RBI updates on CRR-break for banks on new home, auto, MSME loans; key things to know

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February 10, 2020 6:57 PM

With an aim to boost credit to productive sectors and support growth, the RBI has allowed banks to deduct the equivalent amount of incremental credit disbursed by them as retail loans.

Last week the RBI allowed restructuring of the borrower account of MSME by one more year till March 31, 2021.The RBI had first announced the decision on February 6, 2020, in the ‘Statement on Developmental and Regulatory Policies.’

With an aim to boost credit to productive sectors and support growth, the RBI has allowed banks to deduct the equivalent amount of incremental credit disbursed by them as retail loans. The loans to sectors such as automobiles, residential housing, and loans to MSMEs are over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020 from their NDTL for maintenance of the CRR, the RBI said in a notification.  “Reserve Bank is actively engaged in revitalising the flow of bank credit to productive sectors having multiplier effects to support growth impulses,” said the RBI.

“Banks are required to report the exemption availed at the end of a fortnight under “exemptions/others” in the Section-42 return, prescribed in Annex A to Form A as per Master Circular on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) dated July 1, 2015,” RBI added.

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The RBI had first announced the decision on February 6, 2020, in the ‘Statement on Developmental and Regulatory Policies.’ Meanwhile, the RBI in its final bi-monthly policy of FY20 announced several measures to push growth and lower interest rates in the system. It said it would lend Rs 1 lakh crore of one-year and three-year money to banks at the repo rate 5.15 per cent so they would have durable funds at a softer rate.

The central bank also gave them a six-month CRR-break on the new home, auto, and MSME loans, again bringing down their cost of funds. “We believe the RBI has managed to deliver implicit easing without actually cutting the policy rate,” Sonal Varma, an economist at Nomura, wrote, pointing the primary macro challenge has been transmitted through the credit channel.

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