Money & Banking
RBI keeps repo, CRR unchanged in its first bi-monthly monetary policy

While keeping key rates unchanged, the RBI said despite weak credit off take and the front loading of two rate cuts, transmission of policy rates to lending rates has not taken place


The Reserve Bank of India (RBI), in its first bi-monthly credit policy review on Tuesday has kept repo, reverse repo, cash reserve ratio (CRR) and bank rate unchanged. With repo rate remaining at 7.5%, the reverse repo rate under the liquidity adjustment facility (LAF) will remain unchanged at 7%, and the marginal standing facility (MSF) rate and the bank rate at 9%.
In a statement, RBI Governor Dr Raghuram Rajan said, “Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts. With little transmission, and the possibility that incoming data will provide more clarity on the balance of risks on inflation, the Reserve Bank will maintain status quo in its monetary policy stance in this review.”
"For monetary transmission to occur, lending rates have to be sensitive to the policy rate," he added.
"The outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy. Along with initiatives announced in the Union Budget to boost investment in infrastructure and to improve the business environment, these factors should provide confidence to private investment and, together with the conducive outlook on inflation, deliver real income gains to consumers and lower input cost advantages to corporates," RBI said in a statement.
With the introduction of the Base Rate on 1 July 2010 banks could set their actual lending rates on loans and advances with reference to the Base Rate. At present, banks are following different methodologies in computing their Base Rate - on the basis of average cost of funds, marginal cost of funds or blended cost of funds (liabilities). Base Rates based on marginal cost of funds should be more sensitive to changes in the policy rates.

In order to improve the efficiency of monetary policy transmission, the Reserve Bank said it will encourage banks to move in a time-bound manner to marginal-cost-of-funds-based determination of their Base Rate. RBI said it would shortly issue detailed guidelines on this.

According to RBI, the Financial Benchmarks India Pvt Ltd, jointly floated by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), the Foreign Exchange Dealers' Association of India (FEDAI) and the Indian Banks' Association (IBA), has been established as an independent benchmark administrator. This administrator will start operations by end-May 2015. Once it starts publishing various indices of market interest rates, the Reserve Bank said it will explore the possibility of encouraging banks to use the indices as an external benchmark for pricing bank products.

Urban cooperative banks can issue credit card
RBI said, with a view to enlarge scope of urban co-operative banks for expanding their business, it decided to allow financially sound and well managed (FSWM) scheduled urban co-operative banks, which are CBS-enabled and having minimum net worth of Rs100 crore, to issue credit cards. RBI will shortly issue detailed guidelines on this.

Similarly, with a view to providing greater freedom to state co-operative banks to expand their business and to provide technology-enabled services to their customers, the central bank said it decided to permit state co-operative banks satisfying certain eligibility criteria to set up off-site ATMs/ mobile ATMs without obtaining prior approval from the Reserve Bank. Detailed guidelines in this regard will be issued separately.

RBI revises borrowing limit for small and marginal farmers and micro enterprises
According to the Reserve Bank, taking into consideration the improvement in the micro-finance institutions (MFI) sector and recommendations of the Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, there is a need to revise upwards the limit relating to total indebtedness of the borrower, eligible rural and semi-urban household annual incomes and loan amounts to be disbursed in the first cycle and in subsequent cycles. The revision would be as follows...
  • Total indebtedness of a borrower, excluding educational/ medical expenses, not to exceed Rs1 lakh (raised from the current limit of Rs50,000).
  • Loan disbursed to a borrower with a rural household annual income not exceeding Rs1 lakh (enhanced from Rs60,000) or urban and semi-urban household income not exceeding Rs1.60 lakh (enhanced from Rs1.20 lakh).
  • Disbursement of the loan amount not to exceed Rs60,000 (enhanced from Rs35,000) in the first cycle and Rs1 lakh (enhanced from Rs50,000) in subsequent cycles.
The central bank said it will continue to provide liquidity under overnight repos at 0.25% of bankwise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions and continue with daily variable rate repos and reverse repos to smooth liquidity.
With no change in key policy rates, the repo rate (the rate at which the RBI lends money to banks) remains at 7.5%. Similarly reverse repo rate (the rate at which the RBI borrows from banks), CRR, and bank rate remains at 6.5%, 4.00% and 8.5%, respectively.
The second bi-monthly monetary policy statement will be announced on 2 June 2015.
Repo Rate.......................7.50%
Reverse Repo Rate.........6.50%
Bank Rate.......................8.50%


