RBI extends liquidity enhancing measures until June 2009
By Vaibhav Aggarwal
Dec 2, 2008
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India's Central Bank, Reserve Bank of India has increased the time period for various liquidity easing measures for banks until June 30th, 2009. The apex body will also extend credit to the exporter for a longer duration in order to support them to fight economic slowdown.

However RBI confirmed in release that for pre-shipment activities, interest rate charged on the credit will continue to be at 2.5% below the benchmark prime lending rate (BPLR). The facility would come into effect from December 1st. The post-shipment rupee export credit will now be extended for 180 days against 90 days earlier.

The decision was taken following the meeting between RBI's governor D Subbarao and chief executives of some private and public sector banks, who insisted RBI to signal softening of rates. The measures taken by the RBI include a special refinance facility under which banks can borrow up to 1% of their deposits for up to 90 days. Moreover mutual funds, housing finance companies and non-banking finance companies have also been included in the special liquidity adjustment facility.

RBI has also extended the availability of a three-month foreign exchange swap facility to meet funding needs of Indian banks' foreign subsidiaries or branches is from March 31st, 2009 to June 30th, 2009.

At the same the bankers informed that the liquidity was comfortable and therefore there was no requirement of a CRR cut which has already been reduced by 350 basis points to 5.5%. But they persisted on to relax the non-performing asset classification norms with regard to the problem faced by the SME sector. The industry stresses on increasing the period following the due date to declare an account as an NPA from 90 days to 180 days.

All these measures are a part of measures announced by RBI to ease the credit crunch in the system. Bank CEOs, who attended the meeting held on November 28th, include SBI's OP Bhatt, ICICI Bank's KV Kamath, Bank of India's TS Narayanasami, Bank of Baroda's MD Mallya, Union Bank of India's MV Nair, Indian Overseas Bank's SA Bhat, Canara Bank's AC Mahajan, HDFC Bank's Aditya Puri, Axis Bank's PJ Nayak and Standard Chartered Bank's Neeraj Swaroop.


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