RBI steps up firefighting

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Mumbai, Nov 15: Continuing with its efforts to pump in liquidity and spur growth, the Reserve Bank of India on Saturday unveiled another series of measures. These steps will benefit exporters, real estate companies and other companies that have taken loans from abroad.

The central bank has extended the validity of concessional interest period for export credit to 270 days from 180 days. It will support companies buy back their foreign currency convertible bonds (FCCB) loans instead of having to convert them to equity at current depressed prices and eased provisioning requirement by banks on loans to real estate. This means banks can again offer lower interest rates for housing loans.

The moves are expected to prop up the corporate sector and provide support to exporters and credit access to the real estate sector. The banking sector is also expected to get breathing space while lending to critical sectors.

RBI has now clearly said it will consider proposals from Indian companies to prematurely buy back their FCCBs. However, the buy back, the central bank mentions, should be financed by the company’s foreign currency resources held in India or abroad. Indian corporates could also use fresh external commercial borrowings (ECB), which have been raised in conformity with the current norms for ECBs for this purpose.

Proposals in this regard will be considered under the approval route. Extension of FCCBs will also be permitted at the current all-in cost for the relative maturity, the central bank said.

“On account of the global developments, FCCBs issued by Indian corporates are currently trading at a discount. There is a benefit to the company concerned as well as to the economy if corporates buy back the FCCB at the prevailing discounted rates,” explained RBI.

The cash-strapped real estate sector will also get support, as claims secured by commercial real estate shall attract a risk weight of 100% against the earlier risk weight of 150%. This will encourage banks to lend to the commercial real estate sector.