Mid-Term Review of the Annual Policy Statement for 2007-08, RBI Credit Policy, Reserve Bank of India: Banknet India

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Part II. Mid-term Review of Annual Statement on Developmental and Regulatory Policies for the Year 2007-08
-Announced on the 30th October 2007

109. The Annual Policy Statement of April 2007 emphasised the need for credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while pursuing greater credit penetration and financial inclusion. In consonance, the Annual Policy Statement on Regulatory and Developmental Policies set out measures in terms of issuance of guidelines on derivatives; implementation of Basel II; restructuring of advances including advances to SMEs; differentiated bank licenses; bank finance to factoring companies; enhancement of disclosures; know your customer (KYC) norms/anti-money laundering (AML) standards; credit information companies; and convergence with international best practices. In this context, drawing up of a road-map for introduction of currency and interest rate futures was proposed along with ongoing liberalisation of foreign exchange transactions.

110. The First Quarter Review of July 2007 intensified policy monitoring in the context of high volatility in equity and currency markets. Banks, financial institutions and corporates were advised to be vigilant and well prepared with appropriate risk mitigation strategies to deal with significantly higher volatilities than before. It was indicated that contextually, financial stability would assume greater importance in the months to come.

111. Going forward, the Reserve Bank would continue to balance the development of a sound, efficient and diversified financial system that facilitates smooth transmission of monetary policy with financial inclusion in which satisfactory customer services are rendered by financial institutions/ intermediaries. Credible communication, adequate availability of information and a broad-based, participative and consultative approach will shape the conduct of developmental and regulatory policies in respect of the financial system.

112. The Mid-term Review of the Annual Statement on Developmental and Regulatory Policies focuses on certain key areas: new financial instruments and prudential requirements; liberalisation of foreign exchange transactions; strengthening risk management in banks; migration to Basel II; fine-tuning of supervisory processes in response to financial innovations and consolidation in the banking sector and business processes; ongoing development and integration of various segments of financial markets; and improved credit delivery mechanisms with specific focus on the developmental needs of agriculture and small and medium enterprises and inclusive growth.

113. This Review is divided into four sections:

I. Financial Markets... Click Here For Full Text

II. Credit Delivery Mechanism and Other Banking Services... Click Here For Full Text

III. Prudential Measures... Click Here For Full Text

IV. Institutional Developments... Click Here For Full Text

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