The measures taken after a further review of the evolving developments are enhancement of rupee liquidity upto March 2009, enhancing Foreign Currency Non Resident (Banks) deposits interest rate by a further 75 basis points to Libor/Swap rates plus 100 basis points with immediate effect and the interest rates of Non Resident (External) Rupee Accounts [NR(E)RA] by a further 75 basis points, to Libor/Swap rates plus 175 basis points with immediate effect.
Announcing the measures last night, RBI said that it has decided as a temporary measure to allow housing finance companies 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 were being notified separately.
RBI said to enable the corporate sector benefit from this discounted rates of Foreign Currency Convertible Bonds (FCCBs) issued by the Indian Corporates it would consider proposals from Indian companies to prematurely buy back their FCCBs. The buy back should be financed by the company's foreign currency resources held in India or abroad and/or out of fresh external commercial borrowing (ECB) raised in conformity with the current norms for External Commercial Borrowings. Proposals in this regard will be considered under the approval route. Extension of FCCBs will also be permitted at the current all-in cost for the relative maturity.
In view of the difficulties being faced by exporters on account of the weakening of external demand, it has been decided to extend the period of entitlement of the first slab of pre-shipment rupee export credit, currently available at a concessional interest rate ceiling of the benchmark prime lending rate (BPLR) minus 2.5 percentage points from 180 days to 270 days with immediate effect.
The RBI has also decided to enhance the Earnings Credit Rate (ECR) limit to 50 per cent from 15 per cent of the outstanding rupee export credit eligible for refinance, as at the end of the second preceding fortnight. The move would provide additional liquidity support to banks of an amount of about Rs 22,000 crore. The rate of interest charged on the ECR facility will continue to be the prevailing repo rate under the LAF, which is currently 7.5 per cent.
RBI said 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 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 allocation now made in respect of SIDBI and NHB will be adjusted against the banks' actual achievement of the target/sub targets for priority sector lending as at the end of March 2009. The bank-wise allocations are being notified separately.
To provide further comfort on liquidity and to impart flexibility in liquidity management to banks, on November one, the Reserve Bank introduced a special refinance facility under Section 17(3B) of the RBI Act, 1934, under which all scheduled commercial banks (excluding RRBs) are provided refinance from the Reserve Bank equivalent to up to 1.0 per cent of each bank's NDTL as on October 24, 2008, at the LAF repo rate up to a maximum period of 90 days.
Banks are encouraged to use this facility for the purpose of extending finance to micro and small enterprises.
As a counter-cyclical prudential measure, the general provisioning requirement on standard advances for residential housing loan beyond Rs 20 lakh has been progressively increased from 0.25 per cent to 1.0 per cent, while that on standard advances in the commercial real estate sector, personal loans, including outstanding credit card receivables, loans and advances qualifying as capital market exposure and non-deposit, taking systemically important NBFCs, has been progressively increased from 0.25 per cent to 2.0 per cent.
In view of the current macroeconomic, monetary and credit conditions, it has been decided, consistent with the practice of dynamic provisioning, that the provisioning requirements for all types of standard assets will stand reduced to a uniform level of 0.40 per cent except in case of direct advances to agricultural and 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.
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. 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.