Dr.
Y. Venugopal Reddy, Governor, in a meeting with Chief Executives of major commercial
banks today presented the Annual
Policy Statement for the Year 2008-09. This Statement consists of two parts:
Part I. Annual Statement on Monetary Policy for the Year 2008-09; and Part II.
Annual Statement on Developmental and Regulatory Policies for the Year 2008-09. Highlights
- High priority to price stability, well-anchored inflation
expectations and orderly conditions in financial markets while sustaining the
growth momentum.
- Swift response on a continuous basis
to evolving adverse international and domestic developments through both conventional
and unconventional measures.
- Emphasis on credit quality
and credit delivery while pursuing financial inclusion.
- Bank
Rate, Reverse Repo Rate and Repo Rate kept unchanged.
- Scheduled
banks required to maintain CRR of 8.25 per cent with effect from the fortnight
beginning May 24, 2008.
- GDP growth projection for
2008-09 in the range of 8.0- 8.5 per cent.
- Inflation
to be brought down to around 5.5 per cent in 2008-09 with a preference for bringing
it close to 5.0 per cent as soon as possible. Going forward, the resolve is to
condition policy and perceptions for inflation in the range of 4.0-4.5 per cent
so that an inflation rate of around 3.0 per cent becomes a medium-term objective.
- M3
expansion to be moderated in the range of 16.5-17.0 per cent during 2008-09.
- Deposits
projected to increase by around 17.0 per cent or Rs.5,50,000 crore during 2008-09.
- Adjusted non-food credit projected to increase by
around 20.0 per cent during 2008-09.
- Active demand
management of liquidity through appropriate use of the CRR stipulations and open
market operations (OMO) including the MSS and the LAF.
- Introduction
of STRIPS in Government securities by the end of 2008-09.
- A
clearing and settlement arrangement for OTC rupee derivatives proposed.
- Domestic
crude oil refining companies would be permitted to hedge their commodity price
risk on overseas exchanges/markets on domestic purchase of crude oil and sale
of petroleum products based on underlying contract.
- Currency
futures to be introduced in eligible exchanges in consultation with the SEBI;
broad framework to be finalised by May 2008.
- Indian
companies to be allowed to invest overseas in energy and natural resources sectors.
- Reserve Bank can be approached for capitalisation
of export proceeds beyond the prescribed period of realisation.
- Loans
granted to RRBs for on-lending to agriculture and allied activities to be classified
as indirect finance to agriculture.
- The shortfall
in lending to weaker sections would be taken into account for contribution to
RIDF with effect from April 2009.
- RRBs allowed to sell
loan assets to other banks in excess of their prescribed priority sector exposure.
- The Reserve Bank to disseminate details of various
charges levied by banks.
- Asset classification norms
for credit to infrastructure projects relaxed.
- The
prudential guidelines for specific off-balance sheet exposures of banks to be
reviewed.
- Reserve Bank to carry out supervisory review
of banks' exposure to the commodity sector.
- The limit
of bank loans to individuals for housing having lower risk weight of 50 per cent
enhanced from Rs. 20 lakh to Rs. 30 lakh.
- Consolidated
supervision of financial conglomerates proposed.
- Working
Group to be set up for a supervisory framework for SPVs/Trusts.
- Inter-departmental
Group to review the existing regulatory and supervisory framework for overseas
operations of Indian banks.
- All transactions of Rs.
one crore and above made mandatory to be routed through the electronic payment
mechanism.
- Dispense with the extant eligibility norms
for opening on-site ATMs for well-managed and financially sound UCBs.
- Regulations
in respect of capital adequacy, liquidity and disclosure norms for systemically
important NBFCs to be reviewed.
Details Domestic
Developments - The advance estimates of
the Central Statistical Organisation (CSO) placed real GDP growth at 8.7 per cent
for 2007-08, over and above 9.6 per cent in 2006-07.
- On
a year-on-year basis, WPI inflation stood at 7.4 per cent at end-March 2008 as
compared with 5.9 per cent a year ago. During 2007-08, headline inflation declined
from 6.4 per cent at the beginning of the financial year to a low of 3.1 per cent
in mid-October before firming up from mid-February 2008 onwards.