GMR Infrastructure wins Rs5,000 crore rail corridor project

The eastern and western rail freight corridor projects are expected to be game changers in the country by creating the much required rail transportation capacity, GMR added


GMR Infrastructure said on Monday that a consortium led by the company has won the bid for construction of the 417 km eastern dedicated freight corridor railway project estimated to cost Rs5,080 crore.
"A consortium led by GMR Infrastructure Ltd. has been issued Letter of Award for
construction of 417-km Eastern Dedicated Freight Corridor railway project at a cost of
Rs5,080 crore on EPC (Engineering, Procurement and Construction) basis," the company said in a stock exchange filing.
GMR is not required to provide significant investment for the project since it is
on an EPC basis, the statement added.
The World Bank-funded project is divided into two packages - one from Mughalsarai to
Karchana (near Allahabad) for 180 km and from Karchana to Bhaupur (near Kanpur) for 237 km in Uttar Pradesh, the company said.
The consortium had emerged as the lowest bidder amongst five contenders for the project through an international competitive bidding process in November last year. It is to be completed in 45 months, GMR said.
The eastern and western rail freight corridor projects are expected to be game changers in the country by creating the much required rail transportation capacity, it added.
In a separate filing on Monday, GMR Infrastructure said that GMR Vemagiri Power Generation Ltd. has commenced power generation by synchronisation of the APTRANSCO grid from April 2.
"The plant is expected to generate power at 60% Plant Load Factor (PLF) from the re-gasified liquefied natural gas (RLNG) that is made available by Andhra Pradesh government and Telangana government through GAIL India," GMR said.


Simplify rules for ease of doing business, states told

Admitting that changing the age-old system was not possible overnight, Amitabh Kant, secretary in the department of industrial policy said sustained, persistent and hard work would pave way for ease of doing business in the country


The central government has given 98 points to states to simplify rules and procedures for ease of doing business, a senior official said on Monday.
"We have given a list of 98 points to the states to act on them with timelines for improving ease of doing business," Amitabh Kant, secretary in the department of industrial policy and promotion secretary told India Inc at a national conference here.
Participating in a session on "For ease of doing business in India, acts, rules and forms need to be simplified", he said the processes involving starting, doing and exiting business have to be made simple and friendly.
"No act (law) should be more than three pages, no rule more than two pages and no form more than one page," Kant said at the day-long session, organised by the Confederation of Indian Industry (CII).
Admitting that changing the age-old system was not possible overnight, he said sustained, persistent and hard work would pave way for ease of doing business in the country.
"For ease of trading across borders, we have to reduce forms to three from 14 for exports and three for imports using the e-biz platform," he noted.
Though many state governments have taken initiative to promote ease of doing business, Kant regretted that the country had not allowed micro, small and medium enterprises (MSMEs) to grow into big business.
A recent industrial study revealed that MSMEs accounted for 84 percent of industrial employment across the country, with 67 percent of it (84 percent) coming from micro units.
"To help MSMEs to grow into big business, we need size, scale and speed," Kant observed.
In his adress, Hero Corporate Services Ltd chairman Sunil Kant Munjal said that India had to create an environment to attract domestic and foreign investment and make it easy to start, run and shut down.
"All pillars, including political, bureaucracy and judicial need to support economic activity," he said.
Bosch Ltd managing director Steffen Berns observed that the country manufactured eight times more cars and 3.5 times more tractors in 2014 than in 1996.
"India has become the sixth largest manufacturer of cars and largest maker of tractors, though other countries have moved faster over the last decade," he said, noting india, to catch up with the others, had to build world class infrastructure, rationalize taxes, streamline labour laws and simplify the approval process for greater transparency.
An agreement was signed on the occasion by CII and Lee Kuan Yew School of Public Policy, National University of Singapore to create a master plan on ease of doing business in India - Vision 2020.


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