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Lending activities likely to increase after RBI relieves banks to pay CRR for 5-year

Special lending window, exempting Cash Reserve Ratio (CRR) will begin from February 14, announced the Reserve Bank of India (RBI).

From now, all incremental loans will be given under this facility, eliminating CRR for the next five years.

However, CRR relaxation means banks will not have to maintain 4 per cent of their total deposits for next five years on incremental loans disbursed towards auto, home, and MSME loans.

RBI issued a fresh notification and said the first special window for such loans will function for six months, from February 14, 2020 to July31,2020. However, it made clear that the net demand and time liabilities (NDTL) will be calculated as of January 31,2020.

Also Read: RBI: Repo rate to remain same at 5.15 per cent, pegs growth for 2020-21 at 6 per cent

Exemption of CRR, had been announced by RBI after reviewing its first monetary policy as now it desires to push banks to lend more to select channels as mentioned earlier.

RBI at the sixth bi-monthly monetary policy on February 6 said, "Banks can deduct the equivalent amount of incremental credit disbursed by them as retail loans to automobiles, residential housing, and loans to MSMEs (which have GST registration), 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 the CRR."

With this decision, the central bank hopes that the special window will boost lending activities towards needy sectors and reinforce monetary remission. Interestingly, now it remains to see if banks will offer more loans or not.

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