The anxiety about the policy is more on account of it being the first credit policy of RBI governor Bimal Jalan and union finance minister Yashwant Sinha.Speaking to The Financial Express, several prominent bankers expressed common views on the needs to reduce cash reserve ratio (CRR), top priority to the integration of monetary and forex markets and the availability of bank credit at reasonable rates. Most bankers interviewed also agree that the sharp and frequent changes made in the bank rates, CRR, refinance limits and the imposition or withdrawal of surcharges on refinance are causing confusion and anxiety in the market and therefore a long-term credit policy is theneed of the hour.

Leading the debate, Corporation Bank chairman and managing director RS Hugar said, ``a reduction in CRR by 2 percentage points, followed by a staggered cut in six to eight stages over a three to four month period will help avoid any distortion in asset-liability management.'' A cut in bank rate should be coupled with a reduction in CRR in order to keep interest rates down.

Moreover, inter-bank transaction may be excluded from the maintanence of overall reserve requirement for banks to improve their liquidity further.

On a similar note, State Bank of Mysore managing director SR Iyer said, ``banks will be faced with the prospect of financing a crowded government borrowing programme of around Rs 86,000 crore which will sap the liquidity in the system and therefore a cut in CRR is necessary. Banks can manage this compulsive lending to government only if a cut in CRR is implemented.'' Another major issue before the Reserve Bank according to Vysya Bank chief general manager Mohan Rao is thewidening and deepening of money markets. ``RBI must allow some form of short-selling or forward trading in government securities.''

At present, the banks and other entities cannot sell securities unless they hold it on their books. This has restricted the volume of trade on government securities. In the present circumstances, top priority should be given to the integration of forex and domestic treasuries to make use of the arbitraging opportunities available. This will also pave the way for better functioning of the treasury when full convertibility is introduced, Rao added. On the issue of reasonable bank rates, Hugar said, ``keeping in view the government's requirements, a higher money supply target of 16 to 16.5 per cent should be kept as against 15 to 15.5 per cent during 1997-98.''

This coupled with a cut in bank rate and CRR will help keep interest rates low in the economy. He further said, ``RBI is expected to announce measures to increase dollar inflows so that the rupee stays stable even ifthere is surplus liquidity and FIIs may even be allowed to buy treasury bills as a short-term measure.''