India Position
In India, the impact of the crisis has been deeper than what was estimated by our policy makers although it is less severe than in other emerging market economies. The extent of impact has been restricted due to several reasons such as-
1) Indian financial particularly our banks have no direct exposure to tainted assets
2) The credit derivatives market is in an embryonic stage and there are restrictions on investments by residents in such products
3) India’s growth process has been largely domestic demand driven and its reliance on foreign savings has remained around 1.5 per cent in recent period.
4) India’s comfortable foreign exchange reserves provide confidence in our ability to manage our balance of payments notwithstanding lower export demand and dampened capital flows.
5) Headline inflation, as measured by the wholesale price index (WPI), has declined sharply. Consumer price inflation too has begun to moderate.
Step taken by Indian finance & Commerce ministry to boost the economy
The future trajectory of the economic meltdown is not yet clear. However, the Government and the Reserve Bank responded to the challenge strongly and promptly to infuse liquidity and restore confidence in Indian financial markets. The fiscal and monetary response to the crisis has been discussed in the following points-
I. Fiscal Response
The Government launched three fiscal stimulus packages between December 2008 and February 2009.
1) Expanded safety-net program for the rural poor,
2) The farm loan waiver package and
3) Payout following the Sixth Pay Commission report
II. Monetary Response
The RBI has taken several measures aimed at infusing rupee as well as foreign exchange liquidity and to maintain credit flow to productive sectors of the economy such as infusing liquidity through management, risk management and credit management
Interest Rate management
In order to deal with the liquidity crunch and the virtual freezing of international credit, RBI took steps for monetary expansion which gave a cue to the banks to reduce their deposit and lending rates. The major changes in the interest rate policy of RBI are given below-
Reduction in the cash reserve ratio (CRR) by 400 basis points from 9.0 per cent in August 2008 to 5 per cent in January 2009
Reduction in the repo rate (rate at which RBI lends to the banks) by 425 basis points from 9.0 per cent as on October 19 to 4.75 per cent by July 2009 (the lowest in past 9 years) in order to improve the flow of credit to productive sectors at viable costs so as to sustain the growth momentum.
Risk management
RBI has already made several changes to the current prudential norms for robust risk disclosures, transparency in restructured products and standard assets such as-
1) Implementation of Basel II w.e.f. March 2009 by all Scheduled Commercial Banks except RRBs
2) Further guidance to strengthen disclosure requirements under Pillar 3 of Basel II
3) Counter-cyclical adjustment of provisioning norms for all types of standard assets
4) Reduction in the provisioning requirement for all standard assets to 0.40 per cent;
5) Market participant’s securities regulators will expand the information provided about security.
Credit management
There was a noticeable decline in the credit demand during 2008-09 which is indicative of slowing economic activity- a major challenge for the banks to ensure healthy flow of credit to the productive sectors of the economy. In order to facilitate demand for credit in the economy the Reserve Bank has taken certain steps such as-
1) Opening a special repo window under the liquidity adjustment facility for banks for on-lending to the non-banking financial companies, housing finance companies and mutual funds
2) Extending a special refinance facility, which banks can access without any collateral
3) Accelerating Government’s borrowing program
4) Relaxing the external commercial borrowings (ECB) regime
5) Allowing the NBFCs and HFCs access to foreign borrowing
6) Expanding the refinance facility for exports
7) Extending flow of credit to sectors which are coming under pressure
8) Instituting a rupee-dollar swap facility for banks with overseas branches
9) Allowing corporate to buy back foreign currency convertible bonds (FCCBs) to take advantage of the discount in the prevailing depressed global markets
In India, the impact of the crisis has been deeper than what was estimated by our policy makers although it is less severe than in other emerging market economies. The extent of impact has been restricted due to several reasons such as-
1) Indian financial particularly our banks have no direct exposure to tainted assets
2) The credit derivatives market is in an embryonic stage and there are restrictions on investments by residents in such products
3) India’s growth process has been largely domestic demand driven and its reliance on foreign savings has remained around 1.5 per cent in recent period.
4) India’s comfortable foreign exchange reserves provide confidence in our ability to manage our balance of payments notwithstanding lower export demand and dampened capital flows.
5) Headline inflation, as measured by the wholesale price index (WPI), has declined sharply. Consumer price inflation too has begun to moderate.
Step taken by Indian finance & Commerce ministry to boost the economy
The future trajectory of the economic meltdown is not yet clear. However, the Government and the Reserve Bank responded to the challenge strongly and promptly to infuse liquidity and restore confidence in Indian financial markets. The fiscal and monetary response to the crisis has been discussed in the following points-
I. Fiscal Response
The Government launched three fiscal stimulus packages between December 2008 and February 2009.
1) Expanded safety-net program for the rural poor,
2) The farm loan waiver package and
3) Payout following the Sixth Pay Commission report
II. Monetary Response
The RBI has taken several measures aimed at infusing rupee as well as foreign exchange liquidity and to maintain credit flow to productive sectors of the economy such as infusing liquidity through management, risk management and credit management
Interest Rate management
In order to deal with the liquidity crunch and the virtual freezing of international credit, RBI took steps for monetary expansion which gave a cue to the banks to reduce their deposit and lending rates. The major changes in the interest rate policy of RBI are given below-
Reduction in the cash reserve ratio (CRR) by 400 basis points from 9.0 per cent in August 2008 to 5 per cent in January 2009
Reduction in the repo rate (rate at which RBI lends to the banks) by 425 basis points from 9.0 per cent as on October 19 to 4.75 per cent by July 2009 (the lowest in past 9 years) in order to improve the flow of credit to productive sectors at viable costs so as to sustain the growth momentum.
Risk management
RBI has already made several changes to the current prudential norms for robust risk disclosures, transparency in restructured products and standard assets such as-
1) Implementation of Basel II w.e.f. March 2009 by all Scheduled Commercial Banks except RRBs
2) Further guidance to strengthen disclosure requirements under Pillar 3 of Basel II
3) Counter-cyclical adjustment of provisioning norms for all types of standard assets
4) Reduction in the provisioning requirement for all standard assets to 0.40 per cent;
5) Market participant’s securities regulators will expand the information provided about security.
Credit management
There was a noticeable decline in the credit demand during 2008-09 which is indicative of slowing economic activity- a major challenge for the banks to ensure healthy flow of credit to the productive sectors of the economy. In order to facilitate demand for credit in the economy the Reserve Bank has taken certain steps such as-
1) Opening a special repo window under the liquidity adjustment facility for banks for on-lending to the non-banking financial companies, housing finance companies and mutual funds
2) Extending a special refinance facility, which banks can access without any collateral
3) Accelerating Government’s borrowing program
4) Relaxing the external commercial borrowings (ECB) regime
5) Allowing the NBFCs and HFCs access to foreign borrowing
6) Expanding the refinance facility for exports
7) Extending flow of credit to sectors which are coming under pressure
8) Instituting a rupee-dollar swap facility for banks with overseas branches
9) Allowing corporate to buy back foreign currency convertible bonds (FCCBs) to take advantage of the discount in the prevailing depressed global markets
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