RBI tweaks maintenance of CRR norms by providing relaxation in calculation of total deposits

07 Feb 2020 Evaluate

In an attempt to increase lending to micro, small and medium enterprises (MSMEs), auto and home segment, Reserve Bank of India (RBI) has tweaked maintenance of cash reserve ratio (CRR) norms by providing relaxation in calculation of total deposits. The move will encourage lending towards these targeted sectors having multiplier effect by banks as they will get exemption in CRR over incremental lending. This exemption window is available till July 2020. CRR is the percentage of total deposits that bank mandatorily park with the apex bank. It stands at 4% of a bank’s total deposit.

Alongside sustained efforts to improve monetary transmission, the RBI is actively engaged in revitalising the flow of bank credit to productive sectors to support growth. As a part of this, the central bank said it has now been decided that scheduled 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 at the end of the fortnight ended January 31, 2020 from their net demand and time liabilities (NDTL) for maintenance of CRR. It added that this exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020.

To give boost to the real estate sector, RBI said, it has been decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector. Observing that MSME sector plays an important role in the growth of the Indian economy, RBI said the restructuring of the borrower account has been extended by further one year to March 31, 2021.

Considering the importance of MSMEs in the Indian economy and for creating an enabling environment for the sector, a one-time restructuring of loans to MSMEs that were in default but ‘standard’ as on January 1, 2019, was permitted without an asset classification downgrade. It said the restructuring of the borrower account was to be implemented by March 31, 2020, and added that the scheme has provided relief to a large number of MSMEs. As the process of formalisation of the MSME sector has a positive impact on financial stability and this process is still underway, it has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020.

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