New Delhi: The RBI has announced the Credit Policy 2006-07. There have been no hike in reverse repo rate, repo and bank rate.
It keeps reverse repo rate unchanged at 5.5 per cent, repo rate unchanged at 6.5 per cent, bank rate unchanged at 6 per cent and CRR unchanged at 5 per cent.
It will contain YoY inflation at 5-5.5 per cent in FY07. The FY07 GDP growth is seen at 7.5-8 per cent.
However, provisioning on Personal and Home loans above Rs 20 lakh were upped to 1 per cent versus 0.4 per cent. The RBI has introduced 'When Issued' market in G-Secs, and will be issuing guidelines shortly.
RBI has also increased provisioning on Commercial real estate from 0.4 per cent to 1 per cent. Loans against shares will also bear an increase from 0.4 per cent to 1 per cent. RBI has also upped rate cap on NRI deposit by 25 bps.
Further, banks exposure to venture capital funds will now be at par with 'Equity'.
Also, the LAF Rate corridor has been cut to 100 bps versus 200 bps. The overall outlook for Industry remains positive despite uncertainties. Non-food credit is projected to grow by 20 per cent in FY07.
The Policy allows mutual funds to access Electronic Bond Rate, and pension funds to access Electronic Bond Trade. RBI will also fix a cap on loans to government on a quarterly basis.
The policy says that India can't stay out of step with global rate hike. The RBI will pursue medium term goal to cut CRR to 3 per cent. There will be a status-quo on interest rate on saving deposit.
RBI says that pass-through of global oil price rise is only partial. It ups risk weight on banks and property loans to 150 per cent. The RBI sees FY07 M3 growth at 15 per cent. It will also start a negotiated quote driven system for call markets.
The RBI has urged legal changes to enable all banks to raise capital via preference shares. The International rate ceiling on NRE rupee deposits has been raised to 1 per cent above LIBOR.
The RBI has drawn up a plan to consolidate Illiquid government bonds. The RBI has also announced quarterly WMA limits versus half-yearly limits earlier.
Q1 WMA limit has been fixed at Rs 20,000 crore, and Q2 at Rs 10,000 crore. Q3 and Q4 WMA limits have been fixed at Rs 6,000 crore each.
State loans have been advised to develop advance borrowing calendar. State loans will also be included in LAF repo operations.
The policy reveals that retail credit is growing between 24-41 per cent, aggregate deposits are up 22 per cent from 12.8 per cent of a year ago.
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Bank Non-food credit is up from 27 per cent to 36 per cent in FY06. Home loans are up 29.1 per cent and are at 14.6 per cent of incremental Non-food credit.
The policy also says that the RBI will ensure that 'Appropriate' liquidity will meet 'Legitimate' credit needs.
Following are the highlights of annual credit policy of the RBI for 2006-07:
- No change in bank rate, cash reserve ratio
- Repo rate, reverse repo rate kept unchanged
- GDP growth projected at 7.5-8 pc for this fiscal
- Inflation to be within 5-5.5 pc this fiscal
- Deposit growth to grow by Rs 3,30,000 crore in 2006-07
- Non-food credit to grow by 20 pc in 2006-07
- RBI assures appropriate liquidity
- Money supply to expand by around 15 pc in 2006-07
- Ceiling interest rate on NRE rupee deposits raised
- Cap interest rate on export credit in foreign currency up
- Stauts quo on interest rate on savings a/c deposits
- Risk weight on exposures to commercial real estate up
- Exposure to VC funds given higher risk weight
- Primary dealers permitted to diversify activities
- Downside risks to economic outlook globally continuing
- Ways and means limits for Centre on quarterly basis
- States to be encouarged to up share of mkt borrowings
- States be enouraged to develop mkt borrowing calendar
- Working group to be set up for corporate bonds
- Working group to be set up to help distressed farmers
- Amendments for public issue of preference shares by banks
- 20,000 bank branches to be under RTGS system by June-end
- Working group for alternate sources of capital for UCBs
(With PTI inputs)
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