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Our Bureau

Mumbai, Nov. 15 In yet another set of measures to further boost liquidity and enhance credit flow, the Reserve Bank of India on Saturday eased prudential norms for banks’ exposure to sensitive sectors such as the capital market and commercial real estate.

The provisioning requirement for banks on standard advances in the commercial real estate sector, personal loans, and capital market exposure and NBFCs (ND) has been reduced to 0.40 per cent from 2 per cent. (RBI had earlier progressively increased this from 0.25 per cent to 2 per cent.)

The provisioning for home loans beyond Rs 20 lakh has also been reduced to 0.40 per cent, from 1 per cent.

RBI has also allowed banks to pay more interest on NRI deposits, to avail themselves of additional liquidity support to the tune of Rs 22,000 crore under the export credit refinance facility, and park funds with SIDBI and NHB to meet the shortfall in priority sector lending.

Further, Indian corporates are permitted to buy-back or pre-pay FCCBs, and exporters are allowed pre-shipment rupee credit for 90 more days.

In order to help mutual funds and non-banking finance companies, which are still facing funds shortage, the RBI has decided to extend the special term repo facility till end-March 2009. Banks can avail themselves of this facility either on incremental or rollover basis within their entitlement of up to 1.5 per cent of Net Demand Time Liabilities.

Housing finance companies, which are also facing a shortage of resources, have been allowed to raise short-term foreign currency borrowings under the approval route, provided they are registered with National Housing Bank and comply with the prudential norms.

In a move to attract more foreign funds, RBI increased the interest rate ceiling on foreign currency non-resident (banks) and non-resident (external) rupee term deposits by 75 basis points each with immediate effect. The interest rate ceiling on FCNR deposits is now Libor/Swap rate plus 100 basis points while that on NRE term deposits is Libor/Swap rates plus 175 basis points.

Since FCCBs issued by Indian corporates are currently trading at a discount, the central bank said there would be benefit to the company concerned as well as to the economy if corporates buy back the FCCBs at the prevailing discounted rates. In view of these potential benefits, RBI would consider proposals from Indian companies under the approval route to prematurely buy back their FCCBs.

The buy-back should be financed from the company’s foreign currency resources held in India or abroad and/or out of fresh external commercial borrowings. Extension of FCCBs would also be permitted at the current all-in cost for the relative maturity.

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