Recap Of Recent Monetary Policy Measures

Considering the increase in the US dollar Libor rate, the interest rate on PSCFC was increased from 6.5 per cent per annum to 7.5 per cent per annum effective April 18, 1995. The interest rate on refinance under the PSCFC was also increased from 5.5 per cent per annum to 6.5 per cent per annum.

With a view to facilitating a level playing field, private sector mutual funds approved by Sebi, were allowed to operate only as lenders in the call/notice money/bill rediscounting market.

The normal single-tier export credit (rupee) refinance formula was reverted to from the earlier two-tier formula. Banks were provided export credit (rupee) refinance to the extend of 100 per cent of the increase in export credit over the monthly average level of 1992-93, effective fortnight beginning April 29, 1995.

 

With a view to moderating the refinance limits under PSCFC, effective fortnight beginning April 29, 1995, banks were made eligible for export credit refinance limits equivalent to 70 per cent of outstanding export credit provided by banks under the PSCFC scheme as against 80 per cent earlier.

All Indian scheduled commercial banks (excluding RRBs) were required to make contributions equivalent to the shortfall in achieving the sub-target of 18 per cent for credit to agriculture subject to a maximum of 1.5 per cent of net bank credit to a Rural Infrastructural Development Fund (RIDF) with a corpus of Rs 2,000 crore set up in the Nabard.

A consortium of select public sector banks which have not achieved 40 per cent priority sector lending after including their contribution to the RIDF was formed to provide Rs 1,000 crore to Khadi and Village Industries Commission (KVIC) for direct or indirect onlending to viable khadi and village industrial units at 1.5 per cent below the average prime lending rates of five major banks in the consortium.

June 20, 1995

Primary co-operative banks were given freedom to determine their lending rates subject to the prescription of a minimum lending rate of 13 per cent per annum, effective June 21, 1995.

September 29, 1995

With a view to avoiding hardships to banks because of intervening holidays, from the fortnight beginning September 30, 1995, banks were required to maintain a minimum level of 85 per cent of CRR requirement only from the first working day of the reporting fortnight.

However, to enable banks to adjust their cash balances, this stipulation would not be required to be maintained on the last working day of the reporting fortnight. For this purpose, banks were to reckon the holidays with reference to the Centre where they have their principal account for maintenance of CRR.

Effective September 30, 1995, the minimum period for repos in treasury bills and government dated securities was stipulated to be 3 days in order to ensure that banks resort to repos not as call money but in accordance with the spirit of this facility.

With a view to providing larger liquidity to scheduled commercial banks for their excess of government and other approved securities, the base year for determining the refinance limits under the Reserve Bank Scheme of Government Securities Refinance was brought forward from 1991-92 to 1994-95 effective fortnight beginning September 30, 1995.

Further, the proportion of refinance was raised from 0.5 percentage point to 1.0 percentage point of the fortnightly average outstanding aggregate deposits in 1994-95.

Keeping in view the need to increase the resources of banks, the structure of interest rates on deposits was made more flexible. Accordingly, effective October 1, 1995, banks were given the freedom to fix their own interest rates on domestic term deposits with a maturity of over 2 years.

September 29, 1995

In the context of the flexible lending rates effective October 1, 1995, banks were allowed to fix their own interest rate on advances over Rs 2 lakh against domestic and non-resident (external) rupee (NRE) deposits.

Effective October 1, 1995, the maximum term deposit rate for NRE accounts of maturity 6 months to 3 years and above was increase from 8 per cent to 10 per cent with a view to maintaining the differential between the interest rates on domestic term deposits and NRE term deposits.

To ensure a uniform system of valuation of securities for both SLR and balance sheet purposes, effective fortnight beginning October 14, 1995, all scheduled commercial banks (excluding RRBs) were required to adopt for the purpose of SLR, the same system of valuation of securities as for the balance sheet.

