Blaming high cash balance with the Government for aggravating liquidity strain in the system, the Reserve Bank on Thursday asked it to loosen purse strings for easing the situation. "On Wednesday, the government cash balance stood at Rs 92,000 crore (Rs 920 billion).
The finance ministry is also collating the data on entire food supply chain to identify the bottlenecks in the process.
The International Monetary Fund and the World Bank had forecast that India's economy would grow at 8 per cent and 9 per cent, respectively.
The loan by the banks to MFIs for on-lending to small borrowers will fall under 'priority sector' category if the RBI guidelines are met.
"Bank loans to all MFIs, including NBFCs working as MFIs on or after April 1, 2011, will be eligible for classification as priority sector loans if, and only if, they conform to the regulations formulated by the Reserve Bank," RBI Governor D Subbarao said in the 'Monetary Policy Statement for 2011-12'.
RBI Governor D Subbarao is expected in the capital on Friday to hold pre-policy consultations with Finance Ministry officials.
There was a near-unanimous view that the time was right for an increase of 50 basis points in policy rates. Some even suggested that the rates be raised by 75 basis points.
RBI is also considering a proposal to re-introduce inflation-indexed bonds.
The Reserve Bank on Thursday said it is considering the possibility of allowing Islamic financial institutions to function as NBFCs since Islamic banks are not permitted under the present laws.
MFI tactics have even prompted Andhra Pradesh Cabinet to approve an ordinance to rein them in.
Subbarao's annual statement will be of unusual interest this year
The criticism of the RBI governor's handling of inflation is fraught with an oversimplification of the current inflation dynamics.
The Reserve Bank on Thursday said the country's wholesale price-based inflation and industrial production data should be improved and employment data availed for effective monetary policy management.
The second post of deputy governor became vacant after V Leeladhar superannuated a few months ago. Punjab National Bank chairman and managing director K C Chakrabarty is to take over as deputy governor on Monday. Apart from monetary policy, Subbarao will also handle the department of economic analysis and policy, department of statistics and information management.
Subbarao said the flight of dollar being witnessed following the euro zone crisis is a 'natural reaction' when there is an uncertainty.
RBI said the continuing sluggishness of the global economy led to some moderation in exports growth and invisible receipts, while import growth accelerated due to the strong domestic recovery.
Reserve Bank of India Governor D Subbarao has said India, being a current account-deficit country, is more vulnerable to sudden reversals in capital flows and short-term overseas portfolio money than nations which have a current account surplus.
The discussion on new banking licences will be posted on the website of the central bank for public comments, RBI governor D Subbarao said while unveiling the monetary policy for 2010-11.
Ahead of the monetary policy review, RBI governor D Subbarao is expected to meet Prime Minister Manmohan Singh and finance minister Pranab Mukherjee on October 23.
Currently, banks pay up to 9.5 per cent interest on fixed deposits.
Subbarao also warned of attrition in PSBs, saying, "PSBs will lose talent to the private sector."
India had registered an economic growth of 6.7 per cent in FY'09 after posting over 9 per cent growth in the three preceding year, because of the global economic crisis.
Subir Gokarn, Executive Director and Chief Economist at Standard & Poor's Asia Pacific, is heading the shortlist of candidates for the Reserve Bank of India Deputy Governor's post. Gokarn is also a Business Standard columnist.
With budgetary preparations on in full swing, the Reserve Bank of India on Friday advised the Finance Minister to at least partially roll back the stimulus that was provided to help the industry cope with the financial crisis.
As the first quarter review of the credit policy approaches, voices from the market are getting louder by the day that 'baby steps' may not be sufficient to fight rising prices.
However, since the banking system is facing tight cash conditions due to payment for spectrum for high speed telecom and broadband services and advance tax outgo, some experts are also of the view that RBI would wait for liquidity to ease before going for rate hikes.
Continuing the upward march, inflation crossed 11 per cent in March in the final data, while this was only 9.9 in provisionally.
The Reserve Bank on Friday said the new UPA government, which is slated present the Budget some time in July, should resist pressure for another stimulus as sustained economic recovery would require fiscal consolidation in medium term.
Reserve Bank of India Governor D Subbarao on Wednesday contested the idea of "making banking boring" to bring back economic stability, mooted by Nobel laureate Paul Krugman in the wake of global financial meltdown.
The Reserve Bank in its Mid-Term Review of Annual Policy Statement for 2008-09, the Reserve Bank has said that inflation continues to be a matter of concern.
Inflation targeting has worked well and the government must stay with it, and the framework is going to work well in the period ahead also, former RBI Governor D Subbarao said on Thursday. He also said low inflation contributes to sustainable growth. Addressing the 'Times Network India Economic Conclave' virtually, Subbarao said the government's proposal to privatise some public sector units is not akin to selling family silver but it is a route for putting India on a sustainable growth path.
Growth is coming from sectors which are interest rate-sensitive, says D Subbarao.
"It was a good long meeting with the governor. He met the finance minister. He reviewed the situation. Rest, wait for the policy," finance secretary Ashok Chawla told reporters.
Bankers, who met the Reserve Bank of India Governor D Subbarao on Monday, two weeks before the annual monetary policy scheduled for April 20, said none of them was presently contemplating hike in lending rates given the 'reasonable' liquidity in the system.
Managing recovery is a bigger challenge than managing crisis, says the Reserve Bank of India governor D Subbarao
Go for short-term debt funds and fixed deposits, delay home or auto loans.
Amid expectations that the Reserve Bank may keep its monetary stance unchanged, the central bank will come out with its second quarter review of the credit policy for the current fiscal on October 27.
Ahead of the G-20 Summit, Planning Commission Deputy Chairman Montek Singh Ahluwalia will lead a delegation to a preparatory meet on March 11 in London where deliberations on issues like liquidity crunch and reforms in international financial institutions are likely be taken up.
The Reserve Bank on Tuesday said the soft monetary policy adopted by it to counter the impact of the global financial meltdown on the country will continue till the economic recovery is secured.
The meeting comes days after the finance minister told Parliament that he would discuss the possibility of further fiscal and monetary measures to revive economic growth, which is projected to fall to 7.1 per cent this year, as against 9 per cent or more in the last three years. The Central Statistical Organisation is due to release the third-quarter gross domestic product estimates by the end of the week. RBI is expected to announce more measures after the data is released.
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