More RBI measures

After pumping in around Rs 2.80 lakh crore liquidity into the banking system, the RBI announced a slew of measures to give a boost to real estate besides taking steps to arrest the decline in forex reserves. In order to ensure more liquidity for the real estate sector, the RBI allowed registered housing finance companies to raise short-term funds from overseas markets. “As a temporary measure, it has been decided to allow housing finance companies registered with the National Housing Bank to raise short-term foreign currency borrowing under the approval route,’’ a release by the RBI said. The move will also help the country shore up its declining forex reserves, which according to the latest data, has slipped to about $250 billion from $314 billion in April-May.In addition, the RBI has also permitted Indian banks to offer better interest rates for foreign currency deposits by non-residents. Henceforth, banks can offer rates up to 100 basis points over the London interbank offered rate (Libor) under foreign currency nonresident (banks) scheme and 175 basis over Libor on nonresident (external) rupee accounts deposits. These changes will encourage the banks to make the non-resident deposit schemes more attractive by raising interest rates. The short-term repo facility, introduced for meeting liquidity requirements of mutual funds and Nbfcs will be continued till March 2009, the RBI said, adding “banks can avail of this facility either on incremental or on roll over basis within their entitlement of up to 1.5% of NDTL. In view of difficulties faced by exporters, the RBI also increased the time limit for pre-shipment export credit from 180 days to 270 days with immediate effect. The central bank has also introduced a special re-finance facility for banks to extend credit to micro and small enterprises. Under this facility banks can seek re-finance from the RBI up to 1% of their deposits. “Global financial conditions continue to be uncertain and unsettled with ripple effects on domestic money, forex and credit markets. There are indications that the global slowdown is deepening with a larger than originally expected impact on the domestic economy,’’ the RBI said in the statement.The apex banks will continue to closely monitor the developments in the global and domestic markets and will take swift and effective action as appropriate, the RBI said. Announcing the measures, the RBI has reduced risk weights for corporate and commercial real estate to 100% from the earlier 150%. This is expected to encourage banks to lend more to these fund-starved sectors. Many corporates had experienced difficulties to finance their projects in the recent past, after foreign funding sources dried up and liquidity conditions worsened in the domestic market.