RBI announces 9 additional measures for strengthening the Economy

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The Reserve Bank on India (RBI) on Friday said India’s gross domestic product (GDP) growth will be in negative in 2020-21 due to a global recession and declared yet another 8 key measures to further strengthen the economy.

In a video message here today, RBI Governor Shaktikanta Das said that due to outbreak of coronavirus, India’s inflation outlook appears “highly uncertain” as domestic economic activity came to a grinding halt during this two-month lockdown. He pointed out two main reasons for this which include that top 6 industrial cities in the country are largely in red and orange zones and 60% of them belongs to the private sector.

Hence, this cumulative effect had resulted in the disruption of the demand-supply chain which may take some more time as the recovery activities have just begun in the almost first half of the fiscal year 2020-21. “Hence, the inflation may remain firm in the first half of the current financial year, and ease in the later part of the year”, he announced.

Das further stated that in order to give a push to the economic activity RBI has decided to extend the loan moratoriums and all other economic measures including the 40 basis points from 4.4% to 4.0%. The Marginal Standing Facility rate and the Bank rate have been reduced from 4.65% to 4.25%. The reverse repo rate has been reduced from 3.75% to 3.35%.

Das has further announced that all the economic measures announced between March 31st to till May 21 will be extended by 3 more months up to August 30th, 2020.

Measures to Improve the Functioning of Markets

  • Refinance Facility to SIDBI extended for another 90 days

In order to enable the increased supply of affordable credit to small industries, the RBI had, on April 17, 2020, announced a special refinance facility of ₹15,000 crores to SIDBI at RBI’s policy repo rate for a period of 90 days. This facility has now been extended by another 90 days.

  • Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route

The VRR is an investment window provided by RBI to Foreign Portfolio Investors, which provides easier rules in return for a commitment to make higher investments. The rules stipulate that at least 75% of the allotted investment limit be invested within three months; considering the difficulties being faced by investors and their custodians, the time limit has now been revised to six months.

  • Exporters can now Avail Bank Loans for Higher Period

The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months, for disbursements made up to July 31, 2020.

  • Loan facility to EXIM Bank

The Governor has announced a line of credit of ₹15,000 crores to the EXIM Bank, for financing, facilitating and promoting India’s foreign trade. The loan facility has been given for a period of 90 days, with a provision to extend it by one year. The loan is being given in order to enable the bank to meet its foreign currency resource requirements, especially in availing a US dollar swap facility.

  • More time for Importers to Pay for Imports

The time period for import payments against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India has been extended from six months to twelve months from the date of shipment. This will be applicable for imports made on or before July 31, 2020.

Extension of Regulatory Measures by another 3 Months

The RBI has extended the applicability of certain regulatory measures announced earlier, by another three months from June 1, 2020, till August 31, 2020. These measures will now be applicable for a total period of six months (i.e. from March 1, 2020, to August 31, 2020). The aforesaid regulatory measures are: (a) 3-month moratorium on term loan instalments; (b) 3-month deferment of interest on working capital facilities; (c) easing of working capital financing requirements by reducing margins or reassessment of the working capital cycle; (d) exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies; (e) extension of resolution timelines for stressed assets; and (f) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions. The lending institutions have been permitted to restore the margins for working capital to their original levels by March 31, 2021. Similarly, the measures pertaining to the reassessment of the working capital cycle are being extended up to March 31, 2021.

  • Provision to convert Interest on Working Capital into Interest Term Loan

Lending institutions have been allowed to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020, up to August 31, 2020) into a funded interest term loan, to be fully repaid during the course of the current financial year, ending March 31, 2021.

  • Increase of Group Exposure Limit to Increase Fund Flow to Corporates

The maximum credit which banks can extend to a particular corporate group has been increased from 25% to 30% of the bank’s eligible capital base. This has been done in order to enable corporates to meet their funding requirements from banks, in view of the current difficulties being faced by corporates in raising money from the markets. The increased limit will be applicable up to June 30, 2021.

States allowed to borrow more from Consolidated Sinking Fund

The Consolidated Sinking Fund is being maintained by state governments as a buffer for repayment of their liabilities. The rules governing withdrawal from this Fund have now been relaxed, in order to enable states to enable them to repay their borrowings from the market, which become due in 2020-21. The change in withdrawal norms will come into force with immediate effect and will remain valid until March 31, 2021. The Governor added that the relaxation is being done while ensuring that depletion of the Fund balance is done prudently.

Click the link below to read the full text of his announcement is here:

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