The move will also impact the cost of funds of banks
- Published 7.02.20, 12:32 AM
- Updated 7.02.20, 12:32 AM
- a min read
Fresh loans to homes, buy automobiles and MSMEs will get a special relief on the cash reserve ratio, which is the portion of bank deposits with the RBI.
Bank will be allowed to deduct the equivalent of incremental credit from their net demand and time liabilities kept for maintenance of CRR.
The relaxation will be on incremental loans availed by the select sectors from the fortnight ending January 31, 2020 to the fortnight ending July 31, 2020.
According to a note from the economic research wing of the SBI, this will release Rs 4,000 crore for six months as extra credit to commercial banks. The move will also impact the cost of funds of banks.
“Exemption of CRR maintenance for all additional loans given for retail loans for automobiles, residential housing, and loans to MSMEs is positive for banks. It will also help to lower the cost of funds,” SBI chairman Rajnish Kumar said.
Krishnan Sitaraman of Crisil said, “The move to exempt banks from CRR requirements for incremental loans to auto, housing and MSMEs will have a salutary effect on channeling of credit to these sectors and can play a role in addressing the sluggishness seen in these sectors.”