- The
average price of the Indian basket of international crude increased by 27.6 per
cent from US $ 62.4 per barrel during 2006-07 to US $ 79.7 per barrel in 2007-08.
- Money
supply (M3) increased by 20.7 per cent (Rs.6,86,096 crore) in 2007-08 as compared
with 21.5 per cent (Rs.5,86,548 crore) in 2006-07.
- Reserve
money increased by 30.9 per cent (Rs.2,19,326 crore) during 2007-08 as compared
with 23.7 per cent (Rs.1,35,935 crore) in the previous year.
- Aggregate
deposits of SCBs increased by 22.2 per cent (Rs.5,80,208 crore) during 2007-08
as compared with 23.8 per cent (Rs.5,02,885 crore) in the previous year.
- Non-food
credit extended by the scheduled commercial banks (SCBs) increased by 22.3 per
cent (Rs.4,19,425 crore) as compared with 28.5 per cent (Rs.4,18,282 crore) in
the previous year.
- The incremental non-food credit-deposit
ratio for the banking system declined to 72.3 per cent during 2007-08 from 83.2
per cent in 2006-07, 109.3 per cent in 2005-06 and 130.0 per cent in 2004-05.
- The
total flow of funds from SCBs to the commercial sector, including non-SLR investments,
increased by 21.9 per cent (Rs.4,31,256 crore) in 2007-08 as against 27.3 per
cent (Rs.4,22,363 crore) in 2006-07.
- During 2007-08,
the financial markets experienced alternating shifts in liquidity conditions.
- The
total overhang of liquidity as reflected in the balances under the LAF, the MSS
and surplus cash balances of the Central Government taken together increased to
the intra-year peak of Rs.2,73,694 crore on March 27, 2008 before declining to
Rs.2,43,879 crore on April 25, 2008.
- Movements in
interest rates in the domestic financial markets reflected the factors driving
changes in liquidity with the banking system during 2007-08.
- The
average daily turnover in the foreign exchange market increased to US $ 57.3 billion
at end-March 2008 from US $ 33.2 billion at end-March 2007.
- Commercial
banks' investment in Government and other approved securities increased by 22.9
per cent (Rs.1,81,222 crore) during 2007-08, significantly higher than 10.3 per
cent (Rs.74,062 crore) in 2006-07.
- Commercial banks'
stock of statutory liquidity ratio (SLR) eligible securities marginally increased
to 27.4 per cent of the banking system's net demand and time liabilities (NDTL)
in March 2008 from 27.3 per cent in March 2007.
- Interest
rates offered by the public sector banks (PSBs) on deposits of above one year
maturity moved from the range of 7.25-9.50 per cent in March 2007 to 8.00-9.25
per cent in March 2008.
- The benchmark prime lending
rates (BPLRs) of PSBs increased by 75 basis points from a range of 12.25-12.75
per cent to 12.25-13.50 per cent during 2007-08.
- The
BSE Sensex (1978-79=100) increased by 19.7 per cent during the year from 13072
at end-March 2007 to 15644 at end-March 2008.
- The
weighted average yield on primary issuance of the Central Government's dated securities
increased by 23 basis points to 8.12 per cent in 2007-08 from 7.89 per cent in
the previous year.
External Developments
- Information available from the DGCI&S indicates
that merchandise exports increased by 22.8 per cent in US dollar terms during
April-February 2007-08 as compared with 23.2 per cent in the corresponding period
of the previous year. Imports showed an increase of 30.1 per cent as compared
with 25.2 per cent during the same period.
- While the
increase in oil imports was lower at 26.4 per cent as compared with 31.2 per cent,
non-oil import recorded a higher growth of 31.8 per cent as compared with 22.6
per cent.
- During April-February 2007-08, the trade
deficit widened to US $ 72.5 billion which was 46.8 per cent higher than the deficit
of US $ 49.4 billion in the corresponding period of the previous year.
- The
sustained strength of capital flows during 2007-08 is noteworthy as the foreign
exchange reserves increased by US $ 110.5 billion to US $ 309.7 billion by end-March
2008.
