the previous year. the full impact of the reductions in the crr effected last year will be seen in the current year. the crr on inter - bank liabilities has been withdrawn as part of the policy. apart from the impact this will have on the creation of an appropriate term deposit market, this will release about rs. 9500 million of lendable resources to banks. we have also introduced a general refinance facility which will be available to banks and this facility will be equivalent to one per cent of the demand and time liabilities of banks. all of these measures will have the impact of expanding the lendable resources of banks. the bank rate has been reduced from 12 per cent to 11 per cent to signal a reduction in the interest rate. we want the bank rate to emerge as an effective signal rate as well as a reference rate. to coincide with the reduction in bank rate, the term deposit rate for maturity of 30 days and upto one year has been reduced by one percentage point. the same rate has been made applicable to rates on term deposits of non - resident ( external ) rupee deposit accounts of maturity of over six months and upto one year. on foreign currency non resident accounts ( banks ) deposits, banks are free to determine interest rates subject to a ceiling prescribed by the rbi from time to time. thus the various measures announced will have the effect of expanding the lendable resources of banks on the one hand and bringing about on the other a reduction in the deposit rates and consequently lending rates. 12. responding to the policy announcement, a number of banks in the public sector banks have already reduced their plr by 50 - 100 basis points to take it to 14 per cent. needless to say the only enduring way to bring about a reduction in the interest rate is by keeping the inflation rate low and breaking inflationary expectations. 13. the third objective relates to the revamping of the credit delivery system which has become necessary for accelerating the credit flow from the banking system. a number of measures announced fall in this category. i would like to list the most important among them. the mandatory consortium requirements for credit limits of rs. 500 million and more has been dispensed with. banks and their customers can now enter into a variety of arrangements including syndication subject of course to the exposure limits. banks have been given full freedom to evolve their own methods of assessing the working capital requirements of borrowers. this should result in quicker decision making and speedier

rates and lending rates of banks as also spreads over the prime lending rates ( plr ). in july 1996, some public sector banks reduced their plr by 0. 5 percentage point. however, as a number of banks were charging lending rates far higher than plr, banks were directed in the monetary policy announcement of october 1996 that along with the announcement of their plr, they should, with the approval of their respective boards, also announce the maximum spread over the plr for all advances other than consumer credit. the public sector banks have since reduced their plr further from 16. 5 per cent in march 1996 to 14. 0 - 15. 5 per cent by march 1997 and spreads in the rate of 2. 5 - 4. 0 percentage points were announced. during 1996 - 97, many banks had also brought down interest rates on term deposits by 1 to 2 percentage points on the shorter end of their maturity spectrum with a view to reducing the average cost of deposits. 6. reflecting the easy liquidity conditions during 1996 - 97, there has been a significant softening of money market interest rates. at the short end of the market, the rates have come down sharply and have ruled generally low as compared with the levels prevailing in 1995 - 96. the typical call money rates ruled low in the range of 2. 00 - 5 per cent in the recent period. the rate on 91 - day treasury bills came down from 12. 97 per cent at the beginning of april 1996 to 7. 96 per cent in march 1997. similarly, the rate on 364 day treasury bills declined from 13. 12 per cent in april 1996 to 10. 10 per cent in march 1997. the typical rates of discount on certificates of deposits ( cds ) and commercial paper ( cp ) have also declined sharply since end - march 1996. there was also some softening of coupon rates on long - term government bonds. 7. the stance of monetary policy in 1997 - 98 would be to achieve the twin objectives of maintaining reasonable price stability and ensuring availability of adequate bank credit to support the growth of the real sector. the economy is still subject to inflationary pressures. there is need for continued caution on the price front and this would require a moderation in monetary expansion consistent with the expected real growth. there is also the need for developing the bank rate as reference rate to signal policy stance of the reserve bank. this would require rationalisation of the interest rate structure and linking of interest rates to the bank rate.