However, the RBI decision to give banks a higher rate of 6 per cent on their CRR balances is a good development. The structure of refinance liquidity to banks has also been changed. The split of refinance liquidity into 2 parts as a normal and backstop facility has been done essentially to reduce the banks dependence on RBI at fixed rates. The plan to move into a Dutch Price Auctions paves the way for market determined interest rates. Exporters have received a fillip by way of reduction in Export Packing Credit rates proposed to be capped at PLR minus 150 bps.
Banks now have the flexibility of reducing interest rates on export credit to their customers.
However, the refinance eligibility criteria for export credit as 15 per cent of the outstanding credit may have some adverse cost implications for banks. However, the development of a repo market will address this problem and also result in the formation of a short-term market determined yield curve. The process of separation of debt management from RBI will help the central bank in its primary objective of the conduct of monetary policy and price stability. Freedom has also been given to banks to lend at sub PLR levels to good quality corporate paper thus leveraging the quality and flexibility to their asset portfolio. Dematerialisation of commercial paper issuance will add depth to the market and also reduce settlement risks.