Monetary and Credit Policy for 2001-2002Dr. Bimal Jalan, Governor, RBI while presenting the annual Monetary and Credit Policy for 2001-02 on April 19, 2001 pointed out that this year's policy is being presented at a time when serious lacunae have emerged in the functioning of certain segments of the financial system. He mentioned that necessary remedial measures urgently need to be taken to remove the weaknesses that have been noticed so that India's financial sector continues to remain strong and safe. The overall stance of monetary policy as per his announcement will be - (i) Provision of adequate liquidity to meet credit growth and support revival of investment demand while continuing a vigil on movements in the price level and (ii) continue the present stable interest rate environment with a preference for softer rates.
Export Credit RefinanceW.e.f. fortnight beginning May 5, 2001 scheduled commercial banks would be provided export credit refinance to the extent of 15.0 percent of the outstanding export credit eligible for refinance.
Export Refinance RationalisedBased on the current PLR upto 180 days of major public sector banks, there is likely to be a reduction in interest rate by 1.0 - 1.5 percentage points. Banks allowed to give loan at PLR minus 1.5 percent rate for export finance.
Interest Rate Policy
Urban Co-operative Banks (UCBs)(i) Prudential Measures
In order to strengthen prudential measures for urban co-operative banks, in the intererst of their members and depositors, the following measures are proposed :
Credit Delivery MechanismRelief Measures for Gujarat :
As relief towards Gujarat, a large number of measures have been taken. These inter-alia include :
Bank RateRBI vide its circular dated March 01, 2001 has reduced the bank rate by one half of 1 percentage point from 7.5% per annum to 7.0% per annum effective close of business on March 01, 2001. The bank rate was reduced from 8% to 7.5% on February 16, 2001.
CDR mechanism to help reduce bank NPAsThe corporate debt restructuring (CDR) mechanism, which is to come into effect with the
repeal of SICA (Sick Industrial Companies Act) and the consequent abolition of the Board for Industrial and Financial Restructuring (BIFR), will help banks to scale down their non performing assets (NPA) by treating rescheduled accounts as standard debt instead of making provisions in their balance sheet, as is the practice at present according to the draft prepared by Finance Ministry. Presently any restructuring of corporate debt, even through rescheduling of principal dues and reduction of interest renders the entire debt as NPA and requires provisioning. Only if debtors adhere to the payment schedule for two years after restructuring of account the amount is treated as standard.
Provisioning or write-off can be done to the extent of waiver involved and the balance of the restructured amount will be treated as standard data. Brief data on such restructured debts will, however, be disclosed in the annual report.
As part of the CDR strategy, it is proposed that all restructrued debt will have to be disclosed as a separate category under contingent liabilities in the balance sheet.
Credit Linked Capital Subsidy Scheme for Technology Upgradation of the SSIs
The Government of India, Ministry of SSI & ARI, Development Commissioner (SSI) have launched Credit Linked Capital Subsidy Scheme for Technology Upgradation of the SSIs. Under the scheme, capital subsidy would be admissible on the loans advanced to the SSIs by SIDBI, eligible Scheduled Commercial Bank and National Small Industries Corporation for technology upgradation in certain select products / sub-sectors. SIDBI has been designated as the Nodal Agency for channelising assistance under the scheme. The scheme will be in operation for a period of five years from October 01, 2000 to September 30, 2005 or till the time sanctions of capital subsidy by the Nodal Agency reach Rs.600 crore, whichever is earlier.
SIDBI can also consider from time to time inclusion of other institutions, subject to the approval of the Governing and Technology Approval Board (GTAB) constituted by the Government of India.
Initially the Scheme would cover the following products / sub-sectors in the SSI sectors :-
New disclosure norms for FIsThe RBI has notified the new norms for FIs to bring in uniformity in their information disclosure norms and improve transparency in their transactions from fiscal 2000-01.
These guidelines are minimum standards for incorporating information about NPAs, risks weightages and FIs wishing to make additional disclosures are well advised to do so. Under the new norms, FIs would have to disclose credit exposure as percentage to capital funds and as percentage to total assets, in respect of the largest single borrower, the largest borrower group, the 10 largest single borrowers and the 10 largest borrower groups. However, the names of the borrowers / borrower groups need not be disclosed.
FIs would also have to disclose credit exposure to the five largest industrial sectors (if applicable) as percentage to total loan assets.
Under the asset quality and credit concentration, FIs would be required to divulge the percentage of net NPAs to net loans and advances as also the amount and percent of net NPAs under the asset classification categories.
Information on amount of provisions made during the year towards standard assets, NPAs, investments (other than those in the nature of an advance) and I-T are also required to be shown, the RBI said.
FIs would have to disclose information about capital including the amount of subordinated debts raised and Tier-II capital. The risks weighed assets would have to be disclosed both for, on and off-balance sheet items. They would also be required to give details of shareholding pattern as on the date of balance sheet.
On liquidity, FIs would have to present information on maturity pattern of rupee assets and liabilities and maturity pattern of foreign currency assets and liabilities in a specified format, the apex bank said.
