Highlights of Annual Policy Statement 2009-10
(Announced by RBI on 21.04.2009)
Projections
GDP growth for 2009-10 placed at 6.0 per cent.
WPI inflation projected at around 4.0 per cent by end-March 2010
Money supply (M3) growth for 2009-10 is placed at 17.0 per cent.
Aggregate deposits of scheduled commercial banks projected to grow by 18.0 per cent.
Growth in adjusted non-food credit, including investment in bonds/debentures/shares of public sector undertakings and private corporate sector and CPs placed at 20.0 per cent.
Stance On the basis of the overall assessment, the stance of monetary policy in 2009-10 will broadly be:
To ensure a policy regime that will enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy to a high growth path.
To continuously monitor the global and domestic conditions and respond swiftly and effectively through policy adjustments as warranted so as to minimise the impact of adverse developments and reinforce the impact of positive developments.
To maintain a monetary and interest rate regime supportive of price stability and financial stability taking into account the emerging lessons of the global financial crisis.
Monetary Measures & Other Issues
The Bank Rate has been retained unchanged at 6.0 per cent.
Repo rate reduced by 25 basis points from 5.0 per cent to 4.75 per cent
Reverse Repo Rate reduced by 25 basis points from 3.5 per cent to 3.25 per cent..
The cash reserve ratio (CRR) retained unchanged at 5.0 per cent of NDTL.
to constitute a Working Group to review the present BPLR system and suggest changes to make credit pricing more transparent.
Payment of interest on savings bank accounts by scheduled commercial banks (SCBs) would be calculated on a daily product basis with effect from April 1, 2010.
A special refinance facility to provide funding to scheduled commercial banks (excluding regional rural banks) up to 1.0 per cent of their net demand and time liabilities (NDTL). This special refinance facility is up to March 31, 2010.
A new settlement mechanism (Multi-modal Settlement) through commercial banks has been put in place to facilitate entities such as mutual funds (MFs), which do not hold a current account with the Reserve Bank, to directly participate in the government securities market.
To enhance the cap of Rs.20 lakh to Rs.1 crore against the security of funds held in NR(E)RA and FCNR(B) deposits.
To introduce CRAR for RRBs in a phased manner
Consequent upon the amalgamation of 156 RRBs into 45 new RRBs sponsored by 20 banks in 17 States, the total number of RRBs declined from 196 to 86 as at end-March 2009 (which includes a new RRB set up in the Union Territory of Puducherry).
New Funds Set up:
(i) Short-Term Co-operative Rural Credit (STCRC) (Refinance) Fund with the NABARD with a corpus of Rs.5,000 crore;
(ii) MSME (Refinance) Fund and MSME (Risk Capital) Fund with the Small Industries Development Bank of India (SIDBI) with corpus of Rs.1,600 crore enhanced by Rs.2,000 crore (to Rs.3,600 crore) and Rs.1,000 crore.
(iii) Rural Housing Fund with the National Housing Bank (NHB) with corpus of Rs.1,000 crore further enhanced to Rs. 2000 crore.
SLBC convenor banks to set up at least one Rural Self Employment Training Institute (RSETI) in each district by 2010. These institutions will train at least one youth in a family below poverty line (BPL) in various fields and enhance capacity building.
Amendment in Banking Ombudsman Scheme: Under the amended Scheme, customers can lodge complaints against banks for non-adherence to the provisions of the fair practices code for lenders or the code of bank’s commitment to customers issued by the Banking Codes and Standards Board of India (BCSBI).
to allow scheduled commercial banks (SCBs) to set up offsite ATMs without prior approval subject to reporting.
Rating Agencies’ to adherence to Code of Conduct Fundamentals of the International Organisation Securities Commissions (IOSCO).
to constitute a Working Group to examine the experience to date of the business correspondent (BC) model and suggest measures, to enlarge the category of persons that can act as BCs.
to increase the maximum distance criterion for the operation of the BC for rural, semi-urban and urban areas from the existing 15 kms. to 30 kms.
The Reserve Bank has rationalised various charges for payment systems. Accordingly, service charges levied for transfer of funds under outward RTGS transactions shall not exceed Rs.25 for transactions of Rs.1 lakh and up to Rs.5 lakh, and Rs.50 for transactions of Rs.5 lakh and above.
Similarly, for outward NEFT transactions, service charges levied shall not exceed Rs.5 for transfer of funds up to Rs.1 lakh and Rs.25 for transactions of Rs.1 lakh and above.
