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Click here for latest RBI credit policy


Statement by Dr. Bimal Jalan , Governor,RBI on (April 27, 2000) for first half yearly Monetary and Credit Policy for the year 2000-2001 consists of three parts:

(I) Review of Macro-economic and Monetary
Developments during 1999-2000

(II) Stance of Monetary Policy for 2000-2001

(III) Financial Sector Reforms and Monetary Policy Measures.

Next Mid-Term Review

A Review of credit and monetary developments in the first half of the current year will be undertaken in October 2000. The mid-term review will be confined to a review of monetary developments and to such changes as may be necessary in monetary policy and projections for the second half of the year.

Annexure 1. Features of Liquidity Adjustment Facility (LAF)
Annexure 2.Guidelines for Entry of Banks into Insurance

Features of the Proposed Scheme of Liquidity Adjustment Facility (LAF) (Draft)

The Scheme of Liquidity Adjustment Facility (LAF) will include (i) Repo Auctions and (ii) Reverse Repo auctions. The features of the proposed Scheme are presented below :

Features of Repo Auctions

2. The current Fixed Rate Auction system and ACLF for banks along with Level II support for PDs will be replaced by a variable interest rate auction system on "uniform price" basis to be conducted by Reserve Bank of India. The minimum amount will be Rs.1 crore and in multiples of Rs.1 crore. Only banks and PDs maintaining SGL and Current Accounts with Reserve Bank of India at Mumbai will be eligible to participate in the repo auction. Bids for repos are to be submitted before 10.30 a.m. on all working days, Monday through Friday. Multiple bids can be submitted. There will be no auction on Saturdays. The results of the auctions will be announced by 1.00 p.m. The settlement of transactions in the auctions will take place on the same day. But for intervening holidays, the repo auctions will be for one day except on Fridays; on Fridays, the auction will be for three days or more maturing on the following working day.

3. RBI will maintain a Constituents’ Repos SGL Account for purposes of settlement. Securities held by Reserve Bank of India on behalf of banks in the Repo SGL Accounts will be eligible for SLR purposes. The Reserve Bank will issue SGL Balance Certificate indicating the details of total holdings of bank/institution and total loan-wise securities held in the Repo Constituents’ SGL Account as on any date. To simplify the provision of liquidity, in case of reverse repo auctions, successful participants who are eligible to draw refinance from RBI will be granted refinance against collateral as per the existing procedures. The other successful banks/institutions not eligible for refinance will be provided liquidity support in the form of reverse repo as per the existing procedures.

4. After further consultations, and modifications as necessary, the above scheme will come into effect on June 5, 2000. It is also proposed to review the scheme after some experience has been gained in implementation.


Guidelines for Entry of Banks into Insurance


1. Any Scheduled Commercial Bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. The subsidiaries of banks will also be allowed to undertake distribution of insurance product on agency basis.

2. Banks which satisfy the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a bank can hold in the joint venture company will normally be 50 per cent of the paid-up capital of the insurance company. On a selective basis, the Reserve Bank of India may permit a higher equity contribution by a promoter bank initially, pending divestment of equity within the prescribed period (see Note 1 below).

The eligibility criteria for joint venture participant will be as under, as on March 31, 2000:

  1. The net worth of the bank should not be less than Rs.500 crore,
  2. The CRAR of the bank should not be less than 10 per cent,
  3. The level of non-performing assets should be reasonable,
  4. The bank should have net profit for the last three continuous years,
  5. The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.

3. In cases where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one public sector bank or private sector bank may be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, only those banks which satisfy the criteria given in paragraph 2 above, would be eligible.

4. A subsidiary of a bank or of another bank will not normally be allowed to join the insurance company on risk participation basis. Subsidiaries would include bank subsidiaries undertaking merchant banking, securities, mutual fund, leasing finance, housing finance business, etc.

5. Banks which are not eligible as joint venture participant, as above, can make investments up to 10 per cent of the net worth of the bank of Rs.50 crore, whichever is lower, in the insurance company for providing infrastructure and services support. Such participation shall be treated as an investment and should be without any contingent liability for the bank.

The eligibility criteria for these banks will be as under:

  1. The CRAR of the bank should not be less than 10 per cent;
  2. The level of NPA should be reasonable;
  3. The bank should have net profit for the last three continuous years.

6. All banks entering into insurance business will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to banks on case to case basis keeping in view all relevant factors including the position in regard to the level of non-performing assets of the applicant banks so as to ensure that non-performing assets do not pose any future threat to the bank in its present or the proposed line of activity, viz., insurance business. It should be ensured that risks involved in insurance business do not get transferred to the bank and that the banking business does not get contaminated by any risks which may arise from insurance business. There should be ‘arms length’ relationship between the bank and the insurance outfit.


1. Holding of equity by a promoter bank in an insurance company or participation in any form in insurance business will be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This will include compliance with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed period of time.

2. In case audited balance sheet for the year ending March 31, 2000 is not available, unaudited balance sheet for the year ending March 31, 2000 may be considered for reckoning the eligibility criteria. For subsequent years, the eligibility criteria would be reckoned with reference to the latest available audited balance sheet for the previous year.

3. Banks which make investments under paragraph 5 of the above Guidelines, and later qualify for risk participation in insurance business (as per paragraph 2 of the Guidelines) will be eligible to apply to the Reserve Bank for permission to undertake insurance business on risk participation basis.

* The macro-economic and monetary developments in 1999-2000 are dealt with in greater detail in a separate document, which is published for the first time, as part of the annual monetary and credit policy.

+With effect from April 1,2000, the Wholesale Price Index had been revised to a new series with 1993-94 as the base year. As per the new series (with base 1993-94=100) the inflation rate last year on a point-to-point basis was 4.16 per cent as compared with 3.74 per cent on the basis of the old series. The increase of 0.42 percentage point, is accounted for by the change in composition and the weighting diagram. However, it may be noted that the inflation rate for 1999-2000 on an average basis, according to the new WPI series was substantially lower (2.9 per cent in 1999-2000 as against 6.0 per cent in the previous year).


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