RBI says time ripe for cheaper, easier loans

MUMBAI: Corporate India and retail borrowers may soon get loans at cheaper rates and on easier terms. The Reserve Bank of India has advised banks to cut rates further, citing fall in inflation, easy liquidity and lower cost of funds.

RBI, on its part, has assured the availability of adequate money in the system through active liquidity management.

But in the same vein, it has asked banks to regularly track their portfolios. ���Banks should monitor their credit portfolios closely... and take corrective action in order to prevent undue assetliability mismatches or deterioration in credit quality,��� it said.

The central bank also expressed the fear that a sharp fall in real estate prices will impact the Indian economy. However, it cautioned banks to prudently manage their balance sheet exposure to the ailing sector.

RBI was optimistic that India would emerge from the global financial crisis relatively unscathed, and bounce back sooner than expected. The country���s financial sector is stable and healthy, and ���faces the major challenge of meeting credit demand without impairing credit quality,��� RBI said, in a report on ���Trends & Progress in Banking���, released on Wednesday.




It added, ���Once the global situation has stabilised and calm and confidence are restored, India will return to the high growth trajectory.��� The regulator, however, observed that inflation is above ���acceptable��� levels, making monetary policy management more complex.

Referring to interest rate movements, the central bank said benchmark prime lending rates tend to move up fast during monetary tightening, but do not dip as much when credit curbs are lifted. As a result, borrowers do not enjoy the benefits of easy liquidity.

Lauding prudent market practices in India, RBI indicated that active liquidity management is a key element in its approach to monetary policy.

The central bank said liquidity modulation, to a significant extent, cushioned the impact of international financial turbulence on the domestic financial markets. It also shared the credit for the decline in bad loans, attributing it to the combined efforts of policy makers and banks. RBI has advocated the need for revisiting its function in maintaining stability.

���The respective roles of central banks, regulators, supervisors and fiscal authorities need to be revisited, such that central banks have the necessary information base to play a central and effective role in maintaining financial stability,��� it said. Large-scale bailout packages have adverse implications on the regulatory architecture and fiscal conditions, the regulator concluded.