RBI’s Measures to Fight Economic Disruptions | 02 Apr 2020

Why in News

The Reserve Bank of India (RBI) has extended the realisation period of export proceeds and Ways and Means Advance (WMA) limit of state governments.

• Further, the central bank has provided relief to the banking sector’s capital requirements.
• These steps have been taken to cushion the economic impact of the coronavirus pandemic and lockdown.
• These steps have come after the RBI recently cut repo rate by 75 basis points.

Key Points

• Extended the Realisation Period of Export Proceeds
  • The time period for realisation and repatriation of export proceeds made up to or on July 31, 2020 has been extended to 15 months from the date of export.
  • Earlier, the value of the goods or software exports made by exporters is required to be realised fully and repatriated to the country within nine months from the date of exports.
  • The measure will enable exporters to realise their receipts, especially from COVID-19 affected countries, within the extended period, and also provide greater flexibility to exporters to negotiate future export contracts with buyers abroad.
  • Export activities have been disrupted in the wake of the pandemic and lockdown in many countries.
• Increased Ways and Means Limit
  • RBI has formed an advisory committee to review the Ways and Means limit for State governments and Union Territories.
  • Till the panel submits its report, the RBI has increased the Ways and Means advances limit by 30% for States and union territories.
  • The revised limits will come into force with effect from April 1, 2020 and will be valid till September 30, 2020.
  • Recently, the Central Government has hiked Ways and Means Advance (WMA) limit with the Reserve Bank of India (RBI) by 60%.
  • The ‘Ways and Means Advances’ is a scheme that helps meet mismatches in receipts and payments of the government. Under this scheme, a government can avail itself of immediate cash from the RBI.
• Deferred Counter Cyclical Capital Buffer (CCyB)
  • The RBI has deferred the implementation of Counter Cyclical Capital Buffer (CCyB) for banks.
  • It has decided that it is not necessary to activate CCyB for a period of one year or earlier, as may be necessary.
  • CCyB is the capital to be kept by a bank to meet business cycle related risks.
    • It is aimed to protect the banking sector against losses from changes in economic conditions like recession.
    • This is an important theme of the Basel III norms.

Source: TH