RBI’s Liquidity Measures Fail to Cheer the Market

RBI’s latest measures are specific to exporters, real estate, FCCBs and the SME sector – all of which is a step forward towards easing problems currently being faced by each of these segments.

RBI has further raised the interest rate ceiling on NRI deposits by 75bps. The interest rates on FCNR(B) deposits now stands at Libor +100bps while that on the NR(E)RA deposits is now at Libor +175bps.

Given the continuation of liquidity pressures being faced by the mutual fund and NBFC segment, the RBI has extended the period under which banks can avail liquidity support upto 1.5% of their incremental deposits to lend to this segment to March 2009.

The RBI’s special re-finance facility which allows banks to avail liquidity support upto 1% of their NDTL has now been extended to provide finance to the micro and small enterprises.

RBI cut in general provisioning requirement to the normal 0.4% from (1) 1.0% on standard advances for residential housing loan beyond Rs2mn and (2) 2% on standard advances in commercial real estate, personal loans including outstanding credit card receivables, loans [Are We making a case for small sub-prime here in India ?] and advances qualifying as capital market exposure and non-deposit taking systemically important non-bank financial companies (NBFCs). It also cut risk weights on banks’ exposures to unrated claims on corporates, commercial real estate and NBFCs to 100% from 150%.

By the way are they really done by the RBI Governor or by the Finance Ministry ? I wonder 🙂