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CRR exemption for retail, MSME loans
Why is it in the news?
- The Reserve Bank of India (RBI) has exempted banks from maintaining cash reserve ratio (CRR) for loans to retail and micro, small and medium enterprises (MSMEs).
- The exemption would be for five years, if the loans are extended between January 31 and July 31, 2020.
More in the news
- The exemption was available for incremental credit disbursed as retail loans to automobiles, residential housing, and loans to MSMEs.
- At present, CRR is 4% of net demand and time liabilities. Banks do not earn any interest for maintaining CRR with the RBI.
- About CRR:
(1) Cash Reserve Ratio (CRR) is an instrument (direct instrument) of RBI’s monetary policy.
(2) The CRR requires that every scheduled commercial bank has to keep a certain proportion of their demand and time deposits with the RBI as cash reserves.
(3) By varying the cash reserve ratio, the central bank can vary the volume credit (money circulation) in the economy.
(4) When the RBI raises the CRR, money supply reduces and the price level comes down.
Source
The Hindu.