Credit Policy-Faith In the Market

the Reserve Bank had directed banks, as part of its credit policy for the busy season, to limit credit expansion during the busy season, for purposes other than food procurement, to Rs 400 to Rs 450 crores. This figure, it was clear, was not based on any credit plan indicating how banks were to distribute the permissible credit expansion among different sectors and industries. And without such a plan the figure represented little more than a pious wish on the part of the Reserve Bank. The inadequacy of the credit policy changes announced on November 10 has been exposed by the fact that the Reserve Bank has been already forced to come out with what it has coyly called follow-up measures. The latest measures, however, confirm that the Reserve Bank continues to be unable, or unwilling, to frame a credit policy based on sector-wise and industry-wise requirements. It continues to pin its faith on controls on aggregate credit expansion by banks, failing to realise that these might very likely further distort the distribution of credit among different uses.