RBI THIRD QUARTER REVIEW MONETARY POLICY: 2012-13 (Apr-Mar)

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Dear Sir/Madam It gives us great pleasure to present you ready reckoner of RBI Third-Quarter Review of Monetary Policy 2012-13 (Apr-Mar) The live coverage of the policy, its impact and real-time information on financial markets is exclusively available to our clients through NewsWire18 Workstation. Please refer NW18 workstation for news, views and analyses by market experts on the Policy. Please feel free to call us for any clarifications. Thanks & Best Regards, Helpdesk 022-66378787

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NW18: Highlights of RBI's third-quarter review of FY13 monetary policy NewsWire18, Tuesday, Jan 29 MUMBAI - Following are the highlights of the Reserve Bank of India's ThirdQuarter Review of Monetary Policy for 2012-13 (Apr-Mar): MAIN HIGHLIGHTS * Cuts repo rate by 25 bps to 7.75% * Reverse repo rate stands adjusted to 6.75% * MSF rate stands adjusted to 8.75% * Bank Rate stands adjusted to 8.75% * CRR cut by 25 bps to 4% with effect from Feb 9 * CRR cut to infuse 180 bln rupees into banking system POLICY STANCE * Policy guidance depends on evolving growth-inflation dynamics * Policy guidance depends on management of twin deficit risks * Policy action, guidance to support growth, boost investments * Policy action, guidance to anchor medium-term inflation view * Policy action to improve liquidity, support credit flow * Next mid-quarter policy will be announced Mar 19 * Policy stance shifted to growth since Oct 2011 * Monetary action was constrained due to high inflation * Current policy stance shaped by WPI inflation moderation * Current policy stance shaped by growth deceleration * Monetary stance sought to balance growth-inflation dynamics * Monetary stance is towards calibrated easing * Inflation decline helps monetary policy to act with fiscal * Policy to provide interest rate environment to help growth * Policy stance to contain inflation and anchor expectations * Policy stance to ensure credit flow to productive sectors

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GROWTH * Cuts FY13 GDP growth projection to 5.5% vs 5.8% * Inflation likely rangebound on persisting high food prices * Inflation likely rangebound on diesel price pass through * Soft global crude oil prices to cushion diesel price hike * Sustained inflation decline depends on supply side measures * Sustained inflation decline depends on fiscal consolidation * Domestic growth remains sluggish * Tentative signs of domestic slowdown levelling off * Domestic industrial activity has weakened * Seeing contraction in domestic mining activity * Seeing deceleration in domestic power generation * Seeing subdued trend in domestic manufacturing sector * Govt reforms have boosted market sentiment * Investment outlook lacklustre despite govt reforms * Seeing lacklustre investment demand for new projects * Consumption demand is slowing * Not clear if rabi crop will offset kharif output shortfall * Service sector indicators indicate expansion in coming mos * Service sector growth constrained by depressed global cues * Jul-Sep GDP growth 5.3% vs 5.5% in Apr-Jun * Decline in GDP growth has become broad-based * Domestic consumption demand easing, exports declining * Seeing stalling of investments domestically * Seeing weaker resilience of svcs to sluggish global growth * Seeing tentative signs of reversal in growth momentum * Surveys suggest positive business sentiment in Oct-Mar * Cos' Oct-Dec results indicate sales moderation * Cos' Oct-Dec results indicate expenditure growth moderation * Cos' Oct-Dec results indicate profit margins unchanged * Govt reforms should spur investment in due course * Fuel price hikes can help correct twin deficits * More govt steps crucial for raising growth in medium-term * Govt steps to help India return to high growth path * Growth has decelerated significantly below trend FY12, FY13 * Investment activity way below desired levels * Consumption demand has started to decelerate