Maximum charges which could be levied for collection of outstation cheques under which the service charges would not exceed Rs.50 for cheque value up to Rs.10,000. A maximum charge of Rs.100 would be levied for cheque value of Rs.10,000 – Rs.100,000. The service charge would not exceed Rs.150 of cheque value Rs.100,001 and above.
The period of entitlement of the first slab of pre-shipment rupee export credit was extended from 180 days to 270 days.
The aggregate limit of export credit refinance (ECR) facility for scheduled banks (excluding RRBs) was enhanced from 15 per cent to 50 per cent of the outstanding export credit eligible for refinance.
The period of entitlement of the first slab of post-shipment rupee export credit was extended from 90 days to 180 days.
The provisioning requirements for all types of standard assets were reduced to a uniform level of 0.40 per cent, except in the case of direct advances to the agricultural and SME sectors which continue to attract provisioning of 0.25 per cent, as hitherto.
Risk weights on banks’ exposures to all unrated claims on corporates, claims secured by commercial real estate and claims on NBFCs-ND-SI were reduced to 100 per cent from 150 per cent.
The ceiling rate on export credit in foreign currency was raised from LIBOR + 100 basis points to LIBOR + 350 basis points on February 5, 2009 subject to the condition that the banks would not levy any other charges.
Policy Measures by the Reserve Bank of India: September 2008 Onwards
September 2008
A firm assurance to meet any demand-supply gaps of foreign exchange in the domestic foreign exchange market.
A second LAF was re-introduced on a daily basis.
As a temporary measure, scheduled banks were allowed to avail of additional liquidity support under the LAF to the extent of up to one per cent of their net demand and time liabilities from their SLR portfolio and seek waiver of penal interest.
October 2008
A 14-day special repo facility for a notified amount of Rs.20,000 crore was instituted to alleviate liquidity stress faced by mutual funds, and banks were allowed temporary use of SLR securities for collateral purposes by an additional 0.5 per cent of NDTL exclusively for this purpose.
Commercial banks and all-India term lending and refinancing institutions were allowed to lend against and buy back certificates of deposit (CDs) held by mutual funds.
The Reserve Bank temporarily provided a sum of Rs.25,000 crore as the first instalment under the Agricultural Debt Waiver and Debt Relief Scheme to scheduled banks and NABARD immediately, pending Parliamentary sanction and consequent release of funds by the Central Government.
Interest rate ceilings on FCNR(B) and NR(E)RA deposits were increased to LIBOR/swap rates plus 25 basis points and LIBOR/swap rates plus 100 basis points respectively.
Banks were permitted to borrow funds from their overseas branches and correspondent banks to the extent of 50 per cent of their unimpaired Tier-I capital or US $ 10 million, whichever is higher.
The Reserve Bank announced that it would institute special market operations to meet the foreign exchange requirements of public sector oil marketing companies against oil bonds when they become available.
External commercial borrowings (ECBs) up to US $ 500 million per borrower per financial year were permitted for rupee expenditure and/or foreign currency expenditure for permissible end-uses under the automatic route. Further, the all-in-cost ceiling for ECBs of average maturity period of three years and up to five years was raised to 300 basis points, and over five years, to 500 basis points above 6-month LIBOR.
November 2008
The statutory liquidity ratio (SLR), which was relaxed on a temporary basis earlier, was made permanent and reduced to 24 per cent of NDTL effective November 8, 2008.
In order to provide further liquidity comfort, a special refinance facility for scheduled commercial banks (excluding RRBs) up to 1.0 per cent of each bank’s NDTL as on October 24, 2008 was introduced under Section 17(3B) of the Reserve Bank of India Act, 1934 up to a maximum period of 90 days.
On October 15, 2008 the Reserve Bank introduced a 14-day special repo facility allowing banks to avail additional liquidity support exclusively for the purpose of meeting the liquidity requirements of mutual funds to the extent of 0.5 per cent of their NDTL. Subsequently, this facility was extended for NBFCs and the relaxation in the maintenance of the SLR was enhanced to the extent of up to 1.5 per cent of their NDTL.
Buy-back of MSS dated securities was announced to provide another avenue for injecting liquidity to be calibrated with the market borrowing programme of the Government of India.
The special term repo facility introduced for the purpose of meeting the liquidity requirements of MFs and NBFCs, was extended till end-March 2009. Banks can avail of this facility either on an incremental basis or on a rollover basis within the entitlement of up to 1.5 per cent of their NDTL.
