RBI offers CRR exemption to banks for incentivising specific sectors

In terms of Statement on Developmental and Regulatory Policies of February 6, 2020, the Reserve Bank of India announced that 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. Accordingly, banks are allowed to deduct the equivalent amount of incremental credit disbursed by them as retail loans to automobiles, residential housing, and loans to micro, small and medium enterprises (MSMEs), 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 cash reserve ratio (CRR). Banks are advised that they can claim the first such deduction from the NDTL of February 14, 2020 for the amount equivalent to the incremental credit extended to the sectors indicated above over the outstanding level of credit as at the end of the fortnight ended January 31, 2020. An amount equivalent to the incremental credit outstanding from the fortnight beginning January 31, 2020, and up to the fortnight ending July 31, 2020, will be eligible for deduction from NDTL for the purpose of computing the CRR for a period of five years from the date of origination of the loan or the tenure of the loan, whichever is earlier.

The RBI also sought to lower the loan rate for MSMEs by asking banks to link interest rates to the MSME segment to an external benchmark. It has also sought to free up capital for lenders by extending the forbearance on asset classification on their MSME portfolios till December 2020. The circular asks banks to report the CRR exemption availed at the end of a fortnight under “exemptions/others” in the Section 42 return, under the provisions of the master circular on CRR and SLR issued on July 1, 2015. Proper fortnightly records of net incremental credit extended to these select sectors/NDTL exemption claimed, duly certified by the chief financial officer or an equivalent officer, must be maintained by banks for supervisory review, the circular said.