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Annual Policy Statement for the Year 2011-12 click here

Press Statement by Dr. D. Subbarao, Governor- Monetary Policy Statement for 2011-12 (17th April 2012)


Developmental and Regulatory Policies

30. Since this is the Annual Policy, as per standard practice, it also includes developmental and regulatory policies. Let me briefly indicate some of the important initiatives in this regard.

31. I will begin with financial inclusion. There has been significant progress in providing banking services to villages with population above 2,000. The challenge now is to extend coverage to all the unbanked villages of the country. Accordingly, it is proposed to mandate state level bankers’ committees (SLBCs) to prepare roadmaps covering all unbanked villages of population of less than 2,000, and notionally allot these villages to banks for providing banking services in a time bound manner.

32. The Reserve Bank attaches a lot of importance to customer service in banks. Three measures contained in this policy in this regard are the following:

First, banks are being advised to offer a ‘basic savings bank deposit account’ with certain minimum common facilities and without the requirement of a minimum balance to all their customers.

Second, banks will be mandated not to levy foreclosure charges or pre-payment penalties on home loans extended on a floating interest rate basis.

Third, banks are being advised to initiate steps to allot a unique customer identification code (UCIC) number to all their customers.

33. Moving on to regulation and supervision, let me highlight some of the important measurers contained in this policy.

On Basel III, final guidelines on the implementation of capital regulations will be issued by end-April 2012, and final guidelines on liquidity risk management and liquidity standards by end-May 2012.

34. There has been a significant increase in loans against gold by non-banking financial companies in the recent period, which has raised several concerns. This policy contains three measures to regulate this further:

First, banks should reduce their regulatory exposure ceiling to a single NBFC, having gold loans to the extent of 50 per cent or more of its total financial assets, from the existing 10 per cent to 7.5 per cent of bank’s capital funds.

Second, banks should have an internal sub-limit on their aggregate exposure to all such NBFCs, having gold loans to the extent of 50 per cent or more of their total financial assets, taken together.

Finally, the Reserve Bank has constituted a Working Group to undertake a detailed study of gold demand, trends in gold prices and lending by NBFCs against gold.

35. We have announced two measures relating to NBFCs.

First, the draft guidelines on overseas investment by core investment companies (CICs) will be placed on the Reserve Bank’s website for public comments by end-April 2012.

Second, it has been decided to issue the draft guidelines on the regulatory framework for NBFCs by end-June 2012 based on the recommendations of the Usha Thorat Working Group.

36. Non-performing assets of banks have increased in the recent period. We are mandating banks to put in place a robust mechanism for early detection of signs of distress and take remedial measures.

37. Final guidelines on securitisation will be issued by end-April 2012.

38. Finally, let me touch upon two measures concerning currency management.

First, with a view to address the issue of counterfeit notes in circulation, banks are advised to ensure that notes received over the counters are re-circulated only after ensuring their proper authentication through machines.

Second, keeping in view the extended geographical spread of bank branch network and leveraging on technology, we have decided to channelize the distribution of currency and coins only through currency chests and bank branches.

39. For details of these measures, as also measures that I have not touched upon, I invite you to refer to the full Policy Statement, which is available on the Reserve Bank’s website.

40. Let me now conclude by summarising our macroeconomic concerns. Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed. These trends are occurring in a situation in which concerns over the fiscal deficit, the current account deficit and deteriorating asset quality loom large. The challenge for monetary policy will thus be to maintain its vigil on controlling inflation while being sensitive to risks to growth and other vulnerabilities.


Click Here For Annual Policy Statement for the Year 2012-13

Click Here For Macro economic and Monetary Developments : 2011-12

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