- The Indian foreign exchange market witnessed
generally orderly conditions during 2007-08 with the exchange rate exhibiting
two-way movements. The rupee appreciated by 9.1 per cent against the US dollar
and by 7.5 per cent against pound sterling but depreciated by 7.7 per cent against
the Japanese yen and by 7.8 per cent against the euro during 2007-08.
Global
Developments - Global economic activity
decelerated somewhat in relation to earlier expectations, mainly on account of
the slowdown in the US economy.
- According to the World
Economic Outlook (WEO) of the International Monetary Fund (IMF), the forecast
for global real GDP growth, on a purchasing power parity basis, is expected to
slow from 4.9 per cent in 2007 to 3.7 per cent in 2008.
- Continuing
strong demand and dwindling stocks are reflected in a tight supply-demand food
situation globally, leading to the emergence of food price inflation as a key
risk to global stability.
- The Food and Agricultural
Organisation's (FAO) global food price index, which rose by 40 per cent in 2007
to the highest level on record, has continued to increase in the first quarter
of 2008 as well, as world food stocks have fallen to their lowest levels in 25
years.
- In the global foodgrains market, prices of major
crops such as corn, soyabeans and wheat have increased by 58.2 per cent, 86.3
per cent and 56.5 per cent, respectively, by April 25, 2008 from a year ago in
response to surging demand.
- According to the Energy
Information Administration (EIA), tight fundamentals, reflected by low available
crude oil surplus production capacity, combined with supply concerns in several
oil exporting countries, have continued to put upward pressure on world crude
oil prices.
- In the EMEs, the recent jump in headline
inflation caused by higher energy and food prices are of concern since this requires
a balanced response in controlling inflation while being alert to decelerating
impulses from the slowdown in the developed countries and the possibilities of
prolonged global financial market turmoil.
- Since the
beginning of the turbulence in August 2007, central banks of advanced economies
have responded with both conventional and unconventional measures to ease liquidity
stress in financial markets and solvency issues among large financial institutions.
- Some
central banks such as the US Federal Reserve, the Bank of England, the Bank of
Canada have cut policy rates since the third quarter of 2007 when the financial
market turmoil surfaced.
- Central banks of several
countries, including the euro area, New Zealand, Japan, Korea, Malaysia, Thailand
and Mexico have not changed their rates since the last quarter of 2007.
- Some
central banks that have tightened their policy rates in recent months include
the Reserve Bank of Australia, the People's Bank of China, the Banco Central de
Chile and Banco Central do Brasil.
- Large capital flows
to EMEs have elicited monetary tightening responses from central banks either
through hike in their policy rates or reserve requirements or both. Meanwhile,
in several EMEs, central bank bonds have continued to absorb liquidity from the
banking system.
- Measures directly aimed at managing
capital flows are also in evidence in many EMEs.
Overall
Assessment - While aggregate supply capacities
expanded and alleviated domestic macro-imbalances in 2007-08 to some extent, available
indicators suggest that economic activity in India currently continues to be mainly
demand-driven.
- The pick-up in inflation during the
fourth quarter of 2007-08 has mainly emanated from supply-side pressures such
as the one-off increase in domestic petrol and diesel prices to partially offset
the global crude oil price increase over the year; continuous hardening of prices
of petroleum products that are not administered, rising prices of wheat and oilseeds
and the adjustment in steel prices in March 2008 due to the surge in international
prices.
- The upsurge in inflation in India has occurred
at a time when global commodity prices have been volatile at historically elevated
levels and central banks in mature and emerging economies alike have been articulating
heightened inflation concerns.
- There are concerns
that demand pressures, which have been reasonably contained so far, are being
coupled with supply-side factors which, if not temporary, could impact domestic
inflation significantly.
- The moderation in non-food
credit growth has been marked in respect of interest-sensitive sectors which had
been recording significantly elevated growth rates in preceding years.
- During
the fourth quarter of 2007-08, financial markets were impacted by unusual swings
and high volatility in foreign exchange flows as well as in cash balances of the
Government with the Reserve Bank with consequent shifts in liquidity conditions.