The operating results would need to provide information on interest income, non-interest income and operating profits, all as a percentage to average working funds.
RBI to formulate asset-liability mgmt norms for coop banksThe RBI is planning to put in place the asset-liability management (ALM) norms for the cooperative banking sector. It is found that many cooperative banks borrow short-term funds but lend for longer tenure which leads to asset-liability mismatch.
Typically, cooperative banks have average deposit tenure of 1 to 3 years, while their lending tenure varies from one to 15 years. An ALM norm will equip the bank to guard against any interest rate or liquidity shocks. Moreover, it will also improve their funds management. A Committee to suggest ALM norms for cooperative banks is to be soon announced by RBI.
Revision in interest rates under IDBI Refinance SchemeIDBI vide its circular dated 22.03.2001 has reduced the interest rate for the medium (non-SSI) sector from 13% p.a. to 12.5% p.a. w.e.f. 20.03.2001. The SFCs/SIDCs are allowed to charge any rate, as hitherto, depending upon their perception of risk involved in each project.
The revised rate under the scheme will be applicable to :
SIDBI raises mop-up targetSmall Industries Development Bank of India (SIDBI) has revised its fund generation target. As per the revised plan, it was decided to mop up Rs. 1,500 crore in 2001-02, instead of Rs. 1,000 crore. SIDBI has structured three instruments to raise the funds. About three-fourths of the funds are likely to be raised through private placement of priority and non-priority sector bonds to banks. The balance will be raised through issuing bonds to public. Going by the current year's trend, SIDBI is hoping to raise at least Rs.600 crore through priority sector bonds.
SIDBI to assist small rural entrepreneurs
SIDBI has come out with a plan to assist the small entrepreneurs face the challenges of globalisation. SIDBI would give loan to small rural entrepreneurs - both for setting up new ` viable '' units and to release additional and cheaper capital for the existing units to modernise their production system and meet the enhanced power tariffs and other overheads.
The person to be given loan will be decided by SIDBI with the assistance of NGOs and the state level refinancing schemes. The operational rejuvenation would be put on a pilot trial in select areas in Haryana and Delhi according to head of the Rural Development and Self Employment Training (RUDSET) Institute and FICCI awardee Shri G.K. Bhatnagar "to train resource personnel who are considered potential small ent repreneurs or have the capacity to tap such youth in the villages and small towns. It would cover the dislocated factories of the Capital who have opted for Haryana as their new destination".
The RUDSET is a Gurgaon based NGO, jointly funded by the Syndicate bank and Canara Bank and has so far been giving 15 days free training to rural artisans.
Revision of Interest Rate Structure under Refinance / Line of Credit (LOC) Scheme
SIDBI vide its circular dated 02.03.2001 has revised the rates of interest on refinance against term loans sanctioned to the units in small scale sector as well as non-SSI sector.
Revised Interest Rate Structure under Refinance / Line of Credit (LOC) scheme of SIDBI effective March 7, 2001
The revised rates of interest on refinance against term loans will be applicable to all cases where refinance on term loans are sanctioned/disbursed by SIDBI on or after March 07, 2001 and to all disbursements made under LOC by SIDBI on or after 7.3.2001. However, cases where refinance on term loans have been partly disbursed before March 07, 2001, will continue to carry the pre-revised applicable rates of interest.
The PLIs are allowed to fix the rate of interest on loans upto Rs.2 lakh with a maximum spread of 3% and for loans above Rs.2 lakh, depending upon the risk perception in each proposal.
NHB reduces refinance rate by 75 basis pointsNational Housing Bank (NHB) has reduced its refinance rate by 75 basis points and enhanced the slab of individual housing loans from Rs.10 lakh to Rs.15 lakh w.e.f. March 15.
The cut in refinance rate from 12.25 percent to 11.5 percent would help Housing Finance Companies (HFCs) to reduce their prime lending rate in order to pass the benefit to consumers.
For construction or acquisition of dwelling units in rural areas the new refinance rates range between 9.5 percent and 11.5 percent for different loan slabs and between 10.5 percent and 11.5 percent in urban areas. For up-gradation and major repairs, the new refinance rates of NHB range between 10 percent and 12 percent for rural areas and between 11 percent and 13 percent in urban areas.
NHB announces refinance scheme for GujaratThe National Housing Bank (NHB) has announced a refinance scheme for people affected by the Gujarat earthquake in January this year. While housing refinance will be available at 6.5 percent, loans to state bodies for infrastructure reconstruction will attract 7.5 percent rate of interest.
NHB proposes to provide both refinance and also get into direct lending for reconstruction in Gujarat. The scheme involves sanction of loans for repair and construction of dwellings which ranges between Rs.5 lakh for rural and semi urban areas and Rs.10 lakh for urban and metropolitan areas at 18 percent interest through housing finance companies.
Bank of India has already sanctioned a soft loan of Rs.1,000 crore, with
a 15 year tenure. NHB has said that it will provide direct finance to state
government agencies like the Disaster Management Authority, State Housing
Board, State Development and Municipal Bodies.