EXIM Bank Current Affairs - 2020

RBI releases Framework for sale of Loan Exposure and Securitization of Standard Assets

The Reserve Bank of India recently released draft framework for “Sale of Loan Exposures” and “Securitization of Standard Assets”.

Highlights

The guidelines issued are applicable to Scheduled Commercial Banks. This includes All India Financial Institutions such as EXIM Bank, NABARD, Non-Banking Financial Companies. The guidelines have also included recommendations of Committee on Development of Housing Finance Securitization Market in India that was chaired by Dr Harsh Vardhan. Also, the guidelines included the recommendations made by the Task Force set up on the Development of Secondary Market for Corporate Loans. Both the Committee and the Task Force were set up by the Reserve Bank of India.

Key Features of the Guidelines

  • The Guidelines has proposed Two Capital Measurement approach. This includes Securitisation External Ratings based approach and Securitisation Standardised Approach.
  • Simple Transparent Comparable Securitisation has been prescribed to define preferential capital treatment.
  • The new guidelines allowed Securitisation of exposures that are purchased from other lenders
  • The Stressed Assets under the new guidelines shall be sold only through novation and assignment.

Monetary Policy Committee meets: Repo rate reduces to 4%

On May 22, 2020, the policy committee met in an emergency meeting to review the current economic outlook and impacts of COVID-19.

Highlights

The RBI has reduced the repo rate from 4.4% to 4%. It has reduced the reverse repo rate to 3.35%. The RBI also announced that the reduction in policy rate is to be provided as long as the economic growth in the country is to be mitigated.

Current Economic Scenario

The global trade is declining and the world is heading towards recession. The Indian Economic growth is also slowing down to a great extent in spite of GoI trying to infuse liquidity in to the market. The top six industrialized states that account to 60% of industrial production in the country now falls in red zone. This will affect India’s growth further as economic activities in red zones are not being operationalized to its fullest.

Challenges

The rural and urban demand has been falling down. The manufacturing activity in the country has fallen down by 21% post COVID-19. Also, the output from core industries has fell by 6.5%.

Measures of RBI

RBI has announced 4 major economic measures to boost the economy. This includes measures to improve functioning of markets, measures to ease financial stress, measures to support exports and imports and measures to ease financial constraints faced by the state governments.

The measures are as follows

  • RBI will provide another 90-day extension to offer loan facilities.
  • Rs 15,000 crore line of credit allocated to EXIM banks
  • RBI has increased export credit period from 12 months to 15 months.
  • The term loan moratium has been extended till August 31.
  • The group exposure limit of the banks has increased from 25% to 30%.
  • The rules of Consolidated Sinking Funds have been relaxed. This will enable states to meet 45% of redemption of their market borrowing.