Executives of State Bank of India, ICICI Bank, Bank of Baroda, Canara Bank and Citigroup India.

The IBA Chief Executive said interest rates could remain low if there is liquidity in the system. He said there had been substantial growth in credit in the system and that there would be pressure on banks in terms of credit demands.

"So long as there is deposit growth that can match the credit demand and the shortfall is met through the suggestions made by us, I think the liquidity would take care of the requirements," Mr Sinor said.

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