October 30, 2009

The Reserve Bank of India (RBI), in its second quarter review of the monetary policy, has taken measures to curtail systemic liquidity, maintain stability in the financial system, and move ahead with its agenda for developing the financial markets. These steps are expected to strengthen the Indian financial sector over the long term.

However, over the near term, though the liquidity-related measures will not impact the banking sector as the liquidity remains ample, provisioning related steps can materially affect the profitability of the banking sector.Although RBI has kept its benchmark interest rates unchanged, it has increased the statutory liquidity ratio (SLR) marginally, back to25%.