Money & Banking

RBI announces more measures to support exporters, banks and States/UTs

Our Bureau Mumbai | Updated on April 01, 2020 Published on April 01, 2020

The Reserve Bank of India (RBI) has announced further measures, including extending the time for realisation and repatriation of proceeds for exports made up to or on July 31, 2020 to 15 months from the date of export against nine months earlier, while upping the temporary accommodation it provides to States and Union Territories to deal with the COVID-19 pandemic. The central bank also said it is not activating the countercyclical capital buffer for banks.

Referring to the extension in time for realisation and repatriation of proceeds for exports made up to or on July 31, 2020, the RBI said this measure will enable exporters to realise their receipts, especially from COVID-19 affected countries, within the extended period and also provide greater flexibility to them to negotiate future export contracts with buyers abroad.

Currently, the value of the goods or software exports made by the exporters is required to be realised fully and repatriated to the country within nine months of the date of export.

The RBI has decided to increase the WMA (Ways and Means Advances) limit by 30 per cent from the existing limit for all States/UTs to enable them to tide over the situation arising from the outbreak of the COVID-19 pandemic. The revised limits will come into force with effect from April 1, 2020 and will be valid till September 30, 2020.

The central bank provides financial accommodation to the States/UTs to tide over temporary mismatches in the cash flow of their receipts and payments as WMA. This is intended to provide a cushion to them to carry on essential activities and normal financial operations.

No CCyB activiation

Based on the review and empirical analysis of countercyclical capital buffer (CCyB) indicators for Banks, the RBI decided that it is not necessary to activate CCyB for a period of one year or earlier, as may be necessary.

The aim of the CCyB regime is two-fold. Firstly, it requires banks to build up a buffer of capital in good times, which may be used to maintain flow of credit to the real sector in difficult times. Secondly, it achieves the broader macro-prudential goal of restricting the banking sector from indiscriminate lending in the periods of excess credit growth that have often been associated with the building up of system-wide risk.

The CCyB framework envisages the credit-to-GDP gap as the main indicator, which is used in conjunction with other supplementary indicators. This framework was put in place by the Reserve Bank in February 2015, whereby it was advised that the CCyB would be activated as and when the circumstances warranted, and that the decision would normally be pre-announced.

Published on April 01, 2020
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