Core sector financing to get priority

"Infrastructure financing would be the major emphasis of RBI for reviving the sluggish economy and increasing credit to sectors like cement and steel," chairman and managing director Punjab and Sind Bank S S Kohli has said.

Banks could also be asked to invest in stock markets and mutual funds as markets seem to have bottomed out, he said.

Bank of Baroda general manager (northern region) K K Pandey said RBI may decide to take measures to revive the capital market to maintain a prudent debt-equity ratio.

"Banks will not come forward to lend to projects unless they have adequate equity," he said.

Confederation ofIndian Industry (CII) said cost of capital should be curtailed by reducing the spread between the interest and inflation rate, since it affects the viability of various projects.

In order to curb inflation rate, it suggested that RBI should come out with inflation-indexed bonds more frequently.

"A higher outstanding in such instruments will also give greater credibility to government’s borrowing programme as inflation reduction will become an important objective of the government," it said.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said, "credit policy should act as a catalyst to stimulate demand in sluggish economy."

The five per cent limit of banks’ investment in equity and mutual funds should be eased and they should be encouraged to invest in debt and equity in the secondary market also.

Calling for more flexibility to banks on the statutory liquidity ratio (SLR), FICCI said banks should be allowed to subscribe to financial institutions bonds which should be consideredas SLR investment.

To boost exports, the Phd Chamber of Commerce and Industry (Phdcci) said software and other exports should be categorised under priority sector lending.

Bankers and industrialists have also urged RBI to take steps for reducing non-performing assets (NPAs) which are estimated to be over Rs 40,000 crore and account for 8.6 per cent of net advances of the banking sector.

Reduction in NPAs could be facilitated through high-quality credit approvals and strong programmes of asset recovery.

In this context, setting up of Asset Reconstruction Companies suggested by Narasimham committee is worth considering for maintenance of investor confidence, they said.

For development of debt market, industry has suggested deeper integration of various financial markets for effective credit policy, facilitate adequate liquidity and ensure more market-determined interest rates.

In the money market, RBI should allow repos (repurchase options) for maturities longer than 14 days along with allowingnon-bank entities to do repo/reverse repo transactions who are holders of special general ledger (SGL).

Credit policy should also introduce hedging instruments like interest rate futures in order to hedge themselves against adverse interest rate movements.