Rbi Kickstarts Policy Initiatives

The Reserve Bank of India (RBI) has kickstarted the measures announced as part of the credit policy announced on Tuesday by issuing the necessary guidelines to the commercial banks.

RBI has empowered the boards of banks to formulate their own internal guidelines for granting of bridge loans.

In the credit policy announced on Tuesday, RBI had permitted banks to sanction bridge loans to companies for a period not exceeding one year against expected equity flows or issues. The bridge loan would be utilised by the corporates for meeting the promoters contribution. Advances under this head would come under the ambit of five per cent of incremental deposits of the previous year prescribed for banks investments in ordinary shares, convertible debentures etc.

In another circular issued by the Department of Banking Operations & Development (DBOD), RBI, banks were given freedom to stipulate margins on loans to individuals against preference shares, debentures and bonds of corporates. However, the minimum margin on loans to individuals against equity shares will continue to be 50 per cent.

Banks are expected to be lukewarm while advancing bridge loans. The bank may provide loan by way of bridge loan only to those promoters whose project is on the verge of completion, said B M Bhide, chief credit officer and deputy managing director, State Bank of India.

Money may flow to the industry in the form of bridge loan only to those corporates who have a strong balance sheet. Otherwise it would be like adding to our non performing assets, said another banker.

However a section of bankers feel that by reinstating the bridge form of finance, the promoters will be able to provide for the portion of equity they are required to pump in order to raise the debt component from the bank, which eventually may lead to improving the scope of credit offtake. It will also provide bankers with a comfortable debt-equity ratio to kickstart a project.

Interest rates on deposits: Banks have been given full freedom to fix interest rates on domestic term deposits of 30 days and over. Banks should obtain approval from their respective boards. They can also offer a fixed rate on deposits or a floating rate linked to an anchor rate.

The banks should adopt uniform rates at all their branches and for all customers. While no interest will be paid on balances in the current account, the interest rate on savings deposits continues to be 4.5 per cent. The changes are effective October 22.

Interest rates on advances - Interest rates on advances upto Rs 25,000 will be 12 per cent while the rates charges by banks on advances above Rs 25,000 and upto Rs 2 lakh will not exceed 13.5 per cent. Banks are free to set their rates on advances above Rs 2 lakhs. Banks can set a separate prime lending rate for term loans of three years and above. Banks are also free to charge different rates provided they are below the prime lending rate on advances to housing finance intermediaries agencies. RBI has also revised the interest rate structure on pre-shipment and post-shipment rupee export credit.

Investments by MMMFs - The RBI has allowed money market mutual funds (MMMFs) to invest in rated corporate bonds and debentures with a residual maturity of upto one year. However, the prudential norm that the exposure of MMMFs to commercial paper issued by an individual company should not exceed 3 per cent of the resources of the MMMF will continue, and it will now include rated corporate bonds and debentures besides commercial paper. The changes are effective October 22.

Retailing of government securities - With a view to promoting the retail market segment, RBI has allowed banks to freely buy and sell govenment securities on an outright basis at prevailing market prices without any restriction on the period between sale and purchase. Banks are, however, not allowed to undertake ready forward transactions in government securities with non bank entities.

Certificate of Deposits - The RBI has reduce the size of issue of certificate of deposits (CDs) to a single investor from the existing level of Rs 10 lakh to Rs 5 lakh. CDs above Rs 5 lakh will be in multiples of Rs 1 lakh.

Minimum margins on sugar - The minimum margins on levy sugar shall be 10 per cent while the freesale sugar shall be subject to a margin of 15 per cent. The buffer stock shall continue to be at zero per cent margin. The changes are effective October 22.