the issue of subsidised credit; in this context, I would like to quote from a recent speech by Governor Dr. Y.V.Reddy 11 : "Interest rates have been deregulated to a significant degree not only to aid movement of monetary policy to the use of more effective indirect instruments, but also because administered interest rate regime proved to be inefficient and costly, without necessarily ensuring flow of credit to the needy.
The RBI’s recommended approach, however, does not preclude subsidisation by the Government but it disfavours excessive use of banking system to cross subsidise, especially if it were to favour non-poor. RBI favours a financial system that provides incentives to encourage flow of credit at justifiable terms and conditions and for purposes that ensure servicing of interest and principal, i.e., bankability of schemes.