Retail Loans gets cheaper as RBI tweaks CRR

Reserve Bank of India (RBI) kept interest rates unchanged on Thursday with price pressures remaining elevated. But it showed a range of liquidity tools including easing the norms for the banks to increase lending to residential housing, auto and small businesses, at its disposal to boost the slowing economy.

Interestingly, the banks can increase lending by reducing cost through a waive off on Cash reserve ratio (CRR). This means the loans for these segments housing, auto and small businesses will get cheaper despite the monetary policy committee restricted itself from reducing the interest rates.

Shaktikanta Das, Governor, RBI, at a press briefing after the policy meeting said, "To ensure comfortable liquidity availability in the system and to facilitate the transmission of monetary policy action, the RBI would conduct term repos of one-year and three-year tenors in appropriate sizes for up to a total amount of Rs 1,00,000 crore from the fortnight beginning on February 15, 2020, at the policy rate. He added cash reserve requirements will be waived on deposits that are used to provide retail loans. These loans should be provided between January 31, 2020, and July 31, 2020. The facility will make loans cheaper for housing, auto and SME sectors as 4 per cent of deposits impounded in cash reserves will be freed.

The developmental and regulatory steps announced by the RBI were a positive surprise announcement for to the financial ecosystem of the country, says SBI chairman Rajnish Kumar.

RBI policy announcements had a positive impact on the market as the shares of financial institutions including banks, housing finance companies and real estate firms moved up sharply yesterday.