In a bid to boost flow of bank credit to productive sectors in a weak economy, the Reserve Bank of India has announced a cash reserve ratio (CRR) dispensation on incremental retail loans in the automobile, housing and the micro, small and medium enterprises (MSME) sectors until July 31, 2020.
The RBI has now decided that commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to MSMEs, over and above the outstanding level of credit to these segments as of the fortnight ended January 31, 2020 from their net demand and time liabilities (NDTL) — or deposits — for maintenance of CRR. In other words, the loans to these sectors can be deducted from the amount to be kept with the RBI as CRR, Currently, banks are supposed to keep four per cent of deposits with the RBI as CRR which doesn’t carry any interest.
The RBI move follows a deceleration in credit growth to the retail sector. “Alongside sustained efforts to improve monetary transmission, the RBI is actively engaged in revitalizing the flow of bank credit to productive sectors having multiplier effects to support impulses of growth,” it said.
Bankers said CRR exemption for incremental lending to auto, residential housing, MSME is a good way to channelise credit in area where demand has not met with commensurate supply. “The exemption of CRR maintenance for all additional loans given for retail loans will also help to lower cost of funds. Extending the date of restructuring of MSME advances will also help the sector to navigate the current business downturn and is a logical corollary of budget announcement,” SBI Chairman Rajnish Kumar said.
The RBI has decided to permit extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification. This is in line with treatment accorded to other project loans for non-infrastructure sector, it said. “This would complement the initiatives taken by the government in the real estate sector,” it said.
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