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April 29, 2002 | 1320 IST
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RBI announces cut in CRR by 50 basis points

The Reserve Bank of India on Monday announced a cut in the cash reserve ratio by 50 basis points effective June 15.

Bank rate may also be cut upto 50 basis points depending on the monetary development but no timing has been fixed, the RBI said in its annual Monetary and Credit Policy for 2002-03.

The RBI said the gross domestic product growth for 2002-03 was projected at 6 to 6.5 per cent while inflation was expected to remain low at slightly less than four per cent.

There is no change of interest rate on savings account.

The RBI said interest rate on export credit in foreign currency was being lowered to LIBOR plus 0.75 per cent from LIBOR plus one per cent.

The apex bank also announced abolition of minimum lending rate for co-operative banks and said softer interest regime is to continue.

Greater flexibility to interest rate structure in the medium term has been provided.

The RBI said non-banking finance companies would have to establish a self-regulatory organisation for improvement in supervision of these entities.

The apex bank would impose penalty for late submission returns by the NBFCs and if necessary may launch court proceedings to consider cancellation of registration for these entities having deposits of Rs 500 million and above.

To improve the flow of credit to the housing sector, RBI has liberalised prudential requirements by banks in securitised debt instruments of housing finance companies.

It said the risk weight of 50 per cent was being lowered by half on residential housing properties as against 100 per cent.

The RBI said monetary condition and liquidity position was highly comfortable and it would provide adequate liquidity to meet credit requirements and support investment demand.

Apart from providing information on deposit rates on various maturities and effective annualised returns to depositors, banks should also declare the maximum and minimum lending rates.

The RBI said banks, for greater operational flexibility, can borrow in overseas market upto 25 per cent of their unimpaired Tier I capital within the bank's open position limit and maturity mis-match limits for which detailed guidelines are to be issued.

The existing limit of 15 per cent of unimpaired Tier I capital for investment in overseas market has also been raised by 10 per cent.

Facilities for small scale industries will be liberalised and banks may on the basis of good track record and financial position of the units, increase the limit of dispensastion of collateral requirements for loans from existing Rs 500,000 to Rs 1.5 million.

On priority sector lending, RBI has increased the limit for financing of distribution of inputs for "allied activities" by Rs 1 million to Rs 1.5 million.

The ceiling on FCNR (B) deposits reduced to LIBOR/SWAP rates for the corresponding maturities minus 25 basis points from LIBOR/SWAP rate.

On prevention of money laundering, the RBI said it was in the process of issuing a master circular setting out the policy, procedures and controls required to be introduced by banks.

RBI said in order to continue with money reforms it suggested that the daily lending in the call and notice money market of scheduled commercial banks should not exceed 25 per cent of their own funds at the end of March of the previous fiscal.

The apex bank said it may consider allowing temporary access to call and notice market to any banks facing mis-matches on request.

The RBI has decided not to give any more licences to satellite dealers based on the views of the Primary Dealers Association of India and technical advisory committee on money and government securities.

The existing dealers would be required to make action plans, satisfactory to RBI, for termination of their operations by May 31, 2002.

The Monetary and Credit Policy 2002-2003
The Rediff Budget Special

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