Saturday, January 3, 2009

2nd Booster Package

RBI's Monetary Stimulus:
* Cut Repo Rate by 100bp to 5.5%
* Cut Reverse Repo Rate by 100bp to 4%
* Reduced Cash Reserve Ratio (CRR) by 50bp to 5%. CRR reduction is expected to release INR 200bn into the system

Key highlights:
1. Further liberalizing the policy on External Commercial Borrowing (ECB)-
(a) The ‘all-in-cost’ ceilings on such borrowing removed, under approval route
(b) To facilitate housing sector, the ‘development of integrated townships’ would be permitted as eligible end-use of the ECB, under the approval route
(c) NBFCs, dealing exclusively with infrastructure financing permitted to access ECB from multilateral or bilateral financial institutions
(d) FII investment limit in rupee denominated corporate bonds in India would be increased from US $6 bn to US $15 bn.

2. To increase flow of credit to the economy:
(a) An SPV designated shortly to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) to tune of Rs.250bn
(b) An arrangement with leading Public Sector Banks to provide a line of credit to NBFCs for purchase of commercial vehicles
(c) Credit targets of Public Sector Banks are being revised upward to reflect the needs of the economy and monitor sectoral credits on fortnightly basis
(d) Special monthly meetings of State Level Bankers’ Committees to oversee the resolution of credit issues of micro, small and medium enterprises by banks
(e) Guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans of Rs.50 lakh to Rs.1 crore increased from 50% to 85% for loans upto 5lakh (that cover 84% of accounts)

3. State Governments will be allowed to raise in the current FY additional market borrowings of 0.5% of their Gross State Domestic Product (GSDP), amounting to about Rs 30,000 crore, for capital expenditures.

4. India Infrastructure Finance Company (IIFCL), which has already been authorized to raise Rs.10,000 cr. through tax free bonds by Mar09 for refinancing bank lending of longer maturity to eligible infrastructure bid based PPP projects, is enabled to access additional Rs.30,000 cr by way of tax free bonds once funds raised in the current year are effectively utilized.

5. To support exports:
(a) Restore DEPB rates to those prevailing prior to November 2008 and extended till 31.12.2009
(b) Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn being enhanced retrospectively from September 1, 2008
(c) Constitute a Committee under Finance Secretary to look into and resolve issues of procedural delays faced by exporters on a fast-track basis
(d) Line of credit by RBI to EXIM Bank of Rs.5000 crore to provide pre-shipment and post-shipment credit, in INR or USD, to Indian exporters at comp rates

6. Other measures designed to counter recessionary trends:
(a) Exemptions from CVD on TMT bars and structurals, and from CVD and Special CVD on cement are being withdrawn. Full exemption from basic customs duty on zinc and ferro alloys are also withdrawn
(b) GOI will work with State Govts. to encourage them to release land for low income and middle income housing schemes
(c) Accelerated depreciation of 50% will be provided for commercial vehicles to be purchased on or after 1.1.2009 upto 31.03.09.

Proposals for recapitalization of the public sector banks to the order of Rs.20000 crore over the next two years.

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