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* External demand weakened on global economic slowdown * Raw material availability constraints are binding * Critical now to arrest loss of growth momentum * Critical not to endanger external stability, but boost growth * Industrial activity has remained subdued * Sluggish external demand inhibits improvement in services * Severe winter in certain parts has endangered crops * New investment demand continues to be weak * Government reforms have boosted markets * Will take some time to reverse investment slowdown * Will take some time to reinvigorate growth INFLATION * Cuts WPI inflation projection to 6.8% by March 2013 vs 7.5% * Monetary policy inflation perception to continue in 4.0-4.5% * Medium-term inflation objective is at 3.0% * Headline WPI inflation softened during Oct-Dec * Rise in food inflation pushed up consumer price inflation * Lead indicators suggest inflationary pressures have peaked * Further moderation in domestic inflation may be muted FY14 * Food inflation remains elevated * Administered items price correction remains incomplete * Policy must be sensitive to conflicting pressures, risks * Rabi sowing coverage similar to year-ago levels * Non-food manufactured pdt inflation dn sharply Nov-Dec * Pricing power of companies seems to have weakened * Fuel group inflation moderated in December * Food inflation has moved into double digits in Dec * Significant price pressures emanated from cereals * Pulses, protein-based item prices remain elevated * Overall momentum in food inflation remained firm * New CPI inflation up reflecting rise in food inflation * Wage inflation in rural areas remained high * Rural wage hikes not leading to better productivity

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* House price inflation remains elevated from year ago levels * Headline inflation likely to have peaked * Non-food manufactured products inflation has declined * Likelihood of inflation remaining range-bound in FY14 * Inflation trend provides limited space to focus on growth * Medium-term inflation view depend on low inflation commitment * Staggered diesel price hike to pass into overall inflation * Diesel price induced inflation to dissipate over time * Fiscal deficit reduction will bring reduce inflation view * High input cost, wages continue upward pressure on prices * Though stance shifts to growth, inflation not de-emphasised LIQUIDITY, MARKETS * M3 growth fell to 12.9% in mid-January * M3 growth below indicative 14% trajectory * Loan growth in mid-Jan above indicative projection * Bank loans to industry show significant deceleration * Credit to agriculture seeing an increase * Bank deposit rates fell marginally Oct-Dec * Banks' average base rate mostly unchanged in Oct-Dec * Liquidity conditions tightened since November * Average Jan borrowings at repo tender above comfort level * Gilt yields eased substantially in January * Exports contraction indicates external demand conditions * Slowdown in exports may widen current act gap Oct-Dec * Oct-Dec current acct gap may top Jul-Sep levels * Rupee depreciated in real terms by Jan vs Mar 2012 GLOBAL * Global headwinds holding back growth abating * US econ picked up Oct-Dec but may not sustain in Jan-Mar * Political consensus to avert US fiscal cliff calmed markets * US debt ceiling management to guide market sentiment in future * EU economy threatened by continuing contraction * Risk of sovereign debt crisis disrupting global econ ebbing * Japan has re-entered recession

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* Pick up in growth of Chinese economy likely * Inflationary pressures persist in some emerging market nations * Global econ prospects improving but significant risks remain * Fresh fiscal stimulus in Japan after contraction in Oct-Dec * Commodity price pressure a risk to global inflation outlook End

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First Views on RBI's Third-quarter review monetary policy for 2012-13 (Apr-Mar)

NW18: First View: Raheja Developers' Director Goyal on RBI policy. NEW DELHI - Manoj Goyal, director, Raheja Developers, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. Reduction of cash reserve ratio and repo rate will help to increase money supply in the market. Hopefully, the banks will cut home loan rates and other borrowing rates. This is a good move. We expect banks to pass on the rate advantage to end users. NW18: First View: Gammon Infra Managing Director Mohanty on RBI Policy. NEW DELHI - K.K. Mohanty, managing director, Gammon Infrastructure Projects Ltd, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar), that was detailed today. RBI's decision to cut Cash Reserve Ratio and Repo Rate by 25 basis points each is more or less on expected lines, but it is too little, too late. The industry was hoping for a 50 bps reduction, 25 bps is not going to make a big difference. Nonetheless, it is a positive development. We expect the central bank to incentivise the market in small doses, going forward. Hopefully, it will reduce the repo rate by 100-150 basis points in the next six, if not three months. NW18: First View: Hubtown CFO Bharat Mody on RBI policy. MUMBAI - Bharat Mody, chief financial officer, Hubtown Ltd, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. The decision to cut repo rate and banks' cash reserve ratio is in the right direction, but I don't think that a 25basis-point reduction will have much impact at the ground level. We need a more pragmatic approach now, and this is a very nominal cut. But, we are happy that RBI is at least trying to give out a positive signal and moving in tandem with the government to boost growth. We need to see many more such moves from the central bank to witness any substantial improvement in growth. I hope the central bank will further cut rates and not go back into a shell after this cut.

