Lok Sabha Question No. 5533 (UNSTARRED), answered on 2017-04-07
Subject: Open Market Operations
Ministry: FINANCE
Asked by: ELUMALAI VELLAIGOUNDER

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO.5533

TO BE ANSWERED ON THE 7 th  April 2017/ Chaitra 17, 1939 (SAKA)

## Open Market Operations

## 5533.   SHRI V. ELUMALAI:

Will the Minister of FINANCE be pleased to state:

- (a) whether  the  Reserve  Bank  of  India  (RBI)  has  purchased  Rs.  one  crore  bonds  via  Open  Market  Operations (OMOs) since April, 2016;
- (b) if so, the details thereof:
- (c) whether the RBI has been trying to aid transmission of lower policy rates into lending rates by ensuring there is adequate liquidity in the system; and
- (d) if so, the details thereof?

## ANSWER

The Minister of State in the Ministry of Finance (SHRI SANTOSH KUMAR GANGWAR)

- (a) & (b):  Reserve Bank of India (RBI) conducted nine open market purchase auctions and injected liquidity to the tune of Rs.1.1 trillion during 2016-17 (April-March). Open Market Operations purchases were made in consonance with the RBI's modified  liquidity  management  framework  announced  in  its  First  Bi-monthly  Monetary  Policy  Statement  for 2016-17 (April 5, 2016). The modified framework entails, inter alia, (i) smooth the supply of durable liquidity over the year  using  asset  purchases  and  sales  (ii)  progressively  lower  the  average  ex  ante  liquidity  deficit  in  the  system  to  a position closer to neutrality; with the objective of ensuring adequate availability of durable liquidity in the economy so as to facilitate growth, while ensuring that the monetary policy stance is supported.
- (c)  &  (d):    Reserve  Bank  of  India  (RBI)  has  deregulated  the  interest  rates  on  advances  sanctioned  by  Scheduled Commercial  Banks  (excluding  Regional  Rural  Banks)  and  these  interest  rates  are  determined  by  banks  with  the approval of their respective Board of Directors subject to regulatory guidelines on interest rates, on advances, issued by RBI from time to time. In terms of extant guidelines, which came into effect from April 1, 2016, banks have to compute actual interest rates on advances by adding the components of spread to the Marginal Cost of Fund based Lending Rate (MCLR) which is the internal benchmark for such purpose.

Between April 2016 to March 2017, the Reserve Bank reduced the policy repo rate by 50 bps. In response, the median 1-year MCLR of SCBs declined by 85 bps (Table). The weighted average lending rate (WALR) of banks in respect of fresh rupee loans declined by 68 bps, whereas the WALR on outstanding rupee loans declined by 24 bps over the same period.

Surge in surplus liquidity post-demonetisation period has facilitated faster transmission of monetary policy. Since November 2016, the median 1-year MCLR of  banks declined by 85 bps, as compared to only a 15 bps decline in the preceding two quarters.

Table : Lending rates of SCBs

| Quarter Ending   | 1 Year MedianMCLR   | WALR(Outstanding Loans)   | WALR(Fresh Rupee Loans)   |
|------------------|---------------------|---------------------------|---------------------------|
| Mar-16           | 9.45*               | 11.20                     | 10.47                     |
| Jun-16           | 9.45                | 11.19                     | 10.43                     |
|                  | 9.35                | 11.13                     | Sep-16 10.35              |
| Dec-16           | 9.15                | 11.07                     | 10.12                     |
| Mar-17           | 8.60                | 10.96$                    | 9.79$                     |
| Variation        | -0.85               | -0.24                     | -0.68                     |

$: Data pertains to February, 2017.

Note: WALRs have been computed based on data submitted by banks. As banks often revise their past data, these data are provisional.

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(Per cent)