Rates unchanged, RBI sees GDP at 8.5% | business | Hindustan Times
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Rates unchanged, RBI sees GDP at 8.5%

The bank also announces steps to sustain growth without fuelling inflation.

business Updated: Apr 25, 2007 00:40 IST

Reserve Bank of India Governor Y.V. Reddy on Tuesday unveiled a credit policy that has something in it for everybody.

First, house buyers. The credit policy may push down interest rates on home loans under Rs 20 lakh by reducing their risk weight. The risk weight indicates the probability of default on a loan. The reduction of risk weight will allow banks to disburse more home loans and could slow the rate increase in this segment too.

Next, individual investors. The annual limit for those seeking to invest abroad has been doubled to $100,000 (Rs 45 lakh). This will allow domestic investors to diversify their asset portfolios, be it businesses, property or equity.

There is good news for farmers too. The RBI has dispensed with the no-dues certificate (indicating that there are no pending debts) for loans up to Rs 50,000 for small and marginal farmers. There is also a credit guarantee scheme for distressed farmers.

Containing inflation, however, remains the prime concern. The new policy seeks to stem foreign currency inflows, considered one of the main causes of rising inflation as they increase money supply in the economy. Parking of funds in India by NRIs has been made unattractive with interest rates capped at 0.50 per cent below the existing rates on foreign currency non-resident bank deposits and on non-resident external deposits.

Companies have gained as well. The central bank has allowed them to invest thrice their net worth for foreign acquisitions and over a third of their net worth in portfolio investments abroad.

The RBI has kept all other key policy rates — including the cash reserve ratio (CRR), the proportion of total deposits banks are supposed to keep with them — unchanged.