The highlights of the Reserve Bank of India’s

Monetary Policy Statement for 2011-12 (Apr-Mar):

 

MEASURES

* RBI Policy shifts to single rate regime

* Operating target of policy to be weighted average call money rate

* Hikes Repo Rate 50 bps to 7.25% with immediate effect

* Ups Reverse Repo Rate 50 bps to 6.25% with immediate effect

* Keeps Bank Rate unchanged at 6.0%

* Keeps Cash Reserve Ratio unchanged at 6.0%

* Ups savings bank rate to 4.0% from 3.5% with immediate effect

* Starts marginal standing facility for banks at 8.25%

* To foster price stability, sustain medium-term growth

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PROJECTIONS

* Projects FY12 GDP growth in 7.4-8.5% range

* Projects Mar-end inflation at 6.0% with upward bias

* Projects FY12 money supply growth at 16%

* Projects banks’ FY12 credit growth 19%

* Projects banks’ FY12 deposit growth at 17%

* See Apr-Dec inflation close to Mar-end level

* Inflation projection factors in fuel price hike

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OPERATIONAL CHANGES

* RBI Policy incorporates some suggestions of Mohanty panel

* Marginal standing facility effective from May 7

* To issue separate guidelines for marginal standing facility

* Interest rate corridor to be 200 bps

* Reverse Repo Rate to be function of Repo Rate

* Retain flexibility to change interest rate corridor

* Shift to single rate to accurately signal policy stance

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STANCE

* Steps to curb inflation, anchor inflationary expectations

* Policy steps to rein in demand pressures

* Policy steps to sustain growth medium-term

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INFLATION

* Inflation persistently above comfort level

* Surge in non-food inflation suggests firm demand pressure

* Global commodity price uncertainty risk to India inflation

* Surge in crude oil yet to pass to domestic prices

* Impact of monetary tightening still unfolding

* Clear need to persist with anti-inflationary stance

* Signs of growth moderation emerged in late FY11

* Growth moderation to ease demand-side inflation

* Demand pressure to ease H2 on growth slowdown, monetary steps

* To maintain liquidity situation in balance

* Inflation was primary macroeconomic concern FY11

* Inflation driven by structural, transitory factors

* Food, fuel, power group added 60% to WPI rise Apr-Jul

* WPI surge Dec-Mar on fuel, power, non-food manufactured goods

* Inflationary pressure from food clearly became generalized

* Money supply growth eased FY11 on slow deposit growth

* Money supply growth eased also on high currency growth

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GROWTH

* Despite IIP slowdown, factors imply strong economic activity

* Manufacturing cos’ order book up 7% Q3 vs 9% Q2

* Order book growth suggest sustained demand with some easing

* Business expectation index rose in Q2, Q3 FY11

* Leading indicators show growth momentum in services sector

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PRUDENTIAL, BANKS

* To adhere to begin Basel-III from January 2013

* Studying Basel-III norms for apt implementation

* Disseminating information on Basel-III to banks

* Preparing norms for internal rating under Basel-III for bks

* Ups banks’ provisioning on “certain” NPAs

* Provisioning on banks’ sub-standard loans hiked to 15% vs 10%

* Additional 10% provision on unsecured sub-standard loans

* 25% provision on secured portion of up to 1-yr doubtful loans

* 40% provision on secured portion of 1-3 yr doubtful loans

* 2% provision on recast loans in standard assets for 1st 2-yr

* Restructured NPAs upgraded to standard to have 2% provision

* Caps banks fund into debt MFs liquid plans at 10% of net worth

* 6-mo to comply to banks with over 10% invest in MF liquid plans

* Guidelines on foreign bank presence being formulated

* Draft norms on new bank licenses being finalized

* Panel for holding co structure for banks to give report end-May

* Set up panel to review supervisory policies for banks

* Panel set up for reviewing norms for NBFCs

* Panel for review of NBFC norms to submit report end-Jun

* Transaction worth 610 mln rupee/mo settled via mobile-banking

* Bk loans to micro finance cos Apr 1 onwards to be priority sector

* To issue norms on credit default swaps shortly

* Short sale period in gilts extended to 3-mo vs 5-day now

* Money supply growth eased also on high currency growth

* Greater convergence in base rates of major banks

* Effective lending rates may rise to 10.3% FY12 vs 9.7% FY11

* Non-bank sources of funds, mainly FDI declined FYll vs FY10

* Funds from bks more than offset fall in non-bk fund sources

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GLOBAL

* Global recovery expected to sustain in 2011

* Growth in emerging economies expected to decelerate

* Current account deficit to ease to 2.5% FY11 vs 2.8% FY10

* Global commodity price rise poses downside risk to growth

* Global oil demand may rise on economic reconstruction

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