RBI MONETARY POLICY: 2011-12 (Apr-Mar)

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Dear Sir/Madam It gives us great pleasure to present you ready reckoner of RBI Monetary Policy 2011-12 (Apr-Mar) The live coverage of the policy, its impact and real-time information on financial markets is exclusively available to our clients through NewsWire18 Workstation. Please refer NW18 workstation for news, views and analyses by market experts on the Policy. Please feel free to call us for any clarifications. Thanks & Best Regards, Helpdesk 022-66378787

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NW18: Highlights of RBI's Monetary Policy Statement for 2011-12(Apr-Mar) NewsWire18, Tuesday, May 3

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MUMBAI - Following are the highlights of the Reserve Bank of India's Monetary Policy Statement for 2011-12 (Apr-Mar): MEASURES * RBI Policy shifts to single rate regime * Operating target of policy to be weighted average call money rate * Hikes Repo Rate 50 bps to 7.25% with immediate effect * Ups Reverse Repo Rate 50 bps to 6.25% with immediate effect * Keeps Bank Rate unchanged at 6.0% * Keeps Cash Reserve Ratio unchanged at 6.0% * Ups savings bank rate to 4.0% from 3.5% with immediate effect * Starts marginal standing facility for banks at 8.25% * To foster price stability, sustain medium-term growth . PROJECTIONS * Projects FY12 GDP growth in 7.4-8.5% range * Projects Mar-end inflation at 6.0% with upward bias * Projects FY12 money supply growth at 16% * Projects banks' FY12 credit growth 19% * Projects banks' FY12 deposit growth at 17% * See Apr-Dec inflation close to Mar-end level * Inflation projection factors in fuel price hike . OPERATIONAL CHANGES * RBI Policy incorporates some suggestions of Mohanty panel * Marginal standing facility effective from May 7 * To issue separate guidelines for marginal standing facility * Interest rate corridor to be 200 bps * Reverse Repo Rate to be function of Repo Rate * Retain flexibility to change interest rate corridor * Shift to single rate to accurately signal policy stance

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STANCE * Steps to curb inflation, anchor inflationary expectations * Policy steps to rein in demand pressures * Policy steps to sustain growth medium-term . INFLATION * Inflation persistently above comfort level * Surge in non-food inflation suggests firm demand pressure * Global commodity price uncertainty risk to India inflation * Surge in crude oil yet to pass to domestic prices * Impact of monetary tightening still unfolding * Clear need to persist with anti-inflationary stance * Signs of growth moderation emerged in late FY11 * Growth moderation to ease demand-side inflation * Demand pressure to ease H2 on growth slowdown, monetary steps * To maintain liquidity situation in balance * Inflation was primary macroeconomic concern FY11 * Inflation driven by structural, transitory factors * Food, fuel, power group added 60% to WPI rise Apr-Jul * WPI surge Dec-Mar on fuel, power, non-food manufactured goods * Inflationary pressure from food clearly became generalized * Money supply growth eased FY11 on slow deposit growth * Money supply growth eased also on high currency growth . GROWTH * Despite IIP slowdown, factors imply strong economic activity * Manufacturing companies' order book up 7% Q3 vs 9% Q2 * Order book growth suggest sustained demand with some easing * Business expectation index rose in Q2, Q3 FY11 * Leading indicators show growth momentum in services sector .

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PRUDENTIAL, BANKS * To adhere to begin Basel-III from January 2013 * Studying Basel-III norms for apt implementation * Disseminating information on Basel-III to banks * Preparing norms for internal rating under Basel-III for bks * Ups banks' provisioning on "certain" NPAs * Provisioning on banks' sub-standard loans hiked to 15% vs 10% * Additional 10% provision on unsecured sub-standard loans * 25% provision on secured portion of up to 1-yr doubtful loans * 40% provision on secured portion of 1-3 yr doubtful loans * 2% provision on recast loans in standard assets for 1st 2-yr * Restructured NPAs upgraded to standard to have 2% provision * Caps banks fund into debt MFs liquid plans at 10% of net worth * 6-mo to comply to banks with over 10% invest in MF liquid plans * Guidelines on foreign bank presence being formulated * Draft norms on new bank licenses being finalized * Panel for holding co structure for banks to give report end-May * Set up panel to review supervisory policies for banks * Panel set up for reviewing norms for NBFCs * Panel for review of NBFC norms to submit report end-Jun * Transaction worth 610 mln rupee/mo settled via mobile-banking * Bk loans to micro finance cos Apr 1 onwards to be priority sector * To issue norms on credit default swaps shortly * Short sale period in gilts extended to 3-mo vs 5-day now * Money supply growth eased also on high currency growth * Greater convergence in base rates of major banks * Effective lending rates may rise to 10.3% FY12 vs 9.7% FY11 * Non-bank sources of funds, mainly FDI declined FYll vs FY10 * Funds from bks more than offset fall in non-bk fund sources GLOBAL * Global recovery expected to sustain in 2011 * Growth in emerging economies expected to decelerate * Current account deficit to ease to 2.5% FY11 vs 2.8% FY10 * Global commodity price rise poses downside risk to growth * Global oil demand may rise on economic reconstruction End

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