**Policy Summary: Incentivizing Bank Credit to Specific Sectors through CRR Exemption**
This Reserve Bank of India (RBI) circular (DOR.No.Ret.BC.30/12.01.001/2019-20) dated February 10, 2020, addresses all scheduled commercial banks regarding an exemption from Cash Reserve Ratio (CRR) maintenance to incentivize bank credit to specific sectors.
In line with the statement on Developmental and Regulatory Policies of February 6, 2020, the RBI is allowing banks to deduct the equivalent amount of incremental credit disbursed as retail loans to automobiles, residential housing, and Micro, Small, and Medium Enterprises (MSMEs) from their Net Demand and Time Liabilities (NDTL) for CRR maintenance. This deduction applies to credit disbursed above the outstanding level of credit to these segments as of the end of the fortnight ending January 31, 2020.
Banks can claim this deduction starting from the NDTL of February 14, 2020. The incremental credit outstanding from the fortnight beginning January 31, 2020, up to the fortnight ending July 31, 2020, will be eligible for deduction from NDTL for CRR computation for a period of five years from the date of loan origination or the loan tenure, whichever is earlier.
Banks must report the exemption availed at the end of each fortnight under "exemptions-others" in the Section 42 return, as prescribed in Annex A to Form A, according to the Master Circular on CRR and Statutory Liquidity Ratio (SLR) dated July 1, 2015. Banks are required to maintain proper fortnightly records of net incremental credit extended to the select sectors and NDTL exemption claimed, duly certified by the Chief Financial Officer (CFO) or an equivalent level officer, for supervisory review.
For further information, contact Dr. S.K. Kar, Chief General Manager, Department of Regulation, Central Office, 5th floor, Amar Building, Sir P.M. Road, Mumbai-400001.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the country's financial system.
All Scheduled Commercial Banks: Refers to all banks in India that are listed in the Second Schedule of the Reserve Bank of India Act, 1934.
Cash Reserve Ratio (CRR): The percentage of a bank's total deposits that it is required to maintain with the Reserve Bank of India.
Net Demand and Time Liabilities (NDTL): The difference between the sum of demand and time liabilities of a bank and its interbank assets.
Micro, Small and Medium Enterprises (MSMEs): Enterprises classified based on investment and turnover criteria, playing a significant role in the Indian economy.
Statutory Liquidity Ratio (SLR): The minimum percentage of deposits that a commercial bank has to maintain in the form of liquid assets like cash, gold, and unencumbered approved securities.
Mumbai, Maharashtra: The city in India where the central office of the Reserve Bank of India is located.
Section 42 return: A periodic report that banks are required to submit to the Reserve Bank of India, detailing their compliance with CRR requirements.
भारतीय �रज़वर् बैंक
_______________RESERVE BANK OF INDIA________________
www.rbi.org.in
RBI/2019-20/159
DOR.No.Ret.BC. 30/12.01.001/2019-20 February 10, 2020
All Scheduled Commercial Banks
Dear Sir / Madam
Incentivising Bank Credit to Specific Sectors – Exemption from CRR Maintenance
It has been announced in paragraph 3 of the Statement on Developmental and Regulatory
Policies of February 6, 2020, that the Reserve Bank is actively engaged in revitalising the flow
of bank credit to productive sectors having multiplier effects to support growth impulses.
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.
Banks are required to report the exemption availed at the end of a fortnight under
“exemptions/others” in the Section-42 return, prescribed in Annex A to Form A as per Master
Circular on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) dated July 1, 2015.
Proper fortnightly records of net incremental credit extended to the select sectors/NDTL
exemption claimed, duly certified by the Chief Financial Officer (CFO) or an equivalent level
officer, must be maintained by banks for supervisory review.
Yours faithfully
(Dr. S.K. Kar)
Chief General Manager
िविनयमन िवभाग, केंद्रीय कायार्लय, 5वीं मंिजल, अमर भवन, सर पी एम रोड, मुंबई 400001
Department of Regulation, Central Office, 5th floor, Amar Building, Sir P.M. Road, Mumbai-400001