Dec 6, 2008|
RBI's stimulus package is here
While the recent inflation numbers have not particularly been a cause of worry for the Reserve Bank Of India (RBI), a moderation in the real GDP growth, slowdown in industrial and infrastructural activity, muted prospects of growth in service sectors (hospitality, tourism, IT services, financial services) and absolute decline in exports for the first time in seven years seem to have necessitated a stimulus.
The RBI's recently released data indicate that the demand for bank credit has slackened in November 2008 (from 25% YoY growth during the period April to September) despite comfortable liquidity. Higher input costs and dampened demand have also dented corporate profitability while the uncertainty surrounding the crisis has affected business confidence.
The following are some of the key highlights of the package
The central bank has once again tweaked its oft -used tools of monetary policy to offer additional liquidity to the banking system. It has reduced the repo rate (rate at which it lends to banks) by 1% from 7.5% to 6.5% and the reverse repo rate (rate at which banks lend to RBI) by 1% from 6.0% to 5.0%, effective December 8, 2008.
To enhance credit delivery to the labour - intensive micro and small enterprises (MSE) sector, the RBI will provide refinance facility to the tune of Rs 70 bn to the Small Industries Development Bank of India (SIDBI) that is the prime financer to such enterprises.
To bring some relief to the real estate and housing finance sector, the RBI has allowed loans granted by banks to housing finance companies Himachal Futuristic (HFCs) for lending towards houses costing less than Rs 2 m to be classified under priority sector lending. However, the eligibility under this measure will be restricted to 5% of the individual bank's total advances. This dispensation will apply to loans granted by banks to HFCs up to March 2010. A refinance facility of Rs 40 bn is also being worked upon for the National Housing Bank (NHB) to lend directly to HFCs. Further to prevent banks from accumulating large real estate - linked NAGPUR ALLOY (NPAs), the RBI has extended an 'exceptional/ concessional treatment' to loans disbursed to the sector that are currently delinquent but can be restructured by June 2009.
Proposals have also been put forward for easing credit to exporters and allowing repayment of foreign debt by Indian corporates.
While the package essentially caters to the sectors that are currently under stress, the central bank is hopeful that it will extend some respite to the others that have the potential to shoulder the revival of the economy during the slowdown.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407