Sixth Bi-Monthly Monetary Policy Statement, 2014-15 By Dr. Raghuram G. Rajan, Governor, RBI - Feb 03, 2015 - Full Text

Part A: Monetary Policy

Monetary and Liquidity Measures

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 7.75 per cent;

keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL);

reduce the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.0 per cent to 21.5 per cent of their NDTL with effect from the fortnight beginning February 7, 2015;

replace the export credit refinance (ECR) facility with the provision of system level liquidity with effect from February 7, 2015;

continue to provide liquidity under overnight repos of 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and

continue with daily variable rate term repo and reverse repo auctions to smooth liquidity.

Consequently, the reverse repo rate under the LAF will remain unchanged at 6.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 8.75 per cent.

Assessment of the Indian Economy ... Read more

Policy Stance and Rationale ...
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Part B: Developmental and Regulatory Measures 18. Developmental and regulatory measures are put in place by the Reserve Bank periodically within the organising framework of the five-pillar approach announced in October 2013 in the Second Quarter Review of Monetary Policy for 2013-14. The measures set out in this part of the statement emphasise broadening and deepening financial markets; fortifying banking structure; and dealing with stress in banking assets by putting projects back on track.

I. Financial Markets ...
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II. Restructuring...
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III. Banking and Financial Structure

29. Currently, banks are allowed to offer differential rates of interest on deposits on the basis of tenor for deposits less than ` one crore and on the basis of quantum for deposits of ` one crore and above. Banks are, however, not permitted to differentiate on the basis of any other parameter of the deposit contract. Furthermore, all deposits accepted from individuals and Hindu undivided family (HUF) up to ` one crore are callable i.e., have the facility of premature withdrawal. This results in asset-liability management issues, especially under the Liquidity Coverage Ratio (LCR) requirement under the Basel III framework. It is, therefore, proposed to allow non-callable deposits. Callability in a deposit will then be a distinguishing feature for offering differential rates on interest on deposits. Detailed guidelines will follow shortly.

30. The final guidelines on payments banks and small finance banks as differentiated banks were placed on the Reserve Bank’s website on November 27, 2014 and clarifications on the queries were released on January 1, 2015. The last date of receipt of applications was February 2, 2015. 72 applications for Small Finance Banks and 41 applications for Payments Banks were received up to the deadline for submission yesterday. This number excludes applications that might have been received at other venues. As stated in the guidelines, two External Advisory Committees (EACs) will evaluate the applications received for setting up of small finance and payments banks and thereafter make their recommendations to the Reserve Bank. The EACs for small finance banks and payments banks will be chaired by Smt. Usha Thorat, former Deputy Governor, Reserve Bank of India and Dr. Nachiket Mor, Director, Central Board of the Reserve Bank, respectively.

31. The first bi-monthly monetary policy statement for fiscal year 2015-16 is scheduled on Tuesday, April 7, 2015.

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