RBI’s Measures to Fight Economic Disruptions
- 02 Apr 2020
- 3 min read
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.
- 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.