The Reserve Bank of India surprised most economists and analysts by slashing the cash reserve ratio (CRR) by 50 basis points from 6.0 per cent to 5.5 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning January 28, 2012 in order to help the economy sustain growth. As a result of the reduction in the CRR, around Rs 320 billion of primary liquidity will be injected into the banking system.

The RBI governor in his mid quarter review speech said that in reducing the CRR, the Reserve Bank has attempted to address the structural pressures on liquidity in a way that is not inconsistent with the prevailing monetary stance. In the two previous guidances, it was indicated that the cycle of rate increases had peaked and further actions were likely to reverse the cycle.

The central bank, however, has left the policy rates unchanged.

Growth in India reduced considerably post the array of rate hikes by the Reserve Bank of India in its bid to curb inflation.

If there are two things that repeatedly made news on the economic front during the last year, they have to be interest rates and inflation. Interest rates and inflation are in fact not standalone factors; interest rates are among the most actively used tools to contain liquidity in the system and  in turn has an effect on inflation.

Inflation has been riding high during the year; at the start it was at double digits and now it has moderated to around 9.35% levels.which is still higher than the average inflation of 6.5% p.a that is considered reasonable for a developing nation like India. In an effort to contain the upward spiraling inflation, the RBI increased interest rates, more than a dozen times in the last eighteen months. Although the investor benefited from yields from debt instruments becoming extremely attractive, for the borrower life just got progressively tougher!

Interest rates —

Last year, interest rates had a dream run. Fixed income investors emerged the much sought

"I applied for a personal loan and submitted required documents to the bank. After receiving the documents the banker intimated it to my wife that I had applied a loan of Rs.1.00 lakh. If the bank is going to reveal it to my wife, they should make it a condition that loanee should obtain permission from his wife?"

This email from an irate customer who had sought a personal loan from a bank reminded me once again how some processes outlive their utility.

The bank's verification system seems quite faulty in today's context when there are so many other check mechanisms at work. The bank employee's stand was that it's his duty to check the customer's house and reveal the matter to family members. But I feel that checking residential status is fine, but disclosing facts before family members is not warranted especially if customer has an objection.

One of the significant issues faced by the industry in the early wild- west days was what is referred to as "Skip" cases where the consumer took