The Hindu : Front Page : RBI unveils a slew of measures to propel economy

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RBI unveils a slew of measures to propel economy

Oommen A. Ninan

Risk weight for banks’ commercial real estate exposure reduced to 100 per cent from 150 per cent

Interest rate ceiling on Foreign Currency
Non-Resident (Banks) scheme raised
Special term repo facility for mutual funds,
non-banking finance companies extended

MUMBAI: The Reserve Bank of India on Saturday announced yet another round of measures to propel the economy from a slump, including more deposit rates for non-resident Indians (NRIs), an attempt to attract more foreign exchange to the country.

The special term repo facility, introduced for the purpose of meeting the liquidity requirements of mutual funds and non-banking finance companies (NBFCs) will continue till end-March 2009. Banks can avail themselves of this facility either on incremental or on rollover basis within their entitlement of up to 1.5 per cent of net demand and time liabilities. This would help enhance rupee liquidity.

To enhance forex liquidity, the RBI decided to raise the interest rate ceiling on Foreign Currency Non-Resident (Banks) [FCNR(B)] scheme and Non-Resident (External) Rupee Accounts [NR(E)RA].

At present, the interest rate ceiling on FCNR(B) deposits is fixed at Libor/Swap rates plus 25 basis points for the respective currency/corresponding maturities. In view of the prevailing market conditions, it has been decided to increase the interest rate ceiling on FCNR (B) deposits by a further 75 basis points, that is, to Libor/Swap rates plus 100 basis points with immediate effect. The interest rate ceiling on NR(E)RA is now set at Libor/Swap rates plus 100 basis points for U.S. dollar of corresponding maturities. It has now been decided to increase the interest rate ceiling on NR(E)RA deposits by a further 75 basis points, that is, to Libor/Swap rates plus 175 basis points with immediate effect.

It has been decided to allow, as a temporary measure, housing finance companies (HFCs) registered with the National Housing Bank (NHB) to raise short-term foreign currency borrowings under the approval route, subject to their complying with prudential norms laid down by the NHB. Details in this regard are being notified separately, the RBI informed.

The RBI stated that it will consider proposals from Indian companies to prematurely buy back their foreign currency convertible bonds (FCCBs). “On account of the global developments, FCCBs issued by Indian corporates are currently trading at a discount. There is a benefit to the company concerned as well as to the economy if corporates buy back the FCCB at the prevailing discounted rates,” the RBI stated.

SME sector

Taking into account the need to ensure the growth momentum in the employment-intensive sectors of micro and small enterprises and housing, it has been decided to immediately allocate amounts, in advance, from scheduled commercial banks for contribution to the Small Industries Development Bank of India (SIDBI) and the NHB to the extent of Rs. 2,000 crore and Rs. 1,000 crore, respectively, against banks’ estimated shortfall in priority sector lending in March 2009. The RBI reduced the provisioning requirements for all types of standard assets to a uniform level of 0.40 per cent except in the case of direct advances to agricultural and the SME sector which shall continue to attract provisioning of 0.25 per cent, as hitherto. “The revised norms will be effective prospectively, but the provisions held at present should not be reversed.”

Exposure to sectors

Similarly, risk weights on banks’ exposures to certain sectors, which had been increased counter cyclically, are also being revised downward in view of the current macroeconomic, monetary and credit conditions, the RBI stated.

Thus, all unrated claims on corporates shall attract a uniform risk weight of 100 per cent as against the risk weight of 150 per cent for such exposures prescribed earlier which was applicable for exposures above Rs. 50 crore from April 1, 2008, and for exposures above Rs. 10 crore from April 1, 2009.

Claims secured by commercial real estate shall attract a risk weight of 100 per cent as against the earlier risk weight of 150 per cent. Claims on rated as well as unrated non-deposit taking systemically important non-banking financial companies (NBFC-ND-SI) shall be uniformly risk weighted at 100 per cent.

As regards the claims on asset financing companies (AFCs), there is no change in the risk weights, which would continue to be governed by the credit rating of the AFCs, except the claims that attract a risk weight of 150 per cent under the new capital adequacy framework, stands reduced to a level of 100 per cent.

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