- Growth
forecasts for EMEs have been moderated in the face of the financial turbulence
and the anticipated slowdown in the US economy. A key risk to the outlook for
EMEs is rising food, energy and commodity prices that are already imparting inflationary
pressures and raising concerns about impacting the momentum of growth in these
economies.
- The recent monetary policy responses in
the US have also heightened the uncertainties facing EMEs by widening interest
rate differentials and increasing the costs of sterilisation, especially in a
period when inflationary pressures warrant tightening.
- The
outlook for the global financial system is overcast by the rising incidence of
losses and write-offs in banking systems in the US and Europe amidst dislocations
in the securitised credit market. There are also growing uncertainties surrounding
the viability of financial guarantors and doubts about their business models as
well as the approach of rating agencies with potential systemic implications.
- In the overall assessment, there have been significant
shifts in both global and domestic developments in relation to initial assessments.
The dangers of global recession have increased at the current juncture although
consensus expectations do not rule out a soft landing. On the domestic front,
the outlook remained positive up to January 2008. Since then, the prospects for
growth in the year ahead have been trimmed as risks to inflation and inflation
expectations from the upside pressures due to international food, crude and metal
prices have become more potent and real than before.
Stance
of Monetary Policy for 2008-09 - For policy
purposes, real GDP growth in 2008-09 may be placed in the range of 8.0 to 8.5
per cent, assuming that (a) global financial and commodity markets and real economy
will be broadly aligned with the central scenario as currently assessed and (b)
domestically, normal monsoon conditions prevail.
- In
view of the lagged and cumulative effects of monetary policy on aggregate demand
and assuming that supply management would be conducive, the policy endeavour would
be to bring down inflation from the current high level of above 7.0 per cent to
around 5.5 per cent in 2008-09 with a preference for bringing it as close to 5.0
per cent as soon as possible.
- In view of
the monetary overhang, it is necessary to moderate monetary expansion and plan
for a rate of money supply in the range of 16.5-17.0 per cent in 2008-09 in consonance
with the outlook on growth and inflation so as to ensure macroeconomic and financial
stability in the period ahead.
- Consistent with the
projections of money supply, the growth in aggregate deposits in 2008-09 is placed
at around 17.0 per cent or around Rs.5,50,000 crore.
- Based
on an overall assessment of the sources of funding and the overall credit requirements
of the various productive sectors of the economy, the growth of non-food credit
including investments in bonds/debentures/shares of public sector undertakings
and private corporate sector and commercial paper (CP) is placed at around 20.0
per cent in 2008-09.
- Given the unprecedented complexities
involved and the heightened uncertainties at this juncture, there are some key
factors that govern the setting of the stance of monetary policy for 2008-09 viz.,
(i) the challenge of escalated and volatile food and energy prices; (ii) even
as investment demand remains strong, supply elasticities are expected to improve
further; (iii) recent initiatives in regard to supply-management by the Government
of India and measures relating to the cash reserve ratio by the Reserve Bank of
India; (iv) the importance of anchoring expectations relating to both global and
domestic developments.
- In view of the above unprecedented
uncertainties and dilemmas, it is important to take informed judgements with regard
to the timing and magnitude of policy actions; and such judgements need to have
the benefit of evaluation of incoming information on a continuous basis.
- To
demonstrate on a continuing basis a determination to act decisively, effectively
and swiftly to curb any signs of adverse developments in regard to inflation expectations.
- The Reserve Bank will continue with its policy of
active demand management of liquidity through appropriate use of the CRR stipulations
and open market operations (OMO) including the MSS and the LAF, using all the
policy instruments at its disposal flexibly, as and when the situation warrants.
- Barring
the emergence of any adverse and unexpected developments in various sectors of
the economy, assuming that capital flows are effectively managed, and keeping
in view the current assessment of the economy including the outlook for growth
and inflation, the overall stance of monetary policy in 2008-09 will broadly be:
• to
ensure a monetary and interest rate environment that accords high priority to
price stability, well-anchored inflation expectations and orderly conditions in
financial markets while being conducive to continuation of the growth momentum. • to
respond swiftly on a continuing basis to the evolving constellation of adverse
international developments and to the domestic situation impinging on inflation
expectations, financial stability and growth momentum, with both conventional
and unconventional measures, as appropriate. • to
emphasise credit quality as well as credit delivery, in particular, for employment-intensive
sectors, while pursuing financial inclusion. Monetary
Measures - Bank Rate kept unchanged at
6.0 per cent.
