23 May, 2020
10 Min Read
RBI announces nine additional measures for strengthening the Economy
Essay lines :"It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue."
RBI Governor Shaktikanta Das drew hope and inspiration from the 1929 statement of the Father of the Nation, as he 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
The RBI Governor stated that we must have faith in India’s resilience and capacity to overcome all odds.
Repo rate reduced by 40 basis points
Shri Das also announced a set of regulatory and developmental measures which he said complement the reduction in the policy rate and also strengthen each other.
Goals of the measures being announced are:
Measures to Improve the Functioning of Markets
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.
Measures to Support Exports and Imports
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.
The Governor has announced a line of credit of ?15,000 crore 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.
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 to Ease Financial Stress
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 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.
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.
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.
The increased limit will be applicable up to June 30, 2021.
Measures to ease financial constraints faced by State Governments
Consolidated Sinking Fund
The Consolidated Sinking Fund is being maintained by state governments as a buffer for repayment of their liabilities.
Assessment of Economy
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