The Reserve Bank on Tuesday reduced the availability of funds under the export credit refinance (ECR) window from 50 per cent of export credit outstanding to 32 per cent with immediate effect.
To compensate for the reduction in liquidity under the scheme, the central bank introduced a special term repo facility of 0.25 per cent of net demand and time liabilities (NDTL).
"The Reserve Bank has decided to limit access to export credit refinance while compensating fully with a commensurate expansion of the market's access to liquidity through a special term repo facility from the Reserve Bank (equivalent to 0.25 per cent of NDTL)," the RBI said in its Second Bi-Monthly Monetary Policy Statement.
The central bank left the repo rate unchanged at 8 per cent for the second consecutive time. It also reduced the statutory liquidity ratio by 0.5 per cent to 22.5 per cent, releasing about Rs 40,000 crore ( Rs 400 billion) of liquidity into the system.
However, banks normally park almost 27 per cent of their funds in government securities, thereby limiting the impact on liquidity infusion.
The ECR changes should improve access to liquidity from the RBI for the system as a whole without the procedural formalities related to documentary evidence, authorisation and verification associated with the ECR, the central bank said.
The Urjit Patel committee had called for moving away from sector-specific refinance towards a more generalised provision of system liquidity without preferential access to any particular sector or entity.
The RBI said the limit on accessing funds under the ECR facility will also improve the transmission of policy impulses across the interest rate spectrum and engender efficiency in cash or treasury management.
However, exporters said the new export credit refinance norms are a non-event because banks do not use the facility as they are already flush with liquidity.
"The changes will not make any significant differences to the exporting sector as far as the cost of borrowing is concerned," EEPC India chief Anupam Shah said, adding that export credit rates are still high and there is not much of difference between domestic and export interest rates.
