an in in ndia       12.15
         (ii) internal autonomy for public sector                  (i) Directed credit programme should
                 banks (PSBs) in their decision making                  be phased out gradually. As per the
                 process; and                                           committee, agriculture and small scale
        (iii) greater degree of professionalism in                      industries (SSIs) had already grown to
                 banking operation.                                     a mature stage and they did not require
                                                                        any special support; two decades of
     recommenDAtion of cfs                                              interest subsidy were enough. Therefore,
     The CFS recommondation25 could be summed up                        concessional rates of interest could be
     under five sub-titles:                                             dispensed with.
     1. On Directed Investment                                    (ii) Directed credit should not be a regular
                                                                        programme—it should be a case of
     The RBI was advised not to use the CRR as a                        extraordinary support to certain weak
     principal instrument of monetary and credit                        sections—besides, it should be temporary,
     control, in place it should rely on open market
                                                                        not a permanent one.
     operations (OMOs) increasingly. Two proposals
     advised regarding the CRR:                                  (iii) Concept of PSL should be redefined
                                                                        to include only the weakest sections of
           (i) CRR should be progressively reduced
                 from the present high level of 15 per cent             the rural community such as marginal
                 to 3 to 5 per cent; and                                farmers, rural artisans, village and cottage
         (ii) RBI should pay interest on the CRR of                     industries, tiny sector, etc.
                 banks above the basic minimum at a rate         (iv) The “redefined PSL” should have 10 per
                 of interest equal to the level of banks, one           cent fixed of the aggregate bank credit.
                 year deposit.                                    (v) The composition of the PSL should be
          Concerning the SLR it was advised to cut it                   reviewed after every 3 years.
     to the minimum level (i.e., 25 per cent) from the
     present high level of 38.5 per cent in the next 5        3. On the Structure of Interest Rates
     years (it was cut down to 25 per cent in October         The major recommendations on the structure of
     1997). The government was also suggested                 interest rates are:
     to progressively move towards market-based
                                                                   (i) Interest rates to be broadly determined by
     borrowing programme so that banks get economic
     benefits on their SLR investments.                                 market forces;
          These suggestions were directed to the goal             (ii) All controls of interest rates on deposits
     of making more funds available to the banks,                       and lending to be withdrawn;
     converting idle cash for use, and cutting down the          (iii) Concessional rates of interest for PSL of
     interest rates banks charge on their loans.                        small sizes to be phased out and subsidies
                                                                        on the IRDP loans to be withdrawn;
     2. On Directed Credit Programme
                                                                 (iv) Bank rate to be the anchor rate and all
     Under this sub-title the suggestions revolved                      other interest rates to be closely linked to
     around the compulsion of priority sector lending                   it; and
     (PSL) by the banks:
                                                                  (v) The RBI to be the sole authority to
       25.    Ibid.                                                     simplify the structure of interest rates.