- Reverse Repo Rate and Repo Rate kept
unchanged at 6.00 per cent and 7.75 per cent, respectively.
- The
Reserve Bank retains the option to conduct overnight repo or longer term repo
under the LAF depending on market conditions and other relevant factors. The Reserve
Bank will continue to use this flexibility including the right to accept or reject
tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient
use of the LAF in daily liquidity management.
- Cash
reserve ratio (CRR) of scheduled banks increased to 8.25 per cent with effect
from the fortnight beginning May 24, 2008.
Developmental
and Regulatory Policies Financial Markets - Issuances
of Floating Rate Bonds (FRBs) to be considered at an appropriate time taking into
account market conditions.
- The modalities for implementing
the recommendations of the Internal Working Group to review the auction procedure
for the Government securities are being worked out.
- Wider
dissemination of the investor friendly features of the regulations under the Government
Securities Act, 2006 through media publicity and the website of the Reserve Bank
for better customer service.
- A module of the NDS auction
for non-competitive bidding scheme in the auctions of State Development Loans
(SDLs) being developed by the CCIL is expected to become functional by September
2008.
- Action on the recommendations of the Working
Group on Interest Rate Futures would be initiated on the basis of the feedback
received.
- With the enactment of the Government Securities
Act, 2006 effective from December 1, 2007, it is proposed to introduce STRIPS
in Government securities by the end of 2008-09.
- A settlement
mechanism in Government securities through settlement banks for participants who
do not maintain current accounts but maintain SGL accounts with the Reserve Bank
to be operationalised in May 2008.
- To allow access
to NDS-OM extended to investors such as other non-deposit taking NBFCs, corporates
and FIIs through the CSGL route.
- Following the enactment
of the Payment and Settlement Systems Act, 2007, a clearing and settlement arrangement
for OTC rupee derivatives to be put in place in consultation with the CCIL.
- Introduction
of repo in corporate bonds to be considered once the prerequisites like efficient
price discovery through greater public issuances and secondary market trading,
and an efficient and safe settlement system, based on Delivery versus Payments
(DvP) III and Straight Through Processing (STP), are met.
- To
permit domestic crude oil refining companies to hedge their commodity price risk
exposures on the basis of underlying contracts which are linked to international
prices on overseas exchanges/markets on the basis of their past performance up
to 50 per cent of the volume of actual imports during the previous year or 50
per cent of the average volume of imports during the previous three financial
yeas, whichever is higher.
- Currency futures to be introduced
in the eligible exchanges in consultation with the SEBI; the broad framework to
be finalised by the end of May 2008; RBI-SEBI Standing Technical Committee has
been set up to advise on operational aspects.
- Indian
companies allowed to invest overseas in energy and natural resources sectors such
as oil, gas, coal and mineral ores in excess of the current limits with prior
approval of the Reserve Bank.
- Indian parties may approach
the Reserve Bank for capitalisation of export proceeds for exports outstanding
beyond the prescribed period of realisation.
- To permit
authorised dealer (AD) banks to write off, in addition to claims settled by the
Export Credit Guarantee Corporation of India (ECGC), the outstanding export bills
settled by other insurance companies which are regulated by the Insurance Regulatory
Development Authority (IRDA).
- To enhance the present
period for realisation and repatriation to India of the full export value of goods
or software exported from six months to twelve months from the date of export,
subject to review after one year.
Credit Delivery
- With effect from April 2009, the shortfall
in lending to weaker sections by the domestic SCBs would be taken into account
for the purpose of allocating amounts for contribution to RIDF or funds with other
financial institutions as specified by the Reserve Bank.
- RRBs
to be allowed to sell loan assets held by them under priority sector categories
in excess of the prescribed priority sector lending target of 60 per cent, to
enable greater flow of credit to this sector.
