Following are the highlights of the Credit Policy 2003-04 announced by Reserve Bank of India governor Bimal Jalan in Mumbai on Tuesday.
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GDP growth in 2003-04, assuming satisfactory spatial distribution of monsoon, projected at about 6%.
- Bank Rate reduced by 25 bps to 6%.
- CRR reduced by 25 bps to 4.50%.
- Inflationary situation on an average basis remained low except in the fourth quarter during 2002-03 despite drought. Inflation is expected to be in the range of 5.0 to 5.5 per cent during 2003-04.
- Lower increase in reserve money despite sharp increase in RBI's foreign currency assets.
- Prudential measures for urban cooperative banks changed as per the Joint Parliamentary Committee recommendations.
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Money Supply (M3) remained within projected trajectory during 2002-03 and projected at 14.0 per cent for 2003-04.
- Sustained increase in credit flow during 2002-03; non-food credit to increase by 15.5 to 16.0 per cent during 2003-04.
- Sharp reduction in interest rates of banks and in government and corporate papers.
- Government borrowing programme completed at lower interest cost with longer maturity. Interest rates on corporate paper are all time low.
- Reserves build up at a low effective cost without adding to external debt.
- Low interest rates and strong forex position prompts prepayment of external debt.
- RBI to provide adequate liquidity to meet credit growth and support investment demand.
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Preference for a soft and flexible interest rate environment to continue.
- Export credit refinance facility to continue.
- Interest rate on back-stop facility reduced.
- Transparent system to determine prime lending rate (PLR) of banks.
- Uniformity in maturity structure of repatriable foreign currency as well as rupee Non-Resident Indian deposits.
- Overseas investments liberalised and flexibility allowed to overseas investors for flow of foreign direct investment.
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Further measure to improve credit delivery mechanism to priority sector.
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Changes in prudential measures for UCBs in line with JPC recommendations.
CRR: Cash Reserve Ratio, the fortnightly cash balances maintained by commercial banks with the central bank.
Bank Rate: Bank Rate is the rate at which RBI allows finance to commercial banks. Normally, different types of refinance facilities by RBI to banks are linked to a Bank Rate. Bank Rate is a tool which RBI uses for short-term purposes. Any revision in Bank Rate by RBI is a signal to banks to revise deposit rates as well as Prime Lending Rate.
SLR (Statutory Liquidity Ratio): Banks in India are required to maintain 25 per cent of their demand and time liabilities in government securities and certain approved securities. These are collectively known as SLR securities. The buying and selling of these securities was the seed of the 1992 scam.
M1: A measure of money supply that includes all coins and notes in circulation, and personal current accounts.
M3: A measure of money supply, including those covered by M2 -- a measure of money, supply, including M1, plus personal deposit accounts -- plus government deposits and deposits in currencies other than rupee.
Repo: Repurchase agreements or ready forward deals, a secured short-term -- usually 15-day -- loan by one bank to another against government securities. Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term it will buy back the securities at a slightly higher price, the difference in price representing the interest.
