The recent cut in the cash reserve ratio (CRR) from 10 per cent to 9 per cent should not be greeted with the excitement it probably will in industry circles. Due to the decrease in CRR and the bank rate in April 1999, the financial system has enough liquidity to not merit this cut. If the RBI felt that the economy needed a further boost it could cut the CRR later in the year or early next year. After all, higher credit offtake--and not excess liquidity--is the need of the hour. The waters are murky at the moment--the recent hike in diesel prices could cause inflation to rear its head again.

One important area that was overlooked is the persistent plague of high real interest rates. These are due largely to structural reasons in our financial system. This is a massive deterrent to fresh investments and needs to be addressed if India is to ever become an international superpower.

The other aspects of the credit policy were positive though nothing radical. The housing sector got another boost with the modification in norms for calculation of eligible funds for housing finance. Eligible housing loans for priority lending in urban and metropolitan areas were increased from Rs 5 lakh to Rs 10 lakh, which is more realistic. There was also more flexibility given to banks in lending to the housing sector.

The infrastructure sector got some of the emphasis it deserved. The ceilings on infrastructure lending were removed from the present Rs 1,000 crore for power projects and Rs 500 crore for other projects. As these ceilings were high in any case, the real impact of this change is debatable. Nevertheless, it is a step in the right direction.

The money market mutual funds came under the purview of Sebi rather than the RBI at present. Mutual Funds were furthermore allowed to hedge their balance sheet risks via undertaking FRAs/IRS--further steps to professionalise the asset management industry. NBFCs now have to give notice of three months to leading newspapers before they decide to close a branch or change ownership. This is a step towards rebuilding investors' confidence in NBFCs.

I was expecting the RBI to address the issue of NPAs in the policy--possibly further reduce the period for classifying an asset as sub-standard--but this has not happened. It was reduced in April this year from the present 24 months to 18 months by March 2000--still significantly higher than international standards.

There have been various measures announced to smoothen credit delivery to sectors like export, agriculture, micro-credit, etc. What remains to be seen is how far these measures go in eradicating the bureaucracy plaguing the banking sector. It will be interesting to see what the working paper on the review of the role of deposit insurance contains.