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NW18: First View: SKS Microfinance CFO Dilli Raj on RBI policy. HYDERABAD - Dilli Raj, chief financial officer, SKS Microfinance Ltd, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. I think it (rate cut) is very positive. The across the board 25-basis-point cut in all anchor rates makes it complete. Most importantly, I think the Reserve Bank of India guidance also acknowledges that there is space for more emphasis on growth. This means, we can expect some more cuts in the days to come, provided inflation is under control. The rate cut move is good for all sectors, including non-banking financial institutions. In line with today's move, there will be reduction in base rate and prime lending rate that will benefit every company. As we (NBFCs) are the largest borrowers, we will also get benefit out of it. NW18: First View:Sobha Developers Managing Director Sharma on RBI policy. NEW DELHI - J.C. Sharma, vice chairman and managing director, Sobha Developers, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. The 25 bps cut in Repo Rate will have a marginal impact on our company as our cost of loan would not come down sharply. However, the cut would help consumers who have floating loan rates. This will lower their EMI (equated monthly instalment). The move also helps improve market sentiment as earlier the investment cycle was being affected due to high rates. Cut in the Cash Reserve Ratio is also positive as it is set to improve liquidity in the market. NW18: First View: SBI Chief Economist Brinda Jagirdar on RBI policy. NEW DELHI - Brinda Jagirdar, chief economist, State Bank of India, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. RBI governor had already indicated about the rate cut. Macro-economic conditions had improved, giving RBI the space to cut rates. The rate cut happened due to factors such as softening of inflation and as the aim of fiscal deficit of 5.3% looked achievable. This policy focuses on growth. Growth has come back to the centre stage. Going ahead, RBI governor's words "this provides space, albeit limited, for monetary policy to give greater emphasis to growth risks" indicates there is further space for ease in monetary policy. The governor will continue to cut rates in a calibrated manner. Governor may not cut rates in March policy but a rate cut is possible in April. Current account deficit is huge, which may not support the rupee. Inflation for March-end is seen 6.8-7.0%. Inflation risks remain and it is still above RBI's comfort level.

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NW18: First View: Realty body head Lalit Kumar Jain on RBI Policy. MUMBAI - Lalit Kumar Jain, president, Confederation of Real Estate Developer's Association of India, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. RBI's decision to cut repo rate and banks' cash reserve ratio by 25 basis point each is not enough. We were expecting at least 50 bps cut in both. RBI's policy decisions in the past two years have deterred buyers from coming to the market. If India has to get back to a growth rate of 7.5-8.0%, we need to focus on housing and making it affordable by lowering interest rates. RBI must undertake some specific policy making for the housing sector. Today's move will give a positive signal to the market. Buyers may come to the market now on expectations that the rate cut trend will continue going forward. Expecting another 100-150 bps cut in repo rate by December is not unrealistic in my view. NW18: First View: Videocon Industries' Chairman Dhoot on RBI policy. MUMBAI - Venugopal Dhoot, chairman, Videocon Industries, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. The cut in repo rate by the Reserve Bank of India is welcome, but the cash reserve ratio cut is of no use as banks do not pass it on to the industry. Also, a substantial reduction in interest rate should have been given, which was the need of the hour. That clearly has not happened. Also, the Indian economy's fears of high current account deficit and high inflation still persist. NW18: First View: Jindal Steel Deputy MD & CEO Sharma on RBI Policy. NEW DELHI - V.R Sharma, deputy managing director and chief executive officer-steel business, Jindal Steel and Power Ltd, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. It is a positive sign and will improve liquidity in the market. Today, the issue is not inflation but the issue is availability of funds. I will be happy if there is a reduction of 25 basis points within a month. I think it is a step in the right direction and I expect that before the budget there should be another 25-bps cut.

