With reference to “More tokenism” (Business Line, October 31), the RBI has once again preferred not to tinker with the key policy rates, but reduced the cash reserve ratio further by 25 basis points to 4.25 per cent to infuse more liquidity into the banking system.

To that extent, the banks will be left with more funds to lend and can earn interest on them.

There is, however, a sense of differences in perception between the RBI and the Government over the rate cut. The RBI’s action suggests that it would not like to risk cutting the repo rate for now and allow inflation to go out of control again for the sake of growth, even though growth concerns have picked up. In that context, the RBI definitely deserves a pat on the back.

The Government, on its part, must strive to ensure greater fiscal discipline in a consistent manner that will effectively support the RBI in its endeavours.

Against the backdrop of a sharp increase in the quantum of restructured loans owing to variety of reasons, a hike in the provisioning from 2 per cent to 2.75 per cent on such restructured standard loans is a good step forward. It will raise the safety cushion and ensure financial stability, though it will affect banks’ profitability.

Overall, it is a well-documented policy, aimed at striking a right balance between growth and inflation and taking the economy on a higher growth pedestal in a consistent manner.

S. Umashankar

Nagpur

RBI is right

The RBI did the right thing by not cutting repo rates, as inflation is nowhere under control.

Surprisingly, the Finance Minister, instead of implementing reforms and working on increasing FDI, is expecting the RBI to cut rates for creating excitement in the stock market and thus increasing FII inflows in the short term.

Vijay S. Menon

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(This article was published on November 1, 2012)
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