IT Correspondent
Mumbai, Feb 5:
With Reserve Bank of India planning to restore the Cash Reserve Ratio (CRR) of banks to the earlier level of 4%, the interest rate on fixed deposits is expected to go up, as per the statement on developmental and regulatory policies (Part-B) of the monetary policy released by RBI on Friday.
The RBI had reduced CRR by 100 basis points due to COVID-19 pandemic till 26 March 2021. On a review of monetary and liquidity conditions, it has been decided to gradually restore the CRR in two phases in a non-disruptive manner to 3.5 per cent effective from March 27, 2021 and 4.0 per cent effective from May 22, 2021. The CRR normalisation opens up space for variety of market operations of the RBI to inject additional liquidity, RBI Governor Shaktikanta Das said.
But this restoration of CRR the rate of interest on loans is expected to go up, since banks’ cost of fund are likely to increase post- CRR revