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This article on RBI's second quarter review of its Annual Policy has been well researched by Rama Krishna Vadlamudi, BKC, MUMBAI, INDIA.

Reserve Bank of India had announced its second quarter review of its Annual Policy, popularly known as Monetary Policy, on October 27th. The highlights and impact of the policy document have been analyzed from a MACRO perspective. The Reserve Bank of India Governor, D Subbarao, has sent signals, in no uncertain terms, to the financial markets in India that the RBI is serious about the withdrawal of its accommodative monetary policy.

As part of the first phase of reversal, the so-called EXIT STRATEGY, the RBI has increased the Statutory Liquidity Ratio (SLR) to 25 per cent (from 24 per cent); increased the standard assets provisioning needs of banks to commercial real estate sector (CRE) from 0.4 per cent to one per cent; the limit for export credit refinancing facility is reduced to 15 per cent from 50 per cent of eligible outstanding export credit; and the special term repo facility given to scheduled commercial banks for funding to mutual funds, NBFCs, etc, is withdrawn with immediate effect. RBI termed these steps as the first phase reversal of its ‘unconventional’ measures it had undertaken after the collapse of Lehman Brothers Inc in the middle of September last year.