The Reserve Bank of India’s Monetary Policy Committee (MPC) lowered the policy Repo rate by 25 bps to 6.25% in its policy meeting in February 2019. The MPC justified its move in light of low realized and expected inflation readings. It also flagged rising concerns about growth including investment slowdown and marked deceleration in the services sector.

Below are the key highlights of policy meeting

1. Relaxation of External Commercial Borrowing (ECB) framework for Resolution Applicants

End-use restrictions under the approval route of the ECB framework for resolution applicants under the CIRP to be relaxed to allow them to utilise the ECB proceeds for repayment of Rupee term loans of the target company. Such ECBs could be availed from all eligible lenders under the extant ECB framework except from overseas branches/subsidiaries of Indian banks. Guidelines in this regard will be issued by the end of February 2019.

2. Risk Weights for rated exposures to Non-Banking Financial Companies (NBFCs)

With a view to facilitating flow of credit to well-rated NBFCs, rated exposures of banks to all NBFCs, excluding Core Investment Companies (CICs), would be risk-weighted as per the ratings assigned by the accredited rating agencies, in a manner similar to that for corporates. Exposures to CICs will continue to be risk-weighted at 100%. Guidelines in this regard will be issued by the end of February 2019.

3. Foreign Exchange Derivative facilities for Residents and Non-Residents (Regulation FEMA-25)

Proposal to, inter alia, merge the facilities for residents and non-residents into a single unified facility for all users, allow users having valid underlying exposure to hedge flexibly using any instrument of their choice, introduce the ability to hedge anticipated exposure to foreign exchange risk, and simplify the procedures for authorised dealers to offer foreign exchange derivatives. The draft circular on the revised guidelines will be released by the end of February 2019.

4. Investment by Foreign Portfolio Investors (FPI) in Corporate Debt

In order to encourage a wider spectrum of investors to access the Indian corporate debt market, it is proposed to withdraw the stipulation that no FPI shall have an exposure of more than 20% of its corporate bond portfolio to a single corporate (including exposure to entities related to the corporate). A circular to this effect will be issued by mid-February, 2019.

5. Working Group to Review Agricultural Credit

An Internal Working Group (IWG) to Review Agricultural Credit has been constituted by the Reserve Bank, which will look into issues such as regional disparity, extent of coverage, etc.

6. Rationalisation of Interest Rate Derivative Directions

Proposal to rationalise interest rate derivative regulations to achieve consistency and ease of access with the eventual objective of fostering a thriving environment for management of interest rate risk in the Indian economy. The draft comprehensive guidelines will be issued for public feedback by the end of March 2019.

Source: RBI site

Tags: Financial Adviser in Delhi, Bank DMA, ECB, Corporate Debt