RBI – Statement on Development and Regulatory Policies

The Reserve Bank of India (RBI) has issued an important statement on development and regulatory policies, as per the press release dated 22nd May 2020. This statement aims to enhance market functionality, bolster imports and exports, and ease the financial stress caused by the COVID-19 pandemic. In this article, we explore and critically evaluate the measures announced by the RBI.

Measures announced to improve the functioning of the markets

Refinancing facility for SIDBI- RBI has rolled out a specific refinance facility of INR 15,000 crore to the Small Industries Development Bank of India (SIDBI) for on-lending or refinancing purposes. The facility has been extended for another 90 days, supporting the continuity of SIDBI's efforts.
Investments by FPIs under VRR- According to existing norms, Foreign Portfolio Investors (FPIs) must invest at least 75% of their Committed Portfolio Size within three months from the date of allotment. As a relief measure due to the pandemic, the RBI has allowed an additional three months for FPIs allocated investment limits between 24th January 2020 and 30th April 2020.

Measures announced to support imports and exports

Extension of time for payments for imports- The time frame for completing remittances against normal imports in India has been extended from six months to twelve months from the date of shipment. This extension applies to imports made until 31st July 2020, providing crucial relief for businesses. For more information on managing related financial mechanisms, visit LLP Formation.
Export Credit- The maximum allowable period for pre-shipment and post-shipment export credit sanctioned by banks is now increased from one year to 15 months for disbursements up to 31st July 2020. This measure ensures exporters have extended support during challenging times.
Liquidity facility for Exim Bank of India- RBI has decided to offer a line of credit worth INR 15,000 crore to the Exim Bank of India, valid for 90 days from availment with a maximum period roll over of one year. This strategically enables Exim Bank to access US dollar swap facilities efficiently, thus meeting foreign exchange requirements.

Measures announced to ease financial stress

Suspension of Term Loan Instalments- All commercial banks, cooperative banks, financial institutions, and NBFCs were previously permitted to suspend instalments for three months on term loans outstanding as of 1st March 2020. The RBI has further extended the suspension period by another three months, until 31st August 2020, without triggering an asset classification downgrade.
Postponement of interest on working capital facilities- The recovery of interest on working capital facilities sanctioned during the period from 1st March 2020 to 31st May 2020 can be postponed for another three months. Lenders can now convert accumulated interest into a funded interest term loan to be repaid by 31st March 2021. This approach reduces the financial burden on borrowers. Discover more about managing taxes related to business income with ITR-2 Form Guide.
Easing of working capital financing- Lenders may recalculate the drawing power by reducing margins or re-assessing working capital cycles. This relief, initially available until 31st May 2020, has been extended to 31st August 2020. This allows enhanced flexibility in managing business operations.
Limit on Group Exposure under Large Exposures Framework- Following the Large Exposures Framework, the exposure of banks to a connected group of counterparties has been temporarily increased from 25% to 30% of the bank's eligible capital base. This increment is effective until 30th June 2021. For further understanding of business expansion and legal frameworks, consider exploring Professional Tax Registration.

For businesses affected by these regulatory changes and seeking guidance on compliance and registration processes, visit CA for Business ITR Filing for expert assistance. Additionally, understanding specific acts like the Aadhar Act is crucial in these times. Learn more through Aadhar Act Amendment. Finally, for effective document management in annual company filings, refer to Company Annual Filing Documents.

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Frequently Asked Questions

Common questions about RBI Statement on Development and Regulatory Policies India.

The refinancing facility of INR 15,000 crore announced by RBI for SIDBI is aimed at providing liquidity support to small industries. SIDBI can use this facility for on-lending or refinancing purposes, which will help small industries in accessing credit during the COVID-19 crisis.

FPIs are typically required to invest at least 75% of their committed portfolio size within three months from the date of allotment of investment limits. However, RBI has granted an additional time period of three months for FPIs who were allotted investment limits between January 24, 2020, and April 30, 2020, to meet this requirement, considering the COVID-19 situation.

RBI has extended the time period for completion of remittances against normal imports in India from six months to twelve months from the date of shipment. This extension is applicable for imports made on or before July 31, 2020, and is aimed at providing relief to importers during the COVID-19 pandemic.

RBI has increased the maximum permissible period for pre-shipment and post-shipment export credit sanctioned by banks from one year to 15 months. This extension is applicable for disbursements made up to July 31, 2020, and will provide additional liquidity support to exporters during the COVID-19 crisis.

RBI has extended a line of credit of INR 15,000 crore to the Exim Bank of India for a period of 90 days, with a maximum rollover period of one year. This facility will enable Exim Bank to avail US dollar swap facilities and meet its foreign exchange requirements, thereby supporting the bank's operations during the pandemic.

RBI had earlier permitted the deferment of term loan instalments for three months (March 1, 2020, to May 31, 2020). This has now been extended by another three months, i.e., from June 1, 2020, to August 31, 2020. Additionally, RBI has clarified that such deferment will not result in asset classification downgrade for the borrowers.

RBI has allowed lenders to postpone the recovery of interest on working capital facilities sanctioned during March 1, 2020, to May 31, 2020. This facility has now been extended for another three months, i.e., from June 1, 2020, to August 31, 2020. Furthermore, lenders can convert the accumulated interest during this period into a funded interest term loan, which borrowers can repay by March 31, 2021.

RBI has permitted lenders to recalculate the drawing power by reducing the margin or reassessing the working capital cycle. This relief, initially available until May 31, 2020, has now been extended until August 31, 2020, to provide additional liquidity support to businesses during the pandemic.

As per the Large Exposures Framework, a bank's exposure to a group of connected counterparties should not exceed 25% of the bank's eligible capital base. However, as a one-time measure, RBI has increased this limit to 30% until June 30, 2021, to provide additional credit support to corporates facing difficulties in raising funds from capital markets due to the COVID-19 outbreak.

The measures announced by RBI in the Statement on Development and Regulatory Policies are aimed at improving the functioning of markets, supporting imports and exports, and easing the financial stress triggered by the COVID-19 pandemic. These steps are intended to provide liquidity support, credit relief, and regulatory relaxations to businesses, individuals, and financial institutions impacted by the economic challenges posed by the pandemic.