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Friday, Jun 17, 2005

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`Enough liquidity to meet growth needs'

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Mr V. Leeladhar (left), Deputy Governor, RBI, with Mr A. K. Purwar, Chairman, State Bank of India, at the Skoch Financial Technologies Summit in Mumbai on Thursday. — Paul Noronha

Mumbai , June 16

THE liquidity in the banking system is high enough to meet the country's growth requirements and it should hopefully go into the right sectors, said Mr V. Leeladhar, Deputy Governor, Reserve Bank of India (RBI).

Mr Leeladhar was speaking at the sidelines of a banking technology seminar organised by Skoch Consultancy Services. For the last three years, the RBI had been focused on doubling credit offtake to agriculture. But now, the main focus would be on the small and medium enterprise (SME) sector, he said.

Timely and adequate flow of credit was a key objective of the monetary policy and there was also a need to increase the credit flow to the small scale industry (SSI) at a low cost.

"The SSI sector should not be equated with high risk," he said.

Consolidation of the regional rural banks (RRBs) would lead to higher financial stability. The RBI's immediate step would be to allow consolidation of RRBs belonging to the same sponsor.

The number of RRBs should come down from the current 196 to more manageable levels, Mr Leeladhar said.

"Reduction in fiscal deficit will lead to higher overall savings and higher order of economic growth," he added. Developing economies such as India tend to run into deficit in external accounts. Therefore, impediments to savings must be removed to encourage investment, he added.

Lower fiscal deficit and market borrowings would reduce banks' holding of Government securities. This would give banks flexibility in extending long-term credit, Mr Leeladhar said.

The economy would likely grow around 7 per cent this year, though the rising oil prices could have a negative impact, he said.

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`Enough liquidity to meet growth needs'

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