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Click here to return to main page of Annual Policy Statement 2006-07

Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2006-07

104. The Mid-term Review of October 25, 2005 reaffirmed the stance of the Annual Statement on Developmental and Regulatory Policies for the year 2005-06 of strengthening the financial system with a view to ensuring financial stability. In this context, the Mid-term Review focused on improving credit delivery, developing financial markets and enhancing their integration, financial inclusion and a revitalisation of micro-finance institutions, co-operative credit system and regional rural banks to reorient financial intermediation to cover the widest sections of society. In recognition of the sweeping changes underway in the financial system, the Mid-term Review also emphasised corporate governance practices, risk management and pricing techniques and counter-cyclical prudential norms. The Third Quarter Review of January 24, 2006 reinforced the commitment to financial stability and underscored the need to ensure the quality of credit in the context of the rapid expansion of bank credit in 2005-06. Banks were urged to undertake a comprehensive assessment of segment-wise credit with special reference to those sectors in which credit has been expanding rapidly.

105. In the context of the progressive integration of financial markets, both domestically and cross-border, and the fast-paced changes in technology and institutional architecture, the Reserve Bank has adopted a participative and consultative process in the conduct of financial sector policies. The consultative process has been made broad based, with participation of experts from different areas of the financial sector, academics and market functionaries. Policy initiatives have been calibrated to the country-specific situation even as the ongoing endeavour has been to converge to international best practices.

106. While persevering with the stance set out above, the Annual Statement on Developmental and Regulatory Policies for 2006-07 focuses on certain key areas. First, in the context of the ongoing efforts to refine and augment the channels of delivery of bank credit, the emphasis would be on an integrated approach to financial inclusion and on developing an appropriate environment for extending financial services to all segments of the population. Exploring the need for credit counselling and distress relief for vulnerable sections, especially farmers, is an integral part of this approach. Second, expanding the development and application of new technology in the financial sector is regarded as an important prerequisite in the drive to achieve global standards in respect of payment and settlement systems. Third, strengthening and rationalising the compliance standards in banks, evolving a mechanism for transparency in banking practices to obviate potential irregularities, consolidating the co-operative structure, streamlining the functioning of non-banking financial companies (NBFCs) and implementing prudential measures in the financial sector assume priority for ensuring financial stability.

107. The Annual Statement on Developmental and Regulatory Policies for the year 2006-07 is divided into five sections.

I. Interest Rate Policy   Read full text

II. Financial Markets    Read full text

III. Credit Delivery Mechanism and Other Banking Services    Read full text

IV. Prudential Measures   Read full text

V. Institutional Developments   Read full text

Click Here For Highlights of Annual Policy Statement for the Year 2006-07

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