After identifying liquidity as the main problem that has constrained the financial system, a number of measures were taken between October 6, 2008 and today. These measures have infused considerable additional liquidity into the market, says Finance Minister P Chidambaram.
After extensive consultations, the government proposes to take the following additional measures:
(i) Under the Agricultural Debt Waiver and Debt Relief Scheme, the government had agreed to provide Rs 25,000 crore as first instalment to the commercial banks, RRBs and cooperative credit institutions. It is felt that this money should be provided immediately. Hence, at the request of the government, RBI has agreed to provide a sum of Rs 25,000 crore to the lending institutions immediately. The money will be made available to the commercial banks (Rs 7,500 crore) and to NABARD (Rs 17,500 crore). There will be no requirement of providing collateral.
(ii) The limit of FII investment in corporate bonds will be raised from $3 billion to $6 billion.
(iii) Our banks are well capitalised. Their capital adequacy is well above the Basel norm of 8 per cent and the RBI stipulated norm of 9 per cent. No bank has a capital adequacy of less than 10 per cent. Nevertheless, the government has decided to provide banks access to finance in order to raise the CRAR of banks that are now between 10 to 12 per cent to reach the level of 12 per cent by a suitable date in the future. The details of the capitalisation scheme are being worked out.
(iv) RBI has already issued an advisory to the banks to enable smooth flow of credit to borrowers of term loans as well as working capital. The government is also issuing an advisory to public sector banks impressing upon the banks the need to:
- ensure easy drawdown against sanctioned limits;
- appraise, promptly, requests for enhancement of credit limits; and
- continue to participate actively in the inter-bank call money market.
