Monetary Policy Statement for 2011-12 Press Statement by Dr. D. Subbarao, Governor
Developmental and Regulatory Polices
28. As is the standard practice, this Annual Monetary Policy Statement also includes developmental and regulatory policies. Let me briefly touch upon some of the important initiatives.
29. I will start with the Malegam Committee Report on Regulation of Micro Finance Institutions.
The Reserve Bank has broadly accepted the framework of regulations recommended by the Malegam Committee. We have, however, adjusted some of the parameters recommended by the Committee.
Bank loans to all MFIs, including NBFCs working as MFIs on or after April 1, 2011, will be eligible for classification as priority sector loans if, and only if, they conform to the regulations formulated by the Reserve Bank.
As recommended by the Malegam Committee, the Reserve Bank has also decided to appoint a Committee to review the priority sector lending classification
30. A broad goal driving our financial inclusion initiative is to provide banking access to all villages with population of over 2000 by March 2012. There are 72,800 villages identified as falling into this category. We are asking banks to ensure that at least 25 per cent of the new branches being opened during this year are located in tier 5 and tier 6 centres.
31. In the area of financial markets, there are three important initiatives:
First, the Reserve Bank will shortly issue the final guidelines on credit default swaps.
Second, the period of short sale in government securities will be extended from the existing five days to a maximum of three months.
Third, FIIs will be allowed to cancel and rebook up to 10 per cent of the market value of the portfolio as at the beginning of the financial year.
32. Moving on to regulatory measures for commercial banks, I want to highlight two measures:
First, the provisioning requirements on certain categories of non-performing advances and restructured advances will be enhanced.
Second, investment by banks in liquid schemes of debt oriented mutual funds will be subject to a prudential cap of 10 per cent of their net worth as on March 31 of the previous year.
33. I invite you to please read the policy document for a full listing of our developmental and regulatory measures.
34. Before I close, I want to reiterate what I said earlier, by making a brief comment on the growth-inflation trade off, an issue that has been widely debated in the run up to this policy. High and persistent inflation undermines growth by creating uncertainty for investors, and driving up inflation expectations. An environment of price stability is a pre-condition for sustaining growth in the medium-term. Reining in inflation should therefore take precedence even if there are some short-term costs by way of lower growth".
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