- Pending
finalisation of action on the recommendations of the Radhakrishna Committee, it
is proposed to ask each domestic commercial bank, including RRBs, to select one
district for introduction, on a pilot basis, of a simplified cyclical credit product
for farmers to enable them to continuously utilise a core component of 20 per
cent of the credit limit to ensure minimum year-round liquidity as long as the
interest is serviced.
- A simplified procedure for crop
loans to landless labourers, share croppers, tenant farmers and oral lessees to
be introduced whereby banks can accept an affidavit giving details of land tilled/crops
grown by such persons for loans up to Rs.50,000 without any need for independent
certification. Banks could also encourage the Joint Liability Group (JLG)/SHG
mode of lending for such persons.
- In collaboration
with the Indian Banks' Association (IBA), the Banking Codes and Standards Board
of India (BSCBI) is evolving a banking code for small and micro enterprises.
- The
report of the Working Group to examine the feasibility of reviving sick SMEs and
to suggest remedial measures for potentially viable sick units placed on the Reserve
Bank's website for wider dissemination/response.
- A
Working Group constituted to prepare RRBs to adopt appropriate technology and
migrate to core banking solution to submit its report by June 30, 2008.
- For
100 per cent financial inclusion, 277 districts identified and target achieved
in 134 districts in 18 States and five Union Territories.
- Banks
to be permitted to classify 100 per cent of the credit outstanding under General
Credit Card (GCC) from 50 per cent earlier, and overdrafts up to Rs.25,000 against
'no-frills' accounts in rural and semi-urban areas as indirect finance to agriculture
under the priority sector.
- A concept paper on Financial
Literacy and Counselling Centres has been prepared and placed on the Reserve Bank's
website on April 3, 2008 for public feedback.
- A High
Level Committee to review the Lead Bank Scheme expected to submit its report by
July 2008.
- In order to promote an incentive
system for greater flow and efficient allocation of credit, an Internal Working
Group to be set up to look at issues relating to credit delivery, credit pricing
and credit culture in a holistic manner.
- With a view
to bringing about greater transparency, the Reserve Bank is in the process of
collecting details of various charges levied by banks for public dissemination.
- In
order to ensure that all bank branches provide better customer services to members
of public at bank counters for exchange of notes, it is proposed to introduce
a scheme of incentives and penalties for bank branches (including currency chests),
based on their performance in rendering such services.
Prudential
Measures - In case of infrastructure projects
to be financed by banks, the date of completion of the project should be clearly
spelt out at the time of financial closure of the project and if the date of commencement
of commercial production extends beyond a period of two years (as against the
current norm of one year) after the date of completion of the project as originally
envisaged, the account should be treated as sub-standard. The revised instructions
are effective from March 31, 2008.
- In view of the recent
developments in the global financial markets and for ensuring financial stability,
it is proposed to review current stipulations regarding conversion factors, risk
weights and provisioning requirements for specific off-balance sheet exposures
of banks and prescribe prudential requirements and place guidelines on the Reserve
Bank's website by May 15, 2008.
- Banks are required
to review their advances to traders in agricultural commodities to ensure that
bank finance is not used for hoarding and forward the first such review to the
Reserve Bank by May 15, 2008 for carrying out supervisory review of banks' exposure
to the commodity sector.
- The limit of bank loans for
housing enhanced from Rs.20 lakh to Rs.30 lakh for applicability of reduced risk
weights at 50 per cent.
- The Reserve Bank would complete
the processing of applications for setting up Credit Information Companies by
June 30, 2008.
- The Reserve Bank has constituted an
Internal Technical Group to propose criteria for the applicability of Basel norms
to State Cooperative Banks/District Central Cooperative Banks/Regional Rural Banks
that is expected to submit its report by June 30, 2008.
- An
Internal Working Group constituted by the Reserve Bank is currently studying the
cross-country practices, including the legal issues to be laid down towards the
road-map for adoption of a suitable framework for cross-border supervision and
supervisory cooperation with overseas regulators, consistent with the framework
envisaged in the Basel Committee on Banking Supervision.
- As
proposed in the Mid-Term Review of October 2007, realignment of various internal
supervisory processes for implementing an enhanced consolidated supervision of
financial conglomerates would be completed by August 31, 2008.
