ECB norms may be eased

NEW DELHI: As the domestic credit requirements are outpacing the availability, the government is considering to ease the norms for external commercial borrowings. According to a finance ministry source, government and RBI will soon discuss the matter.

The crisis in the US financial market, said a banking source, will put pressure on availability of fund. This, coupled with Fed's decision of not to cut rate, will push up interest rates in the global market, which in turn will affect the domestic financial market.

A senior foreign banker said banks in US and Europe would now like to sit on cash to meet statutory requirements, instead of lending or investing funds in other assets. As investments of many of the US banks are becoming doubtful, they are forced to make provisions against assets.

A senior banker said demand for credit in the domestic market continues to be strong. Up to August 29, 2008, banks' credit grew at 25.3% on year on year basis. But, the deposits rose 22.1% only.

At the same time, to contain inflation, which is hovering above 12%, RBI has increased the statutory reserve requirements of banks, to contain liquidity. This further reduced availability of lendable funds with banks.

A senior banker said if the liquidity further get squeezed following the US crisis, the availability of loan for productive sector will be adversely affected. This might affect the industrial growth.

Therefore, the government is considering to allow the corporate houses to approach the international market to raise funds, so that India growth story remains intact.

In 2007, RBI had tightened ECB norms. It had said that normally ECB money cannot be used for rupee expenditure. Only after RBI's permission, funds up to $20 million can be used for rupee expenditure.