Interest rate ceilings on FCNR(B) and NR(E)RA deposits were further raised by 75 basis points each to LIBOR/swap rates plus 100 basis points and LIBOR/swap rates plus 175 basis points respectively.
Housing finance companies (HFCs) registered with the National Housing Bank (NHB) were permitted to raise short-term foreign currency borrowings under the approval route.
The Reserve Bank permitted Indian corporates to prematurely buy back their FCCBs at prevailing discounted rates.
The period of entitlement of the first slab of pre-shipment rupee export credit was extended from 180 days to 270 days.
The aggregate limit of export credit refinance (ECR) facility for scheduled banks (excluding RRBs) was enhanced from 15 per cent to 50 per cent of the outstanding export credit eligible for refinance.
SIDBI and the NHB were allocated Rs. 2000 crore and Rs.1000 crore respectively against banks’ estimated shortfall in priority sector lending in March 2009.
Banks were encouraged to use the special refinance facility under Section 17(3B) of the Reserve Bank of India Act, 1934 for the purpose of lending to micro and small enterprises.
The provisioning requirements for all types of standard assets were reduced to a uniform level of 0.40 per cent, except in the case of direct advances to the agricultural and SME sectors which continue to attract provisioning of 0.25 per cent, as hitherto.
Risk weights on banks’ exposures to all unrated claims on corporates, claims secured by commercial real estate and claims on NBFCs-ND-SI were reduced to 100 per cent from 150 per cent.
The special refinance facility under Section 17(3B) of the Reserve Bank of India Act, 1934 introduced on November 1, 2008 was extended up to June 30, 2009.
The special term repo facility was expanded to enable banks to accommodate the funding needs of HFCs. The facility was extended up to June 30, 2009.
The period of entitlement of the first slab of post-shipment rupee export credit was extended from 90 days to 180 days.
December 2008
A refinance facility was introduced for SIDBI, NHB and EXIM Bank for Rs. 7,000 crore, Rs.4,000 crore and Rs.5,000 crore respectively. This facility will be available up to March 31, 2010.
Authorised Dealers Category-I banks were permitted to consider applications for premature buy-back of FCCBs from their customers.
Loans granted by banks to HFCs for on-lending for housing up to Rs.20 lakh per dwelling unit were classified under priority sector.
Commercial real estate exposures restructured up to June 30, 2009 were allowed to be treated as standard assets. As a one-time measure, the second restructuring done by banks of exposures (other than exposures to commercial real estate, capital market exposures and personal/consumer loans) up to June 30, 2009 was also made eligible for concessional regulatory treatment.
The prescribed interest rate as applicable to post-shipment rupee export credit (not exceeding BPLR minus 2.5 percentage points) was extended to overdue bills up to 180 days.
January 2009 • The special term repo facility under LAF for the purpose of meeting the funding requirements of MFs, NBFCs and HFCs was extended up to September 30, 2009.
The special refinance facility for scheduled commercial banks under Section 17 (3B) of the RBI Act, 1934 was extended up to September 30, 2009.
The all-in-cost ceiling for ECBs through the approval route has been dispensed with up to June 30, 2009.
February 2009
The Forex Swap facility was extended till March 31, 2010.
Banks were allowed to apply special regulatory treatment for accounts which were standard on September 1, 2008 and taken up for restructuring up to January 31, 2009 even if these had turned non-performing along this period. Subsequently, the time schedule for taking up restructuring was extended up to March 31, 2009.
The ceiling rate on export credit in foreign currency was raised from LIBOR + 100 basis points to LIBOR + 350 basis points on February 5, 2009 subject to the condition that the banks would not levy any other charges.
Correspondingly, the ceiling interest rate on the lines of credit with overseas banks was also increased from 6 months LIBOR/ EURO LIBOR/ EURIBOR + 75 basis points to six months LIBOR/ EURO LIBOR/ EURIBOR + 150 basis points.
March 2009
The facility of providing liquidity support to meet the temporary liquidity mismatches for eligible non-banking non-deposit taking systematically important financial companies (NBFCs-ND-SI), which was initially available for any paper issued up to March 31, 2009 was extended for any paper issued up to June 30, 2009. Accordingly, the SPV would cease to make fresh purchases after September 30, 2009 and would recover all dues by December 31, 2009.
For Bank Promotion Tests Study Material and Banking updates Visit www.atozinbanking .com
Or contact us through: info@atozinbanking.com, 0900711800