RRBs were allowed to provide housing loans subject to a maximum ceiling of Rs 1 lakh per borrower, provided such loans did not exceed 5 per cent of the RRBs incremental deposits during the year.

Limits for produce marketing loans provided by commercial banks to farmers were enhanced from Rs 25,000 to Rs 1 lakh.

October 30, 1995

To increase in liabilities under NRE accounts and non-resident non-repatriable rupee (NRNR) accounts over the level outstanding as on October 27, 1995, were exempted from maintenance of average CRR, effective fortnight beginning October 28, 1995 to enable banks to balance the increase in their cost of NRE deposits by increasing the return on the deployment of their funds and to market NRNR deposits more competitively.

Effective October 31, 1995, interest rate on PSCFC in respect of usance bills for period beyond 90 days and up to six months from the date of shipment was raised from 7.5 per cent to 9.5 per cent per annum with a view to rationalising the interest rates on PSCFC and encouraging a quicker turnaround of credit; interest rate on export credit not otherwise specified for PSCFC, which was 9.5 per cent per annum, was freed.

With a view to bringing about a better alignment of interest rates on domestic term deposits and term deposits under NRE accounts, effective October 31, 1995, the maximum term deposit rate for NRE accounts of maturity of 6 months to 3 years and above was increased to 12 per cent.

Effective October 31, 1995, with a view to discouraging excessive use of bank credit to finance imports, outstanding under the import credit limit were subject to a 15 per cent interest rate surcharge.

November 11, 1995

Simultaneous with the moderation of money market support and taking into account the overall monetary and credit situation, CRR was reduced from 15 per cent to 14.5 per cent from the fortnight beginning November 11, 1995, which would have augmented the resources of banks by Rs 2,000 crore.

November 23, 1995

With a view to providing greater liquidity to and depth to the money market, the private sector was allowed to set up money market mutual funds (MMMFs). The size of MMMFs and limits on investment by MMMFs were deregulated.

November 29, 1995

With a view to making the foreign currency non-resident accounts (Banks) [FCNR(B)] scheme more attractive to banks and to enable them to market FCNR(B) deposits more competitively, the increase in liabilities under FCNR(B) scheme over the level outstanding as on November 24, 1995, was exempted from CRR, effective fortnight beginning November 25, 1995.

December 6, 1995

With a view to enabling banks to better balance the cost of FCNR(B) deposits and the return on the deployment of their funds, average CRR on the outstanding liabilities under the FCNR(B) scheme as on November 24, 1995, was reduced from 14.5 per cent to 7.5 per cent, effective beginning December 9, 1995.

December 9, 1995

Taking into account the prevailing monetary and credit situation, CRR was further reduced to 14 per cent from the fortnight beginning December 9, 1995, which would have augmented the resources of banks by Rs 2,000 crore.

January 5, 1996

Taking into account the cost of raising non-resident deposits by banks and the return on deployment of these funds, effective fortnight beginning January 6, 1996, (I) average CRR on outstanding NRE liabilities as on October 27, 1995, was reduced to 10 per cent which would have augmented the resources of banks by Rs 650 crore and (ii) all liabilities under NRNR scheme and FCNR(B) scheme were exempted from CRR, which would have augmented the resources of banks by Rs 715 crore and Rs 1,200 crore, respectively.

January 15, 1996

With a view to facilitating a faster turnaround of credit under the PSCFC scheme, effective January 16, 1996, a rate of interest of 9.5 per cent per annum was prescribed on PSCFC for a total period of up to 90 days against 7.5 per cent per annum earlier. On credit over 90 days, banks were free to fix their own interest rates.

Effective January 16, 1996, banks were made eligible for refinance under the PSCFC scheme against bills up to 90 days only.

February 7, 1996

With a view to removing the distortion in that the effective interest rates on the PSCFC facility were significantly lower than under foreign currency post-shipment credit, effective February 8, 1996, the PSCFC was terminated.

Effective February 8, 1996, the interest rate on post-shipment export rupee credit for over 90 days and up to 180 days was deregulated.

