1) Slashed repo and reverse repo rates:will help in reduction in the marginal cost of funds to banks and enable them to improve the flow of credit to productive sectors of the economy on viable terms.
2) special refinance facility of Rs7,000 crore to SIDBI and Rs4,000 crore to NHB:
3) Classify housing loans under Rs. 20 lakh under priority sector lending:
4) Second restructuring - “exceptional regulatory treatment” to banks’ exposure to commercial real estates:
The Reserve Bank of India on Saturday slashed both its repo and reverse repo rates by 100 basis points each, effective 8 December, and unveiled a host of measures as part of its stimulus package to “step up demand and arrest the growth moderation”.
The rate cuts are expected to compel commercial banks to reduce their main lending rates.
With the latest cuts, the repo rate, or the rate at which the central bank infuses liquidity in the system stands at 6.5% and the reverse repo rate, or the rate at which it sucks out liquidity from the system, stands at 5%.
Since 20 October, the Reserve Bank of India, or RBI, has slashed the repo rate by 250 basis points while it touched its reverse repo rate for the first time since mid 2006.
One basis point is a hundredth of a percentage point.
The central bank left other regulatory rates like cash reserve ratio and statutory liquidity ratio, or the portion of banks’ deposits required to maintain with the central bank as cash and government bonds, unchanged at 5.5% and 24% respectively.
RBI said the reduction in the repo and reverse repo rates will help in “reduction in the marginal cost of funds to banks and enable them to improve the flow of credit to productive sectors of the economy on viable terms”.
To help the employment-intensive micro and small enterprises tide over their credit needs, RBI also announced special refinance facility of Rs7,000 crore to the Small Industries Development Bank of India (SIDBI). The central bank is also working on a similar Rs4,000 crore refinance facility for the National Housing Bank (NHB) to extend its lendable resources.
As a one time measure to boost lending to the housing sector, RBI allowed banks to classify loans granted by them to housing finance companies, for on-lending to individuals, under priority sector lending, provided the housing loan disbursed by the housing finance company does not exceed Rs20 lakh.
The eligibility under this measure will be restructured to 5% of the individual banks’ total priority sector lending, RBI said. The centarl bank said this special dispensation would apply to loans granted by banks to housing finance companies up to 31 March, 2010.
Banks are required to lend 40% of their fund to the priority sector which comprises agriculture, small and medium enterprises, education among others.
RBI has also extended “exceptional regulatory treatment” to banks’ exposure to commercial real estates, which are restructured up to 30 June 2009. Under the current guidelines, exposures to commercial real estate are not eligible for the exceptional regulatory treatment of retaining the asset classification of the restructured standard accounts in standard category.
“In the face of the current economic downturn, there are likely to be more instances of even viable units facing temporary cash flow problems,” RBI said.
“To address this problem, it has been decided, as a one time measure, that the second restructuring done by banks of exposures (other than exposures to commercial real estate, capital market exposures and personal/ consumer loans) up to 30 June 2009, will also be eligible for exceptional regulatory treatment.”
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