The Hindu Business Line : RBI lifeline not being utilised to optimum

RBI has last week announced extensions to the series of measures unveiled over the last 2 months to ease liquidity and a ensure flow of credit to sectors affected by a funds crunch.

These extensions, while continuing to ease the funds crunch for the respective sectors, may be an indication of the central bank’s view that that the global crisis may not subside in near future, necessitating longer periods of support on exports, to mutual funds and NBFCs/HFCs.

Measures such as introduction of special refinancing window for the banks (1 per cent of Net Demand and Time Liabilities), special repo window for mutual fund/NBFC (1.5 per cent of NDTL) and dollar-swaps for banks to support their overseas branches, earlier thought to be temporary have now been extended for some more time.

The special refinancing facility and dollar swaps (which were available for 90 days) and mutual fund repo window (available up to March 30, 2009) will now be available up to June 30, 2009. In addition, RBI has also extended the period of post-shipment entitlement for exporter from 90 days to 180 days.

Swap help

Banks can now support their overseas branches facing liquidity pressure through dollar-swaps up to June 30, providing an additional time window before these operations can be stabilised amid the credit crisis.

NBFCs, which continue to face pressures on their lending operations, too may benefit from the lifeline, provided banks utilise the extension to extend further credit at this juncture. Redemption pressures for mutual funds are already said to have eased in the past few weeks and the Rs 60,000 crore special refinance window for mutual funds remains under-utilised.

The special refinancing facility provided to banks to ease liquidity pressures (when banks were borrowing at higher call rates), is also under-utilised, but may act as a buffer for banks, should call rates shoot up again.

With the latest trade data showing shrinkage in exports in October, the first in seven years, it is clear that Indian exporters are beginning to feel the heat from recessionary trends in their key markets.

Credit line

Under the circumstances, the extension of the tenors on letters of credit, from 90 days to 180 days, may allow them to offer more favourable terms to their customers.

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