RBI Announces Business Reforms and Easier Lending Measures: Repo Rate 5.5%

The Reserve Bank of India (RBI) has announced a range of reforms aimed at simplifying business operations and improving credit access for companies, exporters, and banks. The central bank also decided to keep the repo rate unchanged at 5.5% after its three-day Monetary Policy Committee (MPC) meeting chaired by Governor Sanjay Malhotra.

Simplifying Business Operations

The RBI has proposed several measures to reduce red tape and make banking operations smoother for businesses:

• Flexibility in Bank Accounts: Banks will have more freedom in opening and managing current accounts and CC/OD accounts for borrowers. Limits on collection accounts may also be eased.

• Support for Exporters: Companies dealing in foreign exchange will now have more time to repatriate funds, with the period extended from one month to three months. For merchanting trade, the payment window has increased from four months to six months. Pending export and import entries on EDPMS and IDPMS portals will also be simplified.

• Consolidation of Rules: Nearly 9,000 circulars and directions have been merged into subject-wise documents covering 11 types of regulated entities. Drafts will be released for public feedback.

Easier Access to Credit

The RBI has introduced five key measures to make lending more flexible:

1. Funding Corporate Acquisitions: Banks will soon have a framework to finance mergers and acquisitions for Indian companies.

2. Higher Lending Limits Against Securities: Lending against listed debt securities will have no cap, and limits against shares will increase from Rs 20 lakh to Rs 1 crore. IPO financing limits will rise from Rs 10 lakh to Rs 25 lakh.

3. Removal of Old Lending Restrictions: A 2016 rule restricting banks from lending to borrowers needing Rs 10,000 crore or more has been withdrawn. The RBI will monitor system-wide risks using broader tools.

4. Cheaper Infrastructure Loans via NBFCs: Risk weights for NBFC lending to high-quality, operational infrastructure projects will be reduced, lowering borrowing costs.

5. New Urban Co-operative Bank Licences: Licensing for urban co-operative banks, on hold since 2004, will be revisited. A discussion paper will explore issuing fresh licences.

Implications of the Reforms

The RBI’s reforms aim to cut red tape, boost growth, and enhance lending flexibility without affecting financial stability. Exporters, infrastructure developers, urban co-operative banks, and companies seeking funding are expected to benefit the most from these changes.