RBI raises CRR by 0.25 percent

Revealing the credit policy for 2008-09, Y V Reddy, the Governor of Reserve Bank of India on Tuesday has kept the entire official rate unchanged except Cash Reserve Ratio to tame the inflation stroke.

RBI has hike the CRR, the cash with banks have to deposit with the central bank by 25 basis point to 8.25% that would affect from May 24, 2008. This move of RBI would absorb nearby Rs. 9,250-crore from the banks.

In the released credit policy, RBI has also forecasted India’s Gross Domestic Product rate between 8.0 to 8.5 % for this fiscal which is aimed to contain inflation around 5.5% and further to lower down to 4.5 to 5%.

Unveiling to credit policy, Reddy said that RBI would act swiftly to tame any unpleasant situation of inflation hiking while it has raised the CRR to manage liquidity, which is RBI’s primary objective.

Earlier, on the request of Finance Minster P Chidambaram, the apex bank’s governor has raised the CRR to 50 basis point in two steps on April 18. The first step of CRR hiking has been made effective from April 26, while the second step of rise is still to become effective from May 10.

Except, CRR, the Central bank, has not changed prime lending rate, the banks use it for medium and long terms loans is still steady at 6%, while the repo rate, the rate on which apex bank adds fund to money market is also constant at 7.75%.

The reserve repo rate, which reserve banks suck from the market is also unchanged at 6% the apex banks has projected the total deposits to surge nearby 17.0% of worth Rs. 5,50,000-crore in the next fiscal.

RBI, in its new policy has also extended the home loan amount up to 50% from Rs. 20, 00,000 to Rs. 30, 00,000 while the local factors would also oversee during granting loan.

RBI has also set the money supply to 16.5-17.0 for the year 2008-09 while credit growth would receive around at 20 percent for the same period.

Highlights of the credit policy- 2008-09

• High priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while sustaining the growth momentum. • Swift response on a continuous basis to evolving adverse international and domestic developments through both conventional and unconventional measures. • Emphasis on credit quality and credit delivery while pursuing financial inclusion. • Scheduled banks required to maintain CRR of 8.25 per cent with effect from the fortnight beginning May 24, 2008. • GDP growth projection for 2008-09 in the range of 8.0- 8.5 per cent. • Inflation to be brought down to around 5.5 per cent in 2008-09 with a preference for bringing it close to 5.0 per cent as soon as possible. Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent so that an inflation rate of around 3.0 per cent becomes a medium-term objective. • Deposits projected to increase by around 17.0 per cent or Rs.5, 50,000 crore during 2008-09. • Adjusted non-food credit projected to increase by around 20.0 per cent during 2008-09. • Active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF. • Introduction of STRIPS in Government securities by the end of 2008-09. • A clearing and settlement arrangement for OTC rupee derivatives proposed. • Domestic crude oil refining companies would be permitted to hedge their commodity price risk on overseas exchanges/markets on domestic purchase of crude oil and sale of petroleum products based on underlying contract. • Currency futures to be introduced in eligible exchanges in consultation with the SEBI; broad framework to be finalised by May 2008. • Indian companies to be allowed to invest overseas in energy and natural resources sectors. • Reserve Bank can be approached for capitalisation of export proceeds beyond the prescribed period of realisation. • Loans granted to RRBs for on-lending to agriculture and allied activities to be classified as indirect finance to agriculture. • The shortfall in lending to weaker sections would be taken into account for contribution to RIDF with effect from April 2009. • RRBs allowed to sell loan assets to other banks in excess of their prescribed priority sector exposure. • The Reserve Bank to disseminate details of various charges levied by banks. • Asset classification norms for credit to infrastructure projects relaxed. • The prudential guidelines for specific off-balance sheet exposures of banks to be reviewed. • Reserve Bank to carry out supervisory review of banks' exposure to the commodity sector. • The limit of bank loans to individuals for housing having lower risk weight of 50 per cent enhanced from Rs. 20 lakh to Rs. 30 lakh. • Consolidated supervision of financial conglomerates proposed. • Working Group to be set up for a supervisory framework for SPVs/Trusts. • Inter-departmental Group to review the existing regulatory and supervisory framework for overseas operations of Indian banks. • All transactions of Rs. one crore and above made mandatory to be routed through the electronic payment mechanism. • Dispense with the extant eligibility norms for opening on-site ATMs for well-managed and financially sound UCBs. • Regulations in respect of capital adequacy, liquidity and disclosure norms for systemically important NBFCs to be reviewed.