NEWS & ADVICE : CAR LOANS
RBI insist banks to extend cheaper loans
By Vaibhav Aggarwal
Dec 19, 2008
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With the inflation cooling down and liquidity easing, RBI insists banks to further reduce the lending rate and extend loans at cheaper rate with relaxed terms.

At the same time the regulator has also asked banks to keep a regular track of their portfolios. "Banks should monitor their credit portfolios closely and take corrective action in order to prevent undue asset-liability mismatches or deterioration in credit quality," it said.

The apex body expressed concerns about the falling prices in the realty sector which is likely to have an adverse impact in the economy. Hence it has advised banks to remain a little cautious in managing their balance sheet exposure to this sector. However RBI has assured about the sufficient availability of funds in the economy.

The central bank is confident that India would be able to overcome the global financial crisis in safe manner. The country's financial sector is firm and "faces the major challenge of meeting credit demand without impairing credit quality," said RBI. "Once the global situation has stabilized and calm and confidence are restored, India will return to the high growth trajectory," it added.

Commenting on the interest rates movements, RBI told that when the monetary policy is tightening, benchmark prime lending rates tend to increase fast but when credit limits are increased, interest rates do not fall by the same proportion. Therefore the borrowers do not get the payouts of easy liquidity.

RBI feels that that there is a need for maintaining financial stability in the economy and hence it should revisit its functions. "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.

"The global financial turmoil has reinforced the importance of putting special emphasis on preserving financial stability," added RBI.

 


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