Good Day, Ladies and Gentlemen, and Welcome to the Teleconference with Media arranged by the Reserve Bank of India after the announcement of the Fifth Bi-Monthly Monetary Policy. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, you may signal the operator by pressing ‘*’ then ‘0’ on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to the management. Thank you and over to you.

…thanking the staff and the management of all our banks, both private sector and public, for the dedicated work over the last four weeks during this process of withdrawal of legal tender status. I want to also acknowledge the unstinting effort of staff at the RBI and our currency presses in this context.

Coming to the monetary policy decision:

In its October resolution, the Monetary Policy Committee took a calibrated policy judgment of a reduction of 25 basis points in the policy repo rate on the basis of its assessment of the inflation path for the rest of the year, based on the information available up to August and high frequency indicators in September. Inflation outcomes in September and October, as well as the latest projection for Q4 2016 - 2017 vindicates this stance. It may be recalled that in October the MPC envisaged a trajectory taking headline inflation towards 5% by March 2017, with risks tilted to the upside. Since then a couple of risks have waned:

1) The disbursement of salaries and arrears under the 7th Pay Commission award has not been disruptive to inflation outcomes.

2) The extension of two months given to the Ministry of Finance to receive the notification on higher allowances under the Commission’s award, could push its fuller effect into the next financial year rather than this financial year.

The Committee felt that it is now important to ensure that the targets of 5% for Q4 of 2016 - 2017 and 4 %, +/-2%, for the medium-term are achieved. This assumes critical importance in view of the stickiness in the inflation excluding food and fuel, what we call core, the recent rising profile of international crude prices and the continuing firmness in the prices of some salient food items. Accordingly, the MPC was of the view that given the reduction of the policy rate of 25 basis points in October, which cumulated to a reduction of 175 basis points since January 2015, a further reduction in the policy rate is not warranted at this juncture. It may be recalled that an incremental CRR was applied on banks' increase in net demand in time liabilities between September 16 and November 11. As part of our liquidity management operations to manage the return of specified bank notes into the system as deposits. This was intended as a purely temporary measure to manage the transition from an exclusive reliance on LAF operations to a mix of instruments including the MSS issuances. The government has proactively responded to the situation by enhancing the limit of MSS securities to ₹ 6 lakh crore or ₹ 6 trillion. This has enabled the withdrawal of the incremental CRR with effect from the fortnight of December 10, banks will no longer have to bear the burden of the incremental CRR as they will be adequately compensated through the coupons on MSS securities.

May I request before we get to the question-and-answer session, first Mr. Gandhi to apprise us on the issues related to the withdrawal of legal tender characteristic status of the notes and the currency management.

There have been several questions about the decision to withdrawal the legal tender status of ₹ 1000 and ₹ 500 of the old series notes. The motivations for the decision are to deal with the problem of high quality counterfeit notes in these denominations and unearth the black money that may held be in cash. The decision has not been taken in haste, but after a detailed deliberation. There has to be a high level of secrecy surrounding this decision, and the fact is that such a large country was indeed taken by surprise when the decision was announced. The Reserve Bank and the Central Government were conscious of certain immediate difficulties that the public at large could face and all efforts were made to minimise them and mitigate them.

The problems of the common persons were at the top of the policy-makers radar and all dispensations were calibrated to address them without at the same time jeopardizing the achievement of the larger policy objective. The Reserve Bank and the Central Government note presses are working to their full capacities and all efforts are being made to reach the notes to every part of the country. In fact, during this period, that is from November 10, 2016 to December 5, 2016 the Reserve Bank had supplied to the public bank notes of various denominations worth near about ₹ 4 lakh crore.

As regards to the lower denomination of the notes, that is ₹ 100, ₹ 50, ₹ 20 and ₹ 10, the Reserve Bank over its counters and through bank branches all over the country has supplied 19.1 billion pieces of denomination in this period. This is more than what the Reserve Bank had supplied to the public in the whole of the last three years. We reiterate that there is adequate supply of notes and hoarding of notes helps nobody's cause. We also strongly advocate the public to switch to digital payment modes, given that there are several options, there are adequate safeguards and there is an increasing accessibility of this mode of payment by a large of recipients.

Well, I may take this opportunity to speak a little bit on the subject which was most discussed in detail in the last policies, this is the asset quality. I appreciate that as of now the questions and focus on your mind is elsewhere, but nonetheless, very briefly from the September quarter result which has come from the banking system, while there had been an incremental rise percentage of gross NPA and net NPA, there has been marginal reduction in restructured advances and after blending too there has been a slight uptick in the overall level of stressed assets in the banking system. But there are a few things which need to be noted:

1) The formation of incremental NPA has decelerated.

2) The provision coverage ratio at the system level has slightly improved and relative to the previous year in this half year, the recoveries have been better than what they were in the corresponding period and the write-offs have reduced to some extent.

So as in the past, maximum NPAs continue to be contributed by the industry segment in the asset portfolio at the usual five, six sectors which were showing the larger stress, and it tends to remain same. Thank you.