RBI Governor Raghuram Rajan today left the key interest rate unchanged as widely expected in view of rise in retail inflation to 4-month high and likelihood of capital outflows on a possible US Fed rate hike later this month.
The Reserve Bank, which has lowered interest rate by 125 basis points or 1.25 per cent this year, including a larger- than-expected 50 bps cut at the last monetary policy review in late September, left the benchmark lending rate (repo) at 6.75 per cent.
The cash reserve ratio or the amount of deposits banks park with RBI has also been left unchanged at 4 per cent.
"Uptick of CPI inflation excluding food and fuel for two months in succession warrants vigilance," Rajan said, promising to ease rates as and when room is available.
"We are in accommodative stance," he said.
The Consumer Price Index or retail inflation accelerated to 5 per cent in October led by a surge in food items such as pulses, matching RBI's target for March 2017.
Stating that inflation is expected to accelerate till December before plateauing, Rajan said it may follow RBI's projected path "with risks slightly to the downside".
The Reserve Bank, he said, "will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5 per cent by March 2017."
The RBI Governor said second-quarter GDP growth indicates early signs of recovery but the RBI will stick to its earlier projection of 7.4 per cent economic growth for the current fiscal with a marginal downward bias.
Rajan also expressed anguish at the banks' reluctance to pass on the benefits of the earlier rate cut actions to the borrowers, saying the median decrease in the base rates over the course of the year has only been 0.60 per cent as against the RBI's 1.25 per cent cut in the repo rate since January.
RBI also said it will this week announce methodology for
determining the base rate taking into account the marginal cost of funds, a move aimed at ensuring that banks pass on policy rate cuts to borrowers.
Base rate is the minimum benchmark lending rate below which a bank cannot lend.
"The Reserve Bank will shortly finalise the methodology for determining the base rate based on the marginal cost of funds, which all banks will move to," the statement said.
Clearly, Rajan said, banks have capability to switch to determining the base rate based on the marginal cost of funds.
The methodology will be announced later this week, he added.
The Reserve Bank also said that the cleaning of balance sheet of banks will help in boosting credit growth.
On the 7th Pay Commission recommendations, RBI said it will not upset fiscal maths as additional expenditures will be offset by either additional revenues or expenditure cuts.
The implementation of the Pay Commission proposals, and its effect on wages and rents, would be factored in by RBI in its future deliberations, the central bank said.
The 7th Pay Commission has recommended increase in remuneration of about one crore government employees and pensioners which is estimated to impose an additional burden of Rs 1.02 lakh crore in 2016-17.
(REOPEN DEL61)
Regarding the corporate structure, the guidelines said NOFHC has been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities.
Individual promoters/promoting entities/converting entities that have other group entities, should set up the bank only through an NOFHC.
"Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall be owned by the Promoter/Promoter Group. Specialised activities would be permitted to be conducted from a separate entity proposed to be held under the NOFHC," RBI said.
Also, no shareholder, other than the promoters/promoter group, shall have significant influence and control in the NOFHC.
RBI further said "the bank is precluded from having any exposure to its promoters, major shareholders who have shareholding of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control".
The bank should get its shares listed on the stock exchanges within six years of the commencement of business by the bank. The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census).
The bank should comply with the priority sector lending targets and sub-targets and the board of the bank should have a majority of independent directors are some of the other conditions outlined in the guidelines.
