Reserve Bank had introduced a US Dollar – Indian Rupee swap facility for $ 6.5 billion for extending export credit in foreign currency to exporters. The export credit refinance was earlier expanded to 50 per cent of the outstanding export credit of the banks from 15 per cent and the interest rates on export credit in foreign currency were also deregulated.
This put upward pressure on exchange rates, and made for easier financial conditions, which was conducive to rising credit and asset values. It was also a permissive environment for the continuation of any underlying imbalances or weaknesses.