The Reserve Bank of India has withdrawn another stimulus measure as it scrapped the facility of short-term foreign currency borrowings for non-banking finance companies and housing finance companies. The facility stands withdrawn with immediate effect.

Explaining the move the Central bank said, "The decision has been taken after a review of the prevailing macroeconomic conditions and improvements in the domestic credit and liquidity conditions."

The central bank had decided to allow non-banking finance companies which do not take deposits to raise short-term foreign currency loans for refinancing their short-term liabilities on October 31, 2008 and housing finance companies on November 17, 2008.

The loans however could not exceed 50 per cent of the net owned funds or US $ 10 million, whichever was higher. These loans could be for a maximum period of three years and their cost was not to exceed a maximum of 200 basis points above London Inter Bank Offered Rate

RBI had to take the step to help bring more liquidity in the market as NBFCs were facing a severe cash crunch in September-October 2008 due to the global financial crisis.

In its policy review in October 2009 the central bank started withdrawing expansionary measures which were taken when the global crisis hit India's economy and affected liquidity in the country. However at the time the RBI did not change its key policy rates.

RBI withdrew a special repurchase facility for bank and another similar facility for non-bank financial companies, mutual funds and housing finance companies. A foreign exchange swap facility for banks was also withdrawn.

RBI also cut an export credit refinance facility to 15 per cent from 50 per cent in October 2009. In policy review on January 29, RBI raised cash reserve ratio by 75 basis points to control excess liquidity and handle inflation.