Highlights of the Credit Policy

Dr Y Venugopal Reddy, Governor of Reserve Bank of India, in a meeting with chief executives of major commercial banks on Tuesday presented the Mid-Term Review of the Annual Monetary and Credit Policy for the Year 2006-07.

Following are the highlights of the Mid-Term Review of the Annual Monetary and Credit Policy for the Year 2006-07.

• Repo Rate increased to 7.25 per cent from 7.0 per cent.
• The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially is retained.
• Reverse Repo Rate, Bank Rate and CRR kept unchanged.
• GDP growth forecast at around 8.0 per cent during 2006-07.
• Inflation to be contained within 5.0-5.5 per cent during 2006-07.
• Monetary and credit growth expected to be higher than the initial projections.
• 'When issued' trading to be extended to fresh issues of Central Government securities.
• Scheduled commercial banks and primary dealers to be allowed to cover their short positions in Central Government securities within an extended period of five trading days.
• Resident individuals would be free to remit up to US $ 50,000 per financial year as against the earlier limit of US $ 25,000.
• Foreign exchange earners may retain up to 100 per cent of their foreign exchange earnings in their Exchange Earners' Foreign Currency accounts.
• Authorised dealer banks may borrow funds from their overseas branches and correspondent banks (including borrowing for export credit, external commercial borrowings (ECBs) and overdrafts from their Head Office/Nostro account) up to a limit of 50 per cent of their unimpaired Tier I capital or US $ 10 million, whichever is higher.
• Borrowers eligible for accessing ECBs can avail of an additional US $ 250 million with average maturity of more than 10 years under the approval route.
• Prepayment of ECB up to US $ 300 million without prior approval of the Reserve Bank.
• Authorised dealer banks may allow remittances on behalf of their customers up to 15 per cent of the average annual sales/income or turnover during the last two financial years or up to 25 per cent of their net worth, whichever is higher, for initial expenses, and remittances up to 10 per cent of the average annual sales/income or turnover during the last two financial years for recurring expenses. They may also permit remittances for acquisition of immovable property for the overseas office, within these limits.
• The existing limit of US $ 2 billion on investments in Government securities by foreign institutional investors (FIIs) to be enhanced in phases to US $ 3.2 billion by March 31, 2007.
• The extant ceiling of overseas investment by mutual funds of US $ 2 billion is enhanced to US $ 3 billion.
• Importers to be permitted to book forward contracts for their customs duty component of imports.
• FIIs to be allowed to rebook a part of the cancelled forward contracts.
• Forward contracts booked by exporters and importers in excess of 50 per cent of the eligible limit to be on deliverable basis and cannot be cancelled.
• Authorised dealer banks to be permitted to issue guarantees/letters of credit for import of services up to US $ 100,000 for securing a direct contractual liability arising out of a contract between a resident and a non-resident.
• Lock-in period for sale proceeds of the immovable property credited to the NRO account to be eliminated, provided the amount being remitted in any financial year does not exceed US $ one million.
• Banks, with approval of their boards, may formulate a transparent policy for providing One Time Settlement facility to those farmers whose accounts have been rescheduled/ restructured due to natural calamities as also those who have defaulted on account of circumstances beyond their control.
• For opening small accounts, banks need to seek only a photograph of the account holder and self-certification of address.
• Indian banks having presence outside India and foreign banks to migrate to the Basel II framework effective March 31, 2008 and other scheduled commercial banks to migrate in alignment but not later than March 31, 2009.
• Prudential limit on credit and non-credit facilities to Indian Joint Ventures/Wholly Owned Subsidiaries abroad to be enhanced to 20 per cent of unimpaired capital funds.
• Financially sound Urban Co-operative Banks (UCBs) registered in States that have signed MoU with the Reserve Bank and those registered under the Multi-State Co-operative Societies Act, 2002 to be allowed to convert existing extension counters into full-fledged branches.
• Non-banking financial companies (NBFCs) to be allowed to issue co-branded credit cards with banks without risk sharing and to market and distribute mutual fund products.

Monetary and Credit Policy 2006-07: Complete Coverage