RBI Announces Incentives For Lending To Small Businesses, Housing, Auto Sectors

The Reserve Bank of India (RBI) tweaked the cash reserve ratio (CRR) norms on Thursday in a bid to increase lending to micro, small and medium enterprises (MSMEs) as well as the auto and home segments. The move will encourage lending towards these sectors having a multiplier effect by banks as they will get exemption in the cash reserve ratio over incremental lending. Cash reserve ratio is the percentage of total deposits that commercial banks have to mandatorily park with the RBI.

Currently, the CRR stands at 4 per cent, which means banks have to park 4 per cent of their total deposit with the RBI.

This exemption window is available till July 2020, according to the RBI, which left the repo rate unchanged at 5.15 per cent at the end of its bi-monthly review meeting on Thursday while maintaining an "accommodative" stance of policy. 

Alongside sustained efforts to improve monetary transmission, the RBI is actively engaged in revitalising the flow of bank credit to productive sectors to support growth, according to the sixth bi-monthly policy statement of current fiscal year.

"It has now been decided that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to 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 CRR," it said.

This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020, the central bank said.

To give a boost to the real estate sector, the RBI said, it has been decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector.

"This would complement the initiatives taken by the Government of India in the real estate sector. The detailed instructions will be issued shortly," it said.

Observing that the MSME sector plays an important role in the growth of the Indian economy, RBI said the restructuring of the borrower account has been extended by further one year to March 31, 2021.

Micro, small and medium enterprises contribute over 28 per cent of the GDP, more than 40 per cent of exports and employs about 11 crore people.

Considering the importance of MSMEs in the economy and for creating an enabling environment for the sector, a one-time restructuring of loans to MSMEs that were in default but 'standard' as on January 1, 2019 was permitted without an asset classification downgrade.

The restructuring of the borrower account was to be implemented by March 31, 2020, it said, adding that the scheme has provided relief to a large number of MSMEs.

"As the process of formalisation of the MSME sector has a positive impact on financial stability and this process is still underway, it has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020," it said.

Restructuring under the scheme has to be implemented latest by December 31, 2020, it said.

"This will benefit the eligible MSME entities which could not be restructured under the provisions of the circular dated January 1, 2019 as also the MSME entities which have become stressed thereafter. It is re-emphasised that this is a one-time regulatory dispensation. Detailed guidelines, in this regard, will be issued shortly," the RBI said.

After the transfer of regulation of housing finance companies (HFCs) from the National Housing Bank (NHB) to the RBI with effect from August 9, 2019, it was decided that central bank will carry out a review of the extant regulatory framework applicable to these companies and issue revised regulations in due course.

Also, until then, housing finance companies will continue to comply with the directions and instructions issued by the NHB, according to the RBI. 

"It is proposed to place the draft revised regulations on the Bank's website by the end of this month, for public comments," it said.