- The
Reserve Bank to constitute a Working Group to study and recommend a suitable supervisory
framework for activities of SPVs/Trusts set up by banks.
- An
inter-departmental group set up to study impact assessment, periodic reviews of
horizontal risks across the system, inclusion of supervisory review process prescribed
under Pillar 2 of Basel II framework in the Risk-based supervision (RBS) assessment
besides simplifying the existing system of risk profiling for an appropriate RBS
framework.
- The Reserve Bank has constituted an inter-departmental
Group to review the existing regulatory and supervisory framework for overseas
operations of Indian banks, the introduction of new products and processes, increasing
off-balance sheet exposures including derivative products, and also to recommend
appropriate changes, including off-site reporting systems.
- On
the Financial Stability Forum's (FSF) Report in April 2008 regarding strengthening
of prudential oversight of capital, liquidity and risk management, enhancing transparency
and valuation, changing the role and uses of credit ratings, strengthening the
authorities' responsiveness to risk and implementing robust arrangements for dealing
with stress in the financial system, the Reserve Bank had put in place regulatory
guidelines covering many aspects and action being initiated on others.
- The
Reserve Bank has undertaken a detailed process of identifying the eligible credit
rating agencies whose ratings may be used by banks for assigning risk weights
for credit risk consistently for each type of claim, for both risk weighting and
risk management purposes.
- A Working Group to lay down
a road-map for adoption of a suitable framework for cross-border supervision and
supervisory cooperation with overseas regulators, consistent with the framework
envisaged in the Basel Committee on Banking Supervision (BCBS) has been constituted
in March 2008.
Institutional Developments - Following
the enactment of the Payment and Settlement Systems Act, 2007, the Reserve Bank
has placed the draft regulations under the Payment and Settlement Systems Act,
2007 on its website inviting public comments latest by May 15, 2008 to finalise
regulations in consultation with the Government of India.
- Banks
are urged to ensure that security of banking transactions is adequately addressed
while using IT-based products such as smart cards, hand held devices and secured
message transfers.
- The Reserve Bank has extended the
waiver of processing charges for ECS / EFT / NEFT up to March 31, 2009.
- The
Reserve Bank is formulating draft guidelines for mobile payment systems in India
to be placed on its website by June 15, 2008.
- Effective
April 1, 2008 all payment transactions of Rs. one crore and above in the money,
Government securities and foreign exchange markets and the regulated entities
(banks, PDs and NBFCs) have been made mandatory to be routed through the electronic
payment mechanism.
- A Working Group to be constituted
comprising representatives of the Reserve Bank, Central/State Governments and
the UCB sector to suggest measures, including the appropriate regulatory and supervisory
framework, to facilitate emergence of umbrella organisation(s) for the UCB sector
in the respective States.
- To dispense with the extant
eligibility norms for opening on-site ATMs for well-managed and financially sound
UCBs in the States that have signed MoUs with the Reserve Bank and registered
under the Multi-State Cooperative Societies Act, 2002.
- With
a view to liberalising and rationalising the branch licensing norms for UCBs,
approvals for branch expansion, including off-site ATMs to be considered, based
on annual business plans, subject to maintenance of minimum CRAR of 10 per cent
on a continuing basis and other regulatory comfort.
- To
dispense with the minimum net worth criteria for undertaking insurance business
provided other criteria as prescribed from time to time are met.
- To
increase the extant limit on individual housing loans from Rs.25 lakh to a maximum
of Rs.50 lakh in respect of Tier-II UCBs, subject to certain conditions.
- In
the light of international developments and increasing bank exposure to these
systemically important NBFCs, to review the regulations in respect of capital
adequacy, liquidity and disclosure norms and issue revised instructions by May
31, 2008.
- As part of the progress made by the Committee
on Financial Sector Assessment (CFSA), the four Advisory Panels constituted by
the Committee have prepared their draft reports. The reports of the CFSA as also
those of Advisory Panels are expected to be finalised by end-June 2008 and will
be placed thereafter on the Reserve Bank's website.
Alpana
Killawala Chief General Manager Press Release:
2007-2008/1396 |
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