Estimate of current account deficit (CAD) for 2014-15 is placed at 1.3% of GDP
The Reserve Bank of India released bi-monthly monetary policy review maintaining the repo rate unchanged.* Repo unchanged at 7.75%
* CRR unchanged at 4.0%
* Reduce SLR by 50 bps to 21.5% from 7 February 2015
* Replace the export credit refinance (ECR) facility with the provision of system level liquidity
ASSESSMENT
* Domestic activity is likely to have remained subdued in Q3FY15
* Improvement in business confidence is visible in a pick-up in new investment intentions, especially in transportation, power and manufacturing.
* In the services sector, the purchasing managers' survey indicates slower activity, especially in new orders.
* The sharp reduction in oil prices as well as in inflation is likely to increase personal disposable incomes and improve domestic demand conditions in the year ahead.
* Weak domestic demand has restrained corporates' pricing power and inflationary pressures in the non-food non-fuel category.
* Near-term as well as longer-term inflation expectations of households dropped to single digits for the first time in 21 quarters.
* Despite a generalised fall in the cost of funds, banks have yet to pass through these effects, as also the effects of the policy rate cut on January 15.
* Estimate of the current account deficit (CAD) for 2014-15 is currently placed at 1.3% of GDP, significantly lower than earlier projections.
POLICY STANCE AND RATIONALE
* In the absence of no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, RBI decides to await and maintain the current interest rate stance.
* Inflation is likely to be around the target level of 6% by January 2016
* Outlook for growth has improved modestly on the back of disinflation, real income gains from decline in oil prices, easier financing conditions and some progress on stalled projects.
* Baseline projection for growth using the old GDP base has been retained at 5.5% for 2014-15
* GDP growth in 2015-16 is expected to rise to 6.5%
DEVELOPMENTAL AND REGULATORY MEASURES
I. Financial Markets
* Eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) is enhanced USD 250,000 per person per year from USD 125,000 in June 2014 and USD 75,000 in 2013
* Decided to introduce greater flexibility in the pricing of instruments/securities, including an assured return at an appropriate discount over the sovereign yield curve through an embedded optionality clause or in any other manner.
* Foreign portfolio investors (FPIs) enabled to reinvest coupons in Government securities even when the existing limits are fully utilised.
* All future investment by FPIs in the debt market in India will be required to be made with a minimum residual maturity of three years.
* To work out the necessary infrastructural and transitional arrangements for shifting the overnight MIBOR from the existing polling based system to transaction based system of the Clearing Corporation of India Ltd. (CCIL) by April 2015.
* Permit stock exchanges to introduce cash settled IRF contracts on 5-7-Year and 13-15 year G-Securities.
II. Restructuring
* Provides further flexibility by allowing a further extension of the date of commencement of commercial operations (DCCO) of projects where a change of ownership takes place
* RBI consulting with the SEBI for waiver, under certain specific circumstances, of the requirement of compliance with the ICDR and SAST Regulations, for conversion of debt into equity.
* Banks allowed to reverse excess provision on sale of non-performing assets (NPAs) when the cash received is higher than the net book value (NBV) sold prior to February 26, 2014 also, hitherto allowed only for asset sold after Feb 2014.
III. Banking and Financial Structure
* Proposed to allow only non-callable deposits Liquidity Coverage Ratio (LCR) requirement under the Basel III framework
* 72 applications for Small Finance Banks and 41 applications for Payments Banks were received up to the deadline for submission yesterday.
* The first bi-monthly monetary policy statement for fiscal year 2015-16 is scheduled on Tuesday, 7 April 2015.
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