The Reserve Bank of India (RBI) announced the restoration of the Cash Reserve Ratio (CRR). In its first monetary policy in 2021 and post Budget, the Central Bank said that the CRR restoration will happen in two phases beginning March 2021.
The CRR restoration will start at 3.5 percent with effect March 27 and 4 percent with effect May 22, 2021, the RBI announced. This will open up space for a variety of market operations, it further noted.
CRR is the cash reserve ratio (CRR), which is parked with the RBI on a permanent basis and on which banks earn no interest.
The RBI in February 2020 has offered banks exemption from CRR for incremental loans to automobiles, residential housing, and micro, small and medium enterprises (MSMEs) between 31 Jan-31 July 2020. This was done after the COVID-19 pandemic hit in order to spur credit growth and boost demand.
"The RBI is actively engaged in revitalising the flow of bank credit to productive sectors having multiplier effects to support growth impulses," the central bank said last year.
This meant that for any fresh loan to these three segments, the banks need not set aside the mandatory 4 percent of deposits as CRR.
The Central Bank held the repo rate at 4 percent and keep the stance accommodative. It projected India's GDP growth rate at 10.5 percent for the fiscal year 2021-22. Central bank's projection is lower than that of the Economic Survey that projected India to grow at a rate of 11 percent in the coming fiscal.
(Edited by : Pranati Deva)
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