Liquidity Current Affairs - 2019

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NHB to provide Rs.10,000 cr  liquidity infusion facility to HFCs

The housing sector regulator National Housing Bank (NHB) opened a liquidity infusion facility of Rs.10000 crore for Housing Finance Companies (HFCs) to improve liquidity in sector. The move is taken to unveil measures to boost lending and accelerate growth.

About Liquidity Infusion Facility

This decision by NHB to infuse an additional Rs.10000 crore into Housing Finance Companies (HFCs) would enable companies to provide individual loans for affordable housing. This new facility is over and above two existing refinance schemes of NHB.

Reason: This liquidity infusion move comes before the meeting of Union Finance Minister Nirmala Sitharaman with heads of all public sector banks to review issues linked to credit growth against the backdrop of a slowdown in several sectors. These various key sectors of economy include medium and small industries (MSME), retail, automobiles, affordable housing, non-banking finance companies (NBFC), housing finance companies (HFCs) to boost growth.

Importance: This is an important measure to ease fund flow to housing sector and would serve as additional liquidity for individual housing loans in affordable segment.

National Housing Bank (NHB)

It was established in 1988, under National Housing Bank Act, 1987. It is an All India Financial Institution (AIFI).

Function: It is an apex agency that operates as a principal agency to promote housing finance institutions both at local as well as regional levels. It also provides financial and other support incidental to such institutions and for matters connected therewith.

RBI liberalises ECB norms by relaxing end-use restrictions

Reserve Bank of India (RBI) has relaxed External Commercial Borrowing (ECB) norms for corporates, non-banking lenders by relaxing end-use restrictions with regard to working capital, general corporate purpose and repayment of rupee loans. This decision was taken after receiving feedback from stakeholders for easing liquidity in the domestic market.

Recent changes by RBI

  • End-use stipulations for ECBs for both corporates as well as liquidity starved non-banking lenders has been liberalised
  • Liberalisation will be applicable to ECBs taken for general corporate purpose loans, working capital or repayment of rupee loans.
  • It allows eligible borrowers to raise ECBs from recognised lenders, except foreign branches and overseas subsidiaries of Indian banks, with minimum average maturity period of ten years for working capital purposes and general corporate purposes.
  • It also allows ECBs to raise with minimum average maturity period of 7 years for repayment of rupee loans availed domestically for capital expenditure.
  • It also permits borrowing for on-lending by NBFCs for above maturity and end-uses. It also permits borrowings for on-lending by NBFCs for repayment of rupee loans.
  • It also allows corporate borrowers to avail ECBs for repaying rupee loans taken for Capital expenditures if they are into infrastructure building/ manufacturing and classified as Special Mention Account (SMA-2) or Non-Performing Asset (NPA), under any one-time settlement arrangement with lenders.

About External Commercial Borrowing (ECB)

It is instrument used in India to facilitate Indian companies to raise money outside the country in foreign currency. It may be commercial loans which can be in form of bank loans, bonds, securitized instruments, buyers’ and supplier’s credit availed from non-resident lenders with minimum average maturity of 3 years. In India, ECBs availed of by residents are governed by Foreign Exchange Management Act (FEMA), 1999 along with Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, as amended from time to time.

Special Note: It should be noted that ECB is not Foreign Direct Investment (FDI). In case of FDI, foreign money is only used to finance equity capital. But in case of ECB,foreign money is used to finance any kind of funding other than equity.