Lending from CRR buffer to get 5-year exemption: RBI

Mumbai: The Reserve Bank on Monday said the special lending window with CRR exemption will be open from February 14 and incremental loans disbursed under this facility will have CRR exemption for the next five years.

This means that banks will not be needed to make additional cash reserve ratio against any incremental loans disbursed to the targeted segments. The window opens on February 14 for six months ending July 31, 2020, but the net demand and time liabilities (NDTL) will be calculated as of January 31, 2020, the central bank circular said this evening.

As an additional liquidity measure and also to nudge banks to lend more to the needy segments, the Reserve Bank at the last monetary policy announcement said banks, flushed with liquidity, could lend to these segments without making additional provisions without the requirement of parking additional cash reserve ratios (CRR), which is the money parked with the RBI without interest.

The productive sectors identified by the regulator are auto and residential housing loans, and also loans to micro, small and medium enterprises (MSMEs).

At the sixth bimonthly monetary policy on February 6, the RBI had 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."

Detailing the time-line and operational details in a detailed circular, the RBI on Monday said, "Banks can claim the first such deduction from the NDTL of February 14, 2020 for the amount equivalent to the incremental credit extended to the above identified sectors over the outstanding level of credit as at the end of the fortnight to January 31, 2020.