New Delhi: In a move likely to lower interest rates for housing, auto, and micro, small and medium enterprise (MSME) loans and push lending, the Reserve Bank of India (RBI) Thursday relaxed the requirements for banks to maintain the cash reserve ratio for these loans.
Cash reserve ratio is the percent of the loans that banks have to set aside with the RBI.
The special dispensation will be for all bank credit to these sectors for a period of six months — between 31 January and 31 July.
“Alongside sustained efforts to improve monetary transmission, the Reserve Bank is actively engaged in revitalizing the flow of bank credit to productive sectors having multiplier effects to support impulses of growth,” said the central bank’s statement on developmental and regulatory policies.
Banks have been allowed to deduct the incremental credit given to these sectors from their liabilities that is used to arrive at the cash reserve ratio.
The RBI’s decision has come at a time when the banks have passed on around 69 basis points rate cut to new borrowers out of the central bank’s total 1.35 percentage points cut since February last year.
The monetary policy statement announced Thursday opted to again go for a status quo on policy rates but announced other ways to ensure lower rates for borrowers.
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Push to lending
At a post policy press meet, RBI Governor Shaktikanta Das said transmission of lower rates is constantly improving.
“It will improve further and the measures announced today will further accelerate the process,” he said while pointing out that banks had only passed 49 basis points rate increase to customers until December, but that has now increased by 20 basis points more.
As of December-end, RBI data shows, while housing loans had grown at 17.6 per cent, vehicle loans at 7.2 per cent, micro and small industry loans at 0.1 per cent and medium industry at 2.5 per cent.
Asked why the period of dispensation to banks is limited to six months, Das said it is a balanced call that the central bank has taken. He added that it is too early to say if the RBI will provide an extension.
The RBI also announced a relaxation for the MSME and real estate sectors.
The central bank further allowed the extension of the restructuring scheme for MSMEs, permitting a one-time restructuring of standard loan accounts without an asset classification downgrade for accounts that were in default as of 1 January 2020.
The commercial real estate sector has also been given relief by permitting extension of the commencement date of commercial operations of project loans by one year without downgrading the asset classification.
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