Relevance of Five Per Cent Rule

The Reserve Bank, by a clarification, has permitted banks to grant medium-term loans in excess of 5 per cent of their deposits. Given deposits of over Rs 4000 crores, this would imply a permission to banks to lend about Rs 200 crores on term basis. The Reserve Bank’s policy on term loans by banks has hardly been consistent … H V R Iengar, when he was Governor of the Reserve Bank, pressed banks to go in for term-financing. The setting up of the Refinance Corporation was in fact intended to help banks in this task.