6 points to remember from RBI monetary policy review in December 2018

The 6th Bi-monthly Meeting of the Monetary Policy Committee was held between December 03, 2018 and December 05, 2018. The major highlights of the meetings are:

  1. Retail, MSME loans to be linked to an external benchmark: (RBI) has proposed benchmarking of fresh floating rate personal or retail loans and loans to micro and small enterprises to an external benchmark, effective April 1, 2019. 
  2. SLR to be 18%, with quarterly cuts of 25 basis points (bps): Banks are required to reach the minimum liquidity coverage ratio (LCR) of 100 per cent by January 2019. In order to align the statutory liquidity ratio (SLR) with the LCR requirement, the RBI proposed to reduce the SLR by 25 basis points every quarter until the SLR reaches 18 per cent of net demand and time liabilities (NDTL).
  3. Expert committee on MSMEs: An expert committee will be constituted by the RBI to identify causes and propose long-term solutions for the economic and financial sustainability of the sector. The composition of the committee will be finalised by the end-December. It will submit its report by end-June 2019.
  4. Non-residents to be given access to the interest rate derivatives market : Non-residents will be allowed to hedge their rupee interest rate risk flexibly using any available IRD instrument.
  5. Mandatory loan component in working capital finance: The RBI has mandated a minimum level of “loan component” 40% in fund-based working capital finance for larger borrowers (Rs 150 Crore & above) and issued final guidelines. This will be in effect from April 2019
  6. Limited liability brought in for users of prepaid payment instruments: The RBI has extended the limited liability regarding unauthorised electronic transactions to PPI customers as well. Previously, it only covered banks and NBFCs