General Refinance Facility Introduced

This is also being done with the objective of moving from sector specific refinance facilities to a general refinance facility. The new refinance facility will be effective from the fortnight beginning April 26 1997. All scheduled commercial banks (excluding regional rural banks) will be provided general refinance equivalent to 1 per cent of each bank's fortnightly average outstanding aggregate deposits in 1996-97.

The general refinance would be provided for two blocks of four weeks each with interest rates linked to the bank rate. Banks which avail of this facility beyond eight weeks would face an automatic debiting of their current accounts with the Reserve Bank.

Banks would, however, be able to avail of the general refinance facility afresh if there is a gap of two weeks during which there has been no borrowings under this facility. The total entitlement to the banking system under this facility will be of the order of Rs 4,600 crore.

Bankers have all along argued in favour of abolishing sectoral refinance in the country. "This is a step towards that end" said a senior executive with a private bank. Bankers have also welcomed the RBI move to introduce the general refinance facility.

The central bank has followed the policy of trade off between reductions in the cash reserve ratio and the refinance facility.