Mumbai, January 31
Personal and real estate loans as well as credit card withdrawals may become expensive, with the RBI today asking banks to set aside more money to cover risks on advances to these sectors while raising key short-term lending rates to curb inflation.

While borrowing for buying shares too could become costlier, housing loans may not be impacted as they are not touched by the measures announced by the RBI in the third quarter review of monetary policy.

Finance Minister P Chidambaram, too, said housing sector would be insulated from the hike in repo rate and risk weightages.

In the review, RBI increased provisioning requirement for the four sectors to 2 per cent. It means that banks now have to keep 2 paise for every rupee given to these sectors.

Concerned over high inflation rate, RBI Governor Y.V. Reddy announced hike in overnight repo (short-term lending) rate by 0.25 per cent to 7.5 per cent.

A hike in this rate is aimed at increasing the cost of retail and housing loans to prevent overheating in these rapidly growing sectors.

Bankers said on the whole, the policy is dovish and addresses the concerns of inflation. However, there could be a tightening of liquidity leading to rate hikes by some banks.

The objective of the policy was to bring down inflation to 5-5.5 per cent range at the earliest with the medium term goal of 5 per cent, the RBI said.

The Reserve Bank also raised its growth projection for this fiscal to 8.5-9 per cent from 8 per cent, coinciding with revised figures for 2005-06 which put growth rate to 9 per cent against 8.4 per cent estimated earlier. The economy grew by 9.1 per cent in the first half of this fiscal.

The apex bank kept all other key rates unchanged with bank rate and reverse repo rate at 6 per cent and cash reserve ratio (CRR) at 5.5 per cent. It also kept statutory liquidity ratio unchanged at 25 per cent in line with expectations.

The provisioning requirement for residential housing loans remains unchanged at 0.4 per cent for loans up to Rs 20 lakh and 1 per cent beyond Rs 20 lakh.

The RBI also increased the risk provisioning for non- deposit taking large NBFCs to 2 per cent from 0.4 per cent.

The risk weights for banks' exposure to such NBFCs have been raised to 125 per cent from 100 per cent now.

To ensure adequate availability of credit to productive sectors, the risk weight for all other categories of loans will remain unchanged, including farm, SME and industrial loans.

To check flow of NRI deposits to contain liquidity, the RBI reduced the interest rate cap on Non- Resident External rupee account (NRE) and Foreign Currency Non- Resident (FCNR) deposits by 0.5 per cent and 0.25 per cent, respectively.

Banks have been prohibited grant of fresh loans beyond Rs 20 lakh against NRE and FCNR deposits with an advice not to undertake artificial slicing of loan amount to circumvent the ceiling.

While welcoming and supporting recent actions of government to minimise price volatility, the RBI said inflation could be checked through a combination of fiscal, external and supply management policy apart from ongoing monetary measures.

The RBI underlined the need to avoid overheating in real estate, where capital flow was sizeable and contributed to sharp increases in asset prices and greater volatility in financial markets.

However, it said the signs of overheating could be transitional as substantial investment is being accompanied by overall productive increases in the country.

The apex bank wanted commercial banks to recognise that the shortage of SLR securities could constrain their recourse to liquidity adjustment facility (LAF) which can turn adverse in critical times forcing them to resort to uncollatralised exposures and attendant risks.

"Banks should be aware that accessing the RBI's window for funds should be of very temporary period and equilibrating very short term mismatches. The use of such resources for onlending by banks need to be eschewed," it said.

Over the remaining part of the year, the management of liquidity would receive priority in the monetary policy, it said, adding consequent to the tightening of market liquidity, the impact of the policy was expected to be stronger than before.

The central bank could use all policy instruments, including the CRR to ensure the appropriate modulation of liquidity in response to the evolving situation.

However, the apex bank will ensure that liquidity is maintained to meet all legitimate requirement for productive purposes, which was consistent with the objective of price and financial stability. — PTI 

New Delhi, January 31
India today revised its economic growth for the fiscal 2005-06 at 9 per cent largely due to a higher output in the farm sector, bringing it closer to China’s sizzling growth.

The revised figures bring the average growth of the Indian economy in the past three years to 8.3 per cent. China's economy grew 10.7 per cent in calendar 2006.

The government had earlier estimated that the economy grew at 8.4 per cent, rising hopes of the economy touching an overall 8 per cent growth in the 10th Five-Year Plan.

Reacting to the revised growth figures, Finance Minister P. Chidambaram said it was UPAGovernment's policy, which promoted investment in the economy, yielding growth of 9 per cent for 2005-06.

The policy of the government has boosted savings and investment and perhaps also pushed industry to be more productive and efficient, he added.

With the revision in the figures by the Central Statistical Organisation (CSO), the GDP growth shows a significant improvement against 7.5 per cent during 2004-05.

According to official figures, the growth rate of 9 per cent in GDP during 2005-06 was achieved due to high growth in agriculture, forestry and fishing, manufacturing, insurance, construction, financing, real estate and business services and transport.

Agriculture grew 6 per cent in the fiscal year ended in March, 2006, compared with an earlier estimate of 3.9 per cent, while the expansion in mining output was revised to 3.6 per cent from 0.9 per cent earlier, the CSO said.

