RBI steps up firefighting

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Mumbai, Nov 15: a level of 100 %.

“There will now be an increase in liquidity for the banking system. We will have to analyse the relaxations on the risk weightage on the real estate sector and then take a call on the lending front,” says MD Mallya, CMD of Bank of Baroda. “We can expect home loans to get cheaper following RBI move. Cost of credit will eventually come down. Lending to the home loan sector should increase now. We can also expect interest rates to slide down further as inflation is heading downwards,” said a public sector banker.

Similarly, risk weights on banks’ exposures to certain sectors, which had been increased counter cyclically, have been revised downward in view of the current macroeconomic, monetary and credit conditions. All unrated claims on corporates shall attract a uniform risk weight of 100 % as against the risk weight of 150 % for such exposures prescribed earlier which was applicable for exposures above Rs 50 crore from April 1, 2008 and for exposures above Rs 10 crore from April 1, 2009. This will give bankers more breathing space to lend to critical sectors.

Further, RBI has decided that consistent with the practice of dynamic provisioning, that the provisioning requirements for all types of standard assets will stand reduced to a uniform level of 0.40 % except in case of direct advances to agricultural and SME sector, which shall continue to attract provisioning of 0.25%, as hitherto. The revised norms will be effective prospectively, but the provisions held at present should not be reversed.

Earlier, as a counter-cyclical prudential measure, the general provisioning requirement on standard advances for residential housing loan beyond Rs 20 lakh were progressively increased from 0.25 % to 1.0 %, while that on standard advances in the commercial real estate sector, personal loans including outstanding credit card receivables, loans and advances qualifying as capital market exposure and non-deposit taking systemically important non banking finance companies (NBFCs) were progressively increased from 0.25% to 2.0 %.

For the banking sector, the central bank has raised the interest rate ceiling on FCNR(B) deposits which was earlier fixed at Libor/Swap rates plus 25 basis points for the respective currency/ corresponding maturities.