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NW18: First View: Pramerica MF's fixed income-CIO Jajoo on RBI Policy. MUMBAI - Mahendra Jajoo, executive director and chief investment officer-fixed income, Pramerica Mutual Fund, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. It (repo rate, cash reserve ratio cut) is a good move from the RBI. We believe RBI will continue to cut rates till the first half of 2013-14. RBI's policy stance will be softer hereafter given the growth concerns. While inflation is softening, growth remains a concern. RBI has cut projection for 2012-13 gross domestic product growth to 5.5% from 5.8%. The central bank also has cut the projection of Wholesale Price Index-based inflation to 6.8% by March 2013 from 7.5%. We expect 10-year government bond yields to come down further. We won't be surprised if 10-year yield touches 7.65%. Rates on short-term money market instruments will come down by 25 basis points. NW18: First View: Plan panel Deputy Chairman Montek on RBI policy. NEW DELHI - Montek Singh Ahluwalia, deputy chairman, Planning Commission, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. The RBI is an independent body and the fact that they have taken this position should be read in the market as providing some confirmation that the steps that have been taken are actually all leading to better managed Macro-economic situation. Obviously, the decline in the CRR will be welcomed by markets, which will effectively create more available resources for the banks to lend. I think that is the right thing to do at this point, given that we feel the economy is beginning to bottom out and we hope that many of the steps that the government has taken will lead to revival of interest in investments and faster movement of some big infrastructure projects. The decline in the Repo Rate is also welcomed as a signal. Of course, the really important thing is what happens in the long-term interest rates. On the whole, I am very positive Well, that (growth prospects) is difficult to judge. The most important thing, right now, is that we have taken steps to create fiscal room, we have taken steps to revive investments, we need to move to a growth-supporting policy. Since the macro-economic worries are now a little bit better-controlled, I think RBI has endorsed that view. NW18: First View: Grasim Industries Director and CFO Gupta on RBI Policy. MUMBAI - Adesh Gupta, whole-time director and chief financial officer, Grasim Industries Ltd, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today.

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These (RBI's) steps will help in reviving sentiment. The government is trying to take positive steps (to revive growth) and RBI's move will support (these initiatives). At least, RBI has accepted that these steps (cut in repo rate and cash reserve ratio) were necessary, which is a good indicator. However, investments are made based on the overall climate and availability of resources. Availability of resources such as land and fuel is a fundamental requirement, and the government is yet to do something on that front. NW18: First View: Sakthi Sugars MD Manickam on RBI Policy. MUMBAI - M. Manickam, managing director, Sakthi Sugars, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. It is definitely a good beginning and we are hoping that rates (repo, cash reserve ratio) will be reduced further going forward. The RBI move to cut cash reserve ratio and repo rate will bring down cost of operations for companies, as interest rates will come down. It will also maintain liquidity in the banking system. NW18: First View: GVK Power & Infrastructure CFO George on RBI policy. HYDERABAD - Isaac George, chief financial officer, GVK Power & Infrastructure Ltd, said the following on the Reserve Bank of India's Third-Quarter Review of Monetary Policy for 2012-13 (Apr-Mar) that was detailed today. Today's rate cuts will certainly spur growth as well as investments. The cut in Cash Reserve Ratio will improve liquidity and banks will now have ability to lend more. I expected a steeper rate cut of 50 bps...A 50 bps (repo cut) would have revived investments in a very big a way. He (RBI governor) has made a very good beginning and lets hope this continues, provided the inflation is under control. The RBI governor has projected inflation at 6.8% by March. I am sure, if it reaches that level, in anticipation, he would certainly cut rates again. RBI move will help to revive growth in infrastructure. It is very critical to attract investment in this sector and this step is in the right direction to help the sector. We see some revival in growth.

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