Manufacturing output growth was revised to 9.1 per cent for the year to March, 2006, from 9 per cent earlier.

The per capita income at constant prices (1999-2000) is estimated at Rs 20,734 for 2005-06 as against rs 19,297 in 2004-05, registering growth of 7.4 per cent during the year.

Both savings and investment rates were above 30 per cent of the GDP in 2005-06.

Meanwhile, the gross domestic saving (GDS) accounted for 32.4 per cent of the GDP as against 31.1 per cent.

New Delhi, January 31
Endorsing the RBI’s decision to hike overnight lending rate by 0.25 per cent, the government said today this monetary policy move would tame inflation, but not affect India’s growth story.

Monetary policy takes some time to work...It would have a favourable impact on bringing down inflation, Finance Minister P Chidambaram told newspersons here.

Hike in provisioning requirement by the RBI for loans to real estate, capital market, personal loans (barring housing) and against credit cards would bring comfort to the house owners, he said.

Pointing to the rising interest rates, the Finance Minister said “Interest rate is a small part of the cost of industry. I hope industry and business will continue to go with their investment plans.”

Calling banks to moderate credit growth, Mr Chidambaram said borrowing requirements of productive sector must be ensured.

The industry chambers generally welcomed the credit policy decision of the RBI even as Assocham, Ficci and PHDCCI felt that the RBI should not have raised the repo rate by 0.25 per cent.

Stating that the RBI Governor Y.V. Reddy has announced a “very pragmatic credit policy”, CII President R Seshasayee said “the measures announced by the RBI would ensure that inflation and inflationary expectations are addressed adequately, while the growth momentum is retained.”

With a 25 basis points increase in the repo rate, the RBI has sent a strong signal of its hawkish position on combating inflation, Mr Seshasayee said.

Mr Seshasayee mentioned that CII has taken note of the tone that the RBI would take swift action to intervene in the event of a situation of excess liquidity emerging.

Ficci said with today’s announcement, the RBI has re-emphasised its stance to maintain the price stability and keep the inflation rate within the realm of 5-5.5 per cent, and also to maintain the credit quality and liquidity condition in the market.

It said, the increase in repo rate will have indirect impact on lending rate which off late have been hardening.

“The ever-increasing lending rates have all the more adverse impact on small and medium enterprises who do not have any other recourse to fund their expansion plans,” it added.

Welcoming the decision of the RBI Governor for not effecting any changes in CRR, reverse repo and bank rate, Assocham President Venugopal N. Dhoot felt that the premier bank should have maintained the status quo in repo rate too.

The PHDCCI welcomed the overall direction of the monetary policy to ensure an interest rate environment that supports export and investment demand in the economy so as to enable continuation of the growth momentum.

Mumbai, January 31
Yes Bank has announced a hike its benchmark prime lending rate (BPLR) by 50 bps with effect from tomorrow.

"We are hiking our BPLR from 13.5 per cent to 14 per cent with effect from February 1," Managing Director and CEO Rana Kapoor said here today.

This has been triggered by the RBI’s announcement that it has hiked the repo rate from 7.25 per cent to 7.5 per cent.

Another reason for the move was the increase in provisioning norms while lending to certain sensitive sectors, Mr Kapoor said. — PTI

New Delhi, January 31
Punjab National Bank (PNB) would raise Rs 1,000 crore through Tier II bonds to fund its growth plan within and outside the country.

Thebank has also got the Board’s nod to bring down the government’s stake from existing 57.8 per cent to 51 per cent, PNB Chairman and Managing Director S.C. Gupta while releasing the bank’s Q3 results here today.

As the bank planned to open subsidiaries in Canada and the UK and offshore branches in Singapore and Hong Kong, Mr Gupta said the additional money raised would be utilised mainly for the expansion of branches overseas.

On the dilution of the government stake, the PNB chief said the bank was yet to decide about the means of reducing the stake.

The bank had posted a 16 per cent hike in its net profit at Rs 429.87 crore during the third quarter ended December, 2006, as against Rs 370.44 crore during the corresponding period last year.

The total income of the bank rose to Rs 3,271 crore in the quarter, 21 per cent up from Rs 2,698 crore during the corresponding period last year.

New Delhi, January 31
Ashok Leyland today posted nearly a two-fold increase in net profit at Rs 105.25 crore for the quarter ended December 31 as compared to Rs 54.50 crore for the same quarter last year.

The total income (net of excise) increased 48.21 per cent to Rs 1783.94 crore for the third quarter ended December 31 from Rs 1203.64 crore for the corresponding quarter a year ago.

Chandigarh, January 31
Nalagarh Steel Rolling Mills is all set to increase its capacity from 6,000 tonnes per month to 11,000 tonnes by the end of 2007-08 financial year. The company is also aiming at increasing its annual turnover to Rs 2,000 crore during this period.

This was stated by Managing Director Ravinder Bansal, who was here to launch TMT Steel christened as Dev Bhoomi TMT. “We are planning to invest Rs 15 crore for the expansion of our plant at Nalagarh,” he said.

Since the plant was located in Himachal - a state exempt from paying excise duty, its MS rounds were cheaper by Rs 1,000 per tonne than those prepared by units in other states, including Punjab and Haryana.