RBI announces incentive for lending to MSME, home, auto sectors

In a bid to increase lending to MSME as well as to auto and home segment, Reserve Bank on Thursday tweaked maintenance of cash reserve ratio (CRR) norms by providing relaxation in calculation of total deposits.

The move will encourage lending towards these targeted sectors having multiplier effect by banks as they will get exemption in CRR over incremental lending.

This exemption window is available till July 2020.

CRR is the percentage of total deposits that bank mandatorily park with the apex bank. It stands at 4 per cent of a bank's total deposit.

Alongside sustained efforts to improve monetary transmission, the Reserve Bank is actively engaged in revitalising the flow of bank credit to productive sectors to support growth, as per the Statement on Developmental and Regulatory Policies released by RBI.

"As a part of this, 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 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 CRR," it said.

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

To give boost to the real estate sector, 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 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 (MSMEs) contributes 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 Indian 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, 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.

The 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," it said.

Post transfer of regulation of Housing Finance Companies (HFCs) from National Housing Bank (NHB) to Reserve Bank with effect from August 9, 2019, it was decided that Reserve Bank will carry out a review of the extant regulatory framework applicable to HFCs and issue revised regulations in due course, and till such time HFCs shall continue to comply with the directions and instructions issued by NHB.

"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.