9 Latest RBI Measures to Strengthen Economy in 2020
Source: Press Information Bureau
GS Paper III: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Context: RBI Governor Shaktikanta Das announced yet another set of nine measures to smoothen the flow of finance and preserve financial stability in the turbulent and uncertain times ushered in by the COVID-19 pandemic.
- This set of measures follows the earlier sets of measures announced by RBI on April 17, 2020 and on March 27, 2020.
Read More: RBI’S COVID-19 ECONOMIC RELIEF PACKAGE
Reduction in Repo Rate
The Governor has announced a reduction in major policy rates, in order to revive growth and mitigate the impact of COVID-19, while ensuring that inflation remains within the target. Following changes has been made by the RBI.
|Policy Rates||Previous Rates||New Rates|
|Marginal Standing Facility Rate||4.65%||4.25%|
|Reverse Repo Rate||3.75%||3.35%|
Key Highlights of 9 Latest RBI Measures to Strengthen Economy in 2020
These are the set of regulatory and developmental measures which will complement the reduction in the policy rate and also strengthen each other.
Measures related to the Improvement in the Functioning of Markets
1. Extension of the Refinance Facility to SIDBI for another 90 days
- A special refinance facility of Rs. 15,000 crore to SIDBI at RBI’s policy repo rate for a period of 90 days was announced on April 17, 2020. It has now been extended for another 90 days to enable increased supply of affordable credit to small industries.
2. Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route
- The Voluntary Retention Route is an investment window which is provided by RBI to Foreign Portfolio Investors, which provides easier rules in return for a commitment to make higher investments.
- According to the rules at least 75% of the allotted investment limit be invested within three months.
- Keeping in mind the difficulties being faced by investors and their custodians, the time limit has now been revised to six months.
Also Read: Measures by RBI for Financial Stability
Measures for supporting Exports and Imports
3. Increase in Maximum Limit of Availing Bank Loans for Exporters
- The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing 1 year to 15 months, for disbursements made up to July 31, 2020.
4. Facility of Loans to Exim Bank
- A line of credit of Rs. 15,000 crore has been announced 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 1 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.
5. Extension of the time required by 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.
Measures Focused on Easing the Financial Stress
6. Regulatory Measures extended by another 3 months
The RBI has extended the applicability of certain regulatory measures which were 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:
- 3-month moratorium on term loan instalments;
- 3-month deferment of interest on working capital facilities;
- Easing of working capital financing requirements by reducing margins or reassessment of working capital cycle;
- Exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies;
- Extension of resolution timelines for stressed assets; and
- Asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions.
7. Conversion of Interest on Working Capital into Interest Term Loan
- The 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.
- The loan is to be fully repaid during the course of the current financial year, ending March 31, 2021.
8. Increase Fund Flow to Corporates by Increasing Group Exposure Limit
- 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, keeping in mind the current difficulties being faced by corporates in raising money from the markets.
- The increased limit will be applicable up to June 30, 2021.
Measures to ease financial constraints faced by State Governments
9. 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 that governs the 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 till March 31, 2021.
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