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RBI grants 5-year CRR relief to banks for lending to auto, housing, MSMEs

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On February 10, 2020, In a major step to boost the credit growth, the Reserve Bank of India (RBI) has eased Cash Reserve Ratio (CRR) requirement of commercial banks for 5- years.So now the banks would not be needed to maintain the cash reserve ratio (CRR) for 5- years on their deposits for the amount equivalent to loans lent to automobiles, residential housing, and micro, small and medium enterprises (MSMEs) between 31 Jan-31 July, 2020 from their net demand and time liabilities (NDTL) for maintenance of the CRR.Key Points:

i.The banks can get first such exemption will be started on 14 February, 2020 for 6 months till July 31, 2020. However, the net demand and time liabilities (NDTL) will be calculated as of January 31, 2020.

ii.This move will help boost lending activities towards needy sectors & make loans cheaper to these particular segment.

iii.Banks are also asked 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 circular on CRR and SLR issued on July 1, 2015.

About CRR (Cash Reserve Ratio):
It is the amount a bank has to reserve with the RBI as per the guidelines. At present it is 4% of the total deposits of banks.
The CRR and funds available with banks are inversely proportional.

The higher the amount of CRR, the lower the funds available with banks to provide loans and vice versa. In cases when the Inflation is temporarily on the constant increase, the RBI gives up CRR for incremental lending to boost credit growth and consumption.

About NDTL:
It is the difference between the sum of demand and time liabilities (deposits) of a bank (with the public or the other bank) and the deposits in the form of assets held by the other bank
NDTL -[ (Demand deposit+ time deposit) – deposits of bank with other bank] Demand deposits – are deposits that can withdraw anytime on demand
Time deposits- are deposits that can not withdraw immediately
Deposits of bank with bank – bank assets with others bank( which bank get interest on it)

About Reserve Bank of India (RBI):
– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (BP Kanungo, N S Vishwanathan, Mahesh Kumar Jain, Michael Debabrata Patra)