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.

Claims on rated as well as unrated non-deposit taking systemically important non-banking financial companies (NBFC-ND-SI) shall be uniformly risk weighted at 100%. As regards the claims on asset financing companies (AFCs), there is no change in the risk weights, which would continue to be governed by the credit rating of the AFCs, except the claims that attract a risk weight of 150 % under the new capital adequacy framework, stands reduced to 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.

In view of the prevailing market conditions, it has been increased the interest rate ceiling on FCNR (B) deposits by a further 75 basis points,i.e. to Libor/Swap rates plus 100 basis points with immediate effect.

Currently, the interest rate ceiling on NR(E)RA is set at Libor/Swap rates plus 100 basis points for US dollar of corresponding maturities. RBI has now been decided to increase the interest rate ceiling on NR(E)RA deposits by a further 75 basis points, i.e., to Libor/Swap rates plus 175 basis points with immediate effect. “With the rates on NRE and FCNR deposits getting slashed, we can now expect more capital inflows into the economy, thereby reducing RBI intervention in the forex market. We expect rupee to touch 48.60-70 levels against the dollar on Monday,? says NS Venkatesh, MD&CEO of IDBI Gilts.

Also the special term repo facility, introduced for the purpose of meeting the liquidity requirements of MFs and NBFCs will continue till end-March 2009. Banks can avail of this facility either on incremental or on rollover basis within their entitlement of up to 1.5 per cent of NDTL. ?The special window open for MFs and NBFCs, should help them in a big way. Already we are seeing redemption pressures getting eased for the mutual fund industry,? Venkatesh adds.

RBI has decided to allow, as a temporary measure, housing finance companies (HFCs) registered with the National Housing Bank (NHB) to raise short-term foreign currency borrowings under the approval route, subject to their complying with prudential norms laid down by the NHB. Details in this regard are being notified separately.

In view of the difficulties being faced by exporters on account of the weakening of external demand, it has been decided to extend the period of entitlement of the first slab of pre-shipment rupee export credit, currently available at a concessional interest rate ceiling of the benchmark prime lending rate (BPLR) minus 2.5 percentage points from 180 days to 270 days with immediate effect.

At present, the export credit refinance (ECR) limit is fixed at 15 % of the outstanding rupee export credit eligible for refinance as at the end of the second preceding fortnight. The aggregate limit of ECR is currently around Rs 9,500 crore.

It has now been decided to enhance the eligible limit of the ECR facility for scheduled banks (excluding RRBs) to 50 % of the outstanding export credit eligible for refinance. This will provide additional liquidity support to banks of an amount of about Rs.22,000 crore. The rate of interest charged on the ECR facility will continue to be the prevailing repo rate under the LAF which is currently 7.5%.

Taking into account the need to ensure the growth momentum in the employment-intensive sectors of micro and small enterprises and housing, RBI has decided to immediately allocate amounts, in advance, from scheduled commercial banks for contribution to the SIDBI and the NHB to the extent of Rs.2,000 crore and Rs.1,000 crore, respectively, against banks? estimated shortfall in priority sector lending in March 2009.

The allocation now made in respect of SIDBI and NHB will be adjusted against the banks? actual achievement of the target/sub targets for priority sector lending as at the end of March 2009. The bank-wise allocations are being notified separately.

RBI has advised banks to use facility under which all scheduled commercial banks (excluding RRBs) are provided refinance from the central bank equivalent to up to 1.0 %t of each bank’s NDTL as on October 24, 2008 at the LAF repo rate up to a maximum period of 90 days. For the purpose of extending finance to micro and small enterprises.