In its Second Quarter Review of Monetary Policy for the Year 2009-10 announced on 27^th October, 2009, the Reserve Bank of India (RBI) has kept its benchmark lending and borrowing rates unchanged. It has also kept the Cash Reserve ratio (CRR), (the proportion of total deposits banks have to keep with the RBI in reserve) untouched.
 

• However, Statutory Liquidity Ratio (SLR) has been hiked from 24% to 25%. Scheduled Commercial Banks are currently maintaining SLR at 27.6% of their Net Demand and Time Liabilities (NDTL), net of LAF collateral securities, and 30.4% of NDTL, inclusive of LAF collateral securities. As such, the increase in the SLR will not impact the liquidity position of the banking system and credit to the private sector.

   

• Current Key Policy Rates and Reserve Ratios are:

It can be observed that during the past six months the RBI has kept all the policy rates unchanged (the last change in Repo and Reverse repo rates were done in April 2009). This could be mainly attributed to low level of inflation rate which prevailed during April-October 2009 period.
 
Some other Policies:

•  Commercial Real Estate Exposures

In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, RBI thought it prudent to build cushion against likely non-performing assets (NPAs). Accordingly, it is proposed to increase the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40% to 1.0%. 

• Provisioning for Bank NPAs Augmented

 With a view to improving the provisioning cover and enhancing the soundness of individual banks, it is proposed to advise banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions,  and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70 per cent. Banks should achieve this norm not later than end-September 2010.  

• Cap On ATM Use:

 The Reserve Bank had advised that customers could use the ATMs of other banks for cash withdrawal free of charge with effect from April 1, 2009. This led to a quantum increase in ATM transactions, especially small value cash withdrawal transactions, which tended to impair the viability of operations.
 
The Indian Banks’ Association (IBA), therefore, approached the Reserve Bank with suggestions to rationalise the facility in order to achieve a balance between optimising customer convenience and mitigating operational difficulties.
 
Taking into account all the relevant issues, the Reserve Bank has agreed to the IBA’s suggestions of:
 
(i)        Extending the access of ATMs of other banks to only customers having savings bank accounts; 
 
(ii)       Pegging a cap of Rs.10,000 per withdrawal at ATMs of other banks; and
 
(iii)      Permitting only five free transactions per month at ATMs of other banks. These instructions have already come into force from October 15, 2009.
 
 Outlook for 2009-10

• Real GDP expected to post 6% growth rate

• Average rate of inflation (WPI) is expected to be 6.5% with an upward bias. This has been done keeping in view the global trend in commodity prices and the domestic demand-supply balance. Earlier in the First Quarter Review of July 2009 the average inflation rate for the year was expected to be around 5.0%. 

• Money supply (M3) expected to grow by 17.0%

• The RBI is concerned about its fundamental commitment to price stability. It will continue to monitor the price situation in its entirety and will take measures as warranted by the evolving macroeconomic conditions swiftly and effectively.- Interest rates are likely to firm up in response to rising inflation rate.

 The Third Quarter Review:

The Third Quarter Review of Monetary Policy for 2009-10 will be undertaken on January 29, 2010.

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