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RBI steps to spur growth in real estate, arrest forex decline

16th November, 2008

The Economic Times

RBI steps to spur growth in real estate, arrest forex decline
The Economic Times
15 Nov 2008, 1852 hrs IST
MUMBAI: After pumping in around Rs 2.80 lakh crore liquidity into the banking system, the Reserve Bank today announced a slew of measures to give a boost to the real estate sector, in addition to taking steps to arrest decline in forex reserves.
In order to ensure more liquidity for the real estate sector, RBI allowed the registered housing finance companies to raise short-term funds from overseas markets.
"It has been decided to allow, as a temporary measure, housing finance companies registered with the National Housing Bank to raise short-term foreign currency borrowing under the approval route", a release by RBI said.
The decision will also help the country shore up its declining forex reserves, which according to the latest data, has slipped to about $250 billion from a high of $314 billion in April-May.
In addition, the RBI also permitted Indian banks to offer better interest rates for foreign currency deposits by the non-residents.
Henceforth, the banks can offer rates up to 100 basis points over London Interbank Offered Rate (LIBOR) under Foreign Currency Non-Resident (Banks) scheme and 175 basis over LIBOR on Non-Resident (External) Rupee Accounts deposits.
These changes will encourage the banks to make the non-resident deposit schemes more attractive by raising interest rates.
Since October RBI has announced various measures, including cutting the mandatory deposits that banks keep with RBI by 350 basis points, unlocking nearly Rs 2.80 lakh crore bank funds.
The short-term repo facility, introduced for meeting liquidity requirements of mutual funds and NBFCs will be continued till March 2009, 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 per cent of NDTL.
In view of difficulties faced by exporters, 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 one per cent 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 slow down is deepening with a larger than originally expected impact on the domestic economy," the RBI said in the statement today.
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 today reduced risk weights for corporate and commercial real estate to 100 per cent from the earlier 150 per cent.
This measure is expected to encourage banks to lend more to these fund-starved sectors, experts said. 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.
"In the context of these developments (in global markets), further augmenting rupee and forex liquidity, strengthening credit delivery mechanisms and improving credit delivery are imperative for sustaining the growth momentum," the RBI said announcing the measures today.
The apex bank will pay "particular attention to maintain the viability if sectors that contribute significantly to employment and exports," RBI said.

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