RBI Governor announces Credit Policy, rates kept unchanged

Dr. Y. Venugopal Reddy, Governor, in a meeting with Chief Executives of major commercial banks today presented the Annual Policy Statement for the Year 2007-08.

Highlights

• Greater emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports growth momentum.
• Swift response with all appropriate measures to all situations impinging on inflation expectations and the growth momentum
• Renewed focus on credit quality and orderly financial markets conditions in securing macroeconomic, in particular, financial stability.
• Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
• Scheduled banks required to maintain CRR of 6.5 per cent with effect from the fortnight beginning April 28, 2007.
• GDP growth projection for 2007-08 at around 8.5 per cent.
• Inflation to be contained close to 5.0 per cent during 2007-08. Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent over the medium term.
• M3 expansion to be contained at around 17.0-17.5 per cent during 2007-08.
• Deposits projected to increase by around Rs.4,90,000 crore during 2007-08.
• Adjusted non-food credit projected to increase by around 24.0-25.0 per cent during 2007-08, implying a graduated deceleration from the average of 29.8 per cent over 2004-07.
• Appropriate liquidity to be maintained to meet legitimate credit requirements, consistent with price and financial stability.
• Ceiling interest rate on FCNR (B) deposits reduced by 50 basis points to Libor minus 75 basis points.
• Ceiling interest rate on NR(E)RA deposits reduced by 50 basis points to LIBOR/SWAP rates.
• Average cut-off yield on 182-day Treasury Bills to be used as a benchmark rate for floating rate bonds.
• Working Group to be set up to go into all the relevant issues and suggest measures to facilitate the development of interest rate futures market.
• Overseas investment limit (total financial commitments) for Indian companies enhanced to 300 per cent of their net worth.
• Listed Indian companies limit for portfolio investment abroad in listed overseas companies enhanced to 35 per cent of net worth.
• Aggregate ceiling on overseas investment by mutual funds enhanced to US $ 4 billion.
• Prepayment of external commercial borrowings (ECBs) without prior Reseve Bank approval increased to US $ 400 million.
• Present limit for individuals for any permitted current or capital account transaction increased from US $ 50,000 to US $ 100,000 per financial year in the liberalised remittance scheme.
• A Working Group on Currency Futures to be set up to suggest a suitable framework to operationalise the proposal in line with the current legal and regulatory framework.
• Risk weight on loans up to Rs.1 lakh against gold and silver ornaments for all categories of banks reduced to 50 per cent.
• Introduction of a credit guarantee scheme for distressed farmers.
• Indian banks permitted to extend credit and non-credit facilities to step-down subsidiaries within the existing prudential limits and some additional safeguards.
• Banks and primary dealers permitted to begin transactions in single-entity credit default swaps.
• Risk weight on residential housing loans to individuals for loans up to Rs.20 lakh reduced to 50 per cent as a temporary measure.
• Existing relaxed prudential norms applicable to Tier I and Tier II urban cooperative banks extended by one year.
• Ceiling rate of interest payable by NBFCs (other than RNBCs) on deposits raised by 150 basis points.

Source : Equity Bulls

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