It is most anticipated event for the financial community from where market participants gets cues for the current state of affairs and central bank’s take on various issues such as liquidity, interest rates, fiscal deficit and exchange rate outlook. RBI governor Dr. Duvvuri Subbarao reviewed Annual Monetary policy 2012-13. He touched upon various issues such as Basle III in Indian Banking system, NBFC Regulation, Gold loan financing companies, Securitisation guidelines etc
Key points of today’s RBI monetary policy review are as follows :
- Short term lending rate (REPO) lowered by 50 bps to 8.00 percent from 8.50 percent after gap of three years (Central Bank had hiked policy rates 13 times during March 2010 and October 2011 to control persistently high inflation)
- Cash reserve ratio retained at 4.75 percent
- RBI baseline projection of GDP growth for 2012-13 is projected at 7.3 percent against govt estimates of 7.6 percent for the same period
- RBI is projecting inflation for Mar 2013 at 6.5 percent
- Bank rate cut by 50 bps to 9.00 percent from 9.50 percent
- Deposit growth pegged at 16 per cent, credit growth at 17 percent
- Upside risk to fiscal deficit target of 5.1 percent
- Large Govt borrowing budgeted for 2012-13 may crowd out credit flow to private sector
- Liquidity conditions seems to moving towards comfort zone
- Draft guidelines on overseas investment by core investment companies (CICs) will be placed for public comments by end-April 2012.
- Banks will be mandated to put robust mechanism for early detection of signs of distress account and take remedial measures
- Final guidelines on securitisation will be issued by end-April 2012
- M3 growth for 2012-13 is projected at 15 percent; growth in non-food credit of scheduled commercial banks (SCBs) is projected at 17 percent.
RBI will placed Nair Committee’s recommendations (to re-examine the existing classification and suggest revise guidelines with regard to priority sector lending classification & related issues) for public comments, and that the RBI will take an action after examining feedback
After registering over 8 percent economic growth for last two years, India’s GDP expansion is estimated to have declined to 3-year low at 6.9 percent in 2011-12 on account of high cost of borrowing that slowed investments.
New set of draft regulations for the NBFC sector are to be published by the RBI by end-June 2012 in the pursuant of the Usha Thorat Committee’s recommendation.
Global Economy
The US economy continues to show signs of modest recovery. Large scale liquidity infusions by the European Central Bank have significantly reduced the stress in global financial markets. However, a sustainable solution to the euro area debt problem is yet to emerge. Recent developments, for example in Spain, indicate that the euro area sovereign debt problem will continue to weigh on the global economy.
Financial Inclusion
Significant progress are observed in providing banking services to villages with population > 2,000. Now, RBI has proposed to mandate state level bankers’ committees (SLBCs) to prepare roadmaps covering all unbanked villages of population < 2,000.
Customer service by Banks
Banks are being advised to offer ‘basic savings bank deposit account’ with certain facilities without minimum balance requirement, mandated for waiver of foreclosure charges or pre-payment penalties on home loans extended on a floating interest rate basis and creation of unique customer identification code (UCIC) number.
By end-May 2012, the RBI will issue final guidelines schedule for implementation of Basel III in the country based on liquidity risk management. (Basel III will introduce counter-cyclicity buffer and redefines Tier 1 capital)
Gold Loans
RBI tightens norms for lending against gold by NBFCs. RBI has constituted new working group to assess the demand trends for gold loans & it’s impact on gold imports, role of gold loan for influencing gold prices, sources of fund for gold loan financing NBFC etc
Next mid-quarterly monetary review on June 18, 2012.