09 december 2006

rbi hikes banks' cash reserve ratio by 50 basis points to 5.5 per cent
mumbai: the reserve bank has announced an increase in the cash reserve ratio (crr) of banks by 50 basis points, to be made effective in two stages, as part of the measures to tighten liquidity and contain inflationary pressures.

the crr, applicable to scheduled commercial banks, regional rural banks, scheduled state co-operative banks and scheduled primary (urban) co-operative banks, will be raised to 5.25 per cent from december 23 and to 5.5 per cent from january 6, 2007, rbi said in a statement.

the crr hike would absorb about rs13,500 crore of banks' resources, the rbi said.

inflation, meanwhile, has declined to 5.30 per cent in the week ended november 25 from 5.45 per cent the previous week.

rbi said the recent reduction in the prices of petrol and diesel would moderate inflation. however, overall impact on inflation expectation "requires to be monitored and moderated," it observed.

the hike in crr is in line with the apex bank's policy outlined in its mid-term review for the current fiscal announced on october 31.

the rbi, in its review, had stressed on careful re-balancing and timely measures to maintain the country's economic growth momentum on an "enduring basis".

07 december 2006

rbi regroups nbfcs into three
mumbai: the reserve bank of india (rbi) has re-classified non-banking finance companies (nbfcs) into three broad categories from the existing four groups. the new groups are classified as: asset finance companies, investment companies and loan companies.

asset finance companies (afc) would include companies financing real or physical assets for productive or economic activity. the companies included in this category are divided into equipment leasing and hire purchase companies.

afcs are defined as the aggregate of those principally engaged in the business of financing real or physical assets supporting economic activity. income arising from such business should not be less than 60 per cent of its total assets and total income respectively.

companies financing automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines would come under asset finance companies.

investment companies would include any financial institution carrying on the acquisition of securities as its principal business while loan companies would include those providing finance by way of loans or advances or otherwise for any activity other than its own.

since the classification for the purpose of income recognition, asset classification and provisioning norms is based on asset specification, the extent of prudential norms will continue as hitherto. the exposure norms as regards restriction on investments in land and buildings and unquoted shares shall be modified to make provisions applicable to equipment leasing and hire purchase companies applicable to asset financing companies, rbi said.

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