February 7, 1996

Effective February 8, 1996, outstandings under the import credit limit were subject to a 25 per cent interest rate surcharge.

It was decided to monitor cancellation of forward contracts booked by authorised dealers (ADs) for amounts of $1,00,000 and above. Such cancellations were required to be reported to the Reserve Bank of India on a weekly basis and the bank would also closely monitor $/rupee intra-day trading transactions of authorised dealers.

April 3, 1996

With a view to bringing about an alignment of the maturity structure of NRE term deposits with that on domestic term deposits, interest rates on NRE term deposits of over two years were freed, effective April 4, 1996.

All liabilities under NRE scheme were exempted from CRR, effective fortnight beginning April 13, 1996, which would have augmented the lendable resources of banks by Rs 1,400 crore.

Effective fortnight beginning April 13, 1996, the SLR on outstanding liabilities under the NRE scheme was reduced from 30 per cent to 25 per cent in order to rationalise the overall SLR prescription.

The refinance formula for export credit was rationalised effective fortnight beginning April 13, 1996, whereby scheduled commercial banks would be provided export credit refinance to the extend of 45 per cent of the total outstanding export credit eligible for refinance as on February 16, 1996, plus 100 per cent refinance of the increase in such export credit over the outstanding level as on February 16, 1996, which would initially reduce the total export credit refinance limits of banks b around Rs 1,200 crore.

With a view to augmenting the lendable resources of banks to enable them to meet the genuine productive requirements for credit, CRR was further reduced in two stages to 13.5 per cent from the fortnight beginning April 27, 1996, and to 13 per cent from the fortnight beginning May 11, 1996. This measure would have augmented the lendable resources of banks by about Rs 3,800 crore.

The scheme of MMMFs was made more flexible by bringing it on par with all mutual funds by allowing investment by corporates and others.

The minimum margins on advances against all commodities covered under selective credit controls were reduced by 15 percentage points across-the-board.

The reference period for commodities having stipulated level of credit ceilings on the three-year period 1991-92 to 1993-94 (November-October) was brought forward to the three-year period 1992-93 through 1994-94 (November-October) wherever the level of credit ceilings were 85 per cent, those were raised by 15 percentage points.

July 1, 1996

With a view to providing banks greater flexibility in determining their term deposit rates, banks were given freedom to fix their own interest rates on domestic term deposits with a maturity of over one year effective July 2, 1996. Further, to provide some outlet for management of short-term surplus funds, owing to the developments in the money market and the progressive move from the cash credit system to a loan system, the minimum period of term deposits was reduced from 46 days to 30 days. Accordingly, effective July 2, 1996, the interest rate on domestic term deposits of 30 days and up to one year was prescribed at not exceeding 11 per cent per annum.

On a review of the price output situation in respect of sugar and cotton the following measures were effected from July 2, 1996: the minimum margin on advance to mills against sugar for released stocks and to others and warehouse receipts against sugar, gur and khandsari were reduced by 15 percentage points.

The minimum margin on advances against cotton and kapas was reduced by 15 percentage points for others (viz. Other than cotton mills including spinning mills) and the level of credit ceiling raised to 110 per cent from 100 per cent.

Taking into account the advantages of a rationalisation by way of a reduction in CRR together with a reduction in refinance, the CRR was further reduced by 1 percentage points to 12.0 per cent effective fortnight beginning July 6, 1996, which would have augmented the resources of banks by Rs 4,100 crore.

Effective July 6, 1996, the refinance facility against the collateral of treasury bills and government dated and other approved securities was terminated. With this, refinance facility remains only in respect of export credit extended by banks.

The scheme of money market mutual funds (MMMFs) was made more attractive by reducing the minimum lock-in period from 46 days to 30 days.

July 22, 1996

In the context of recent developments in the foreign exchange market and the overall monetary and credit situation, the interest rate surcharge on import finance was withdrawn, effective July 23, 1996.