BALANCING ACT: Y. V. Reddy (right), RBI Governor, with V. Leeladhar (left), Deputy Governor, addressing a press conference in Mumbai on Tuesday. — Photo: Paul Noronha

MUMBAI: The Reserve Bank of India on Tuesday tightened the provisioning norms for banks in areas of capital market, real estate, housing and personal loans.

RBI Governor Y. V. Reddy, while announcing the Annual Policy Statement for 2006-07, has asked banks to set apart one per cent (raised from the earlier 0.4 per cent) of personal loans, capital market exposures, residential housing loans beyond Rs. 20 lakh and commercial real estate loans, as a reserve to safeguard against the impact of bad loans in the event of a property bubble bursting.

He raised the risk weight on exposure to commercial real estate to 150 per cent. The exposure to venture capital funds is to be treated as part of the capital market exposure and assigned with higher risk weight of 150 per cent. The RBI Governor also stated that the central bank would be taking further actions if banks have exposure to capital market through non-banking financial companies (NBFCs).''

Announcing the monetary stance of the central bank, Dr. Reddy said it would focus on credit quality and financial market conditions to support export and investment demand in the economy for maintaining macroeconomic, in particular, financial stability.

He said that appropriate liquidity would be maintained to meet legitimate credit requirements, consistent with price and financial stability. According to the RBI, adjusted non-food credit is projected to increase by around 20 per cent, implying a calibrated deceleration from a growth of around 30 per cent ruling currently.

Farmers' issues

Dr. Reddy said that farmers in several areas of the country are still in distress, despite the spread of banking facilities in rural areas and availability of bank finance at reasonable rates.

The central bank decided to constitute a Working Group to suggest measures for assisting distressed farmers, including provision of financial counselling services and introduction of a specific Credit Guarantee Scheme under the DICGC Act for such farmers. The RBI is also setting up a Technical Group to review the efficacy of the existing legislative framework governing money lending and its enforcement machinery in different States and make recommendations to State Governments for improving the legal and enforcement framework in the interest of rural households.

The All India Debt and Investment Survey (NSS Fifty-Ninth Round) has revealed that the share of money lenders in total dues of rural households has increased from 17.5 per cent in 1991 to 29.6 per cent in 2002.

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