INDIAN RESERVE BANK TIGHTENS CREDIT POLICY
The Reserve Bank of India said it was
tightening its credit policy for commercial banks by raising
their cash reserve ratio by 0.5 pct to 10 pct, effective from
October 24.
    The move, announced last weekend, is part of the bank's
policy for the second half of fiscal 1987/88 ending March and
is aimed at curbing excess bank liquidity.
    The central bank also put selective controls on bank
advances to the oilseeds, vegetable oils and foodgrains trades.
    "The policy's main objective is to fully meet the credit
requirements of agriculture, industry and exports, while
preventing excessive monetary expansion," bank Governor R.N.
Malhotra told an earlier meeting of chief executives of banks.
    Malhotra said the rate of monetary expansion must be kept
under control in the second half of the current financial year.
    Bank deposits rose 75.40 billion rupees in the first six
months of fiscal 1987/88 against 66.92 billion in the same
period last year, according to the bank.
    Bankers said the bank's move to raise the cash reserve
ratio by 0.5 pct will mean impounding about five billion rupees
from the banking system. Banks' total deposits are estimated at
around 1,000 billion rupees.
    They said banks are under pressure because of low returns
on commercial lending and investments in government securities.
    "Already many banks are finding it difficult to maintain
their statutory liquidity and cash reserve ratios and are
resorting to heavy inter-bank borrowings," said one banker.
 REUTER
