Second Quarter Review of Monetary Policy 2013-14 - 29th October 2013
-Full text of Statement by Dr. Raghuram G. Rajan, Governor, Reserve Bank of India
Developmental and Regulatory Policies
We plan to build the Reserve Bankís developmental measures over the next few quarters on five pillars. These are:
Clarifying and strengthening the monetary policy framework.
Strengthening banking structure through new entry, branch expansion, encouraging new varieties of banks, and moving foreign banks into better regulated organizational forms.
Broadening and deepening financial markets and increasing their liquidity and resilience so that they can help absorb the risks entailed in financing Indiaís growth.
Expanding access to finance to small and medium enterprises, the unorganized sector, the poor, and remote and underserved areas of the country through measures to foster financial inclusion.
Improving the systemís ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery.
Action on the monetary policy framework will follow the submission of the Dr. Urjit Patel Committee report. A number of measures to strengthen bank structures and financial markets have already been announced, and more will follow as they are worked out. The strategy to expand financial inclusion will be informed by the Dr. Nachiket Mor Committee report, though significant efforts to explore the use of technology are already under way.
I invite you all to go through Part B of the Policy Statement which lays out developmental and regulatory initiatives. I will only list a few important ones. We are discussing other measures and the fact that I do not mention them does not mean that they are not on the table, only that more work is needed to get them to the point where they can be announced.
In formulating these measures, we have listened to concerns that have been expressed to us. For instance, a number of banks have expressed concerns about the difficulty of settling electronic funds transfers when the markets have closed. Keeping this in mind, we have revised the timing of MSF operations. With effect from November 5, 2013 they will be conducted between 7.00 pm and 7.30 pm instead of between 4.45 pm and 5.15 pm. I believe this new timing will help the banks greatly in their reserve management and help free up liquidity for the economy. Turning to other measures
The report of the Group to operationalise the countercyclical capital buffer framework in India (Chairman: Shri B. Mahapatra) will be placed on our website by end-November for comments.
The draft of the proposed framework for dealing with Domestic Systemically Important Banks in India will be placed on our website by end-November.
The scheme of subsidiarisation of foreign banks in India in order to reduce the risks they pose to the system while giving them the near national treatment promised in the past will be placed on our website within two weeks. It will be guided by the two cardinal principles of reciprocity and single mode of presence.
Inflation Indexed National Saving Securities (IINSSs) will be launched for retail investors in November/December 2013.
Guidelines on cash settled 10-year interest rate futures contracts will be issued by mid-November so that the product can be launched by the exchanges by end-December.
A number of suggestions from the FSLRC report to improve the interaction between the RBI and its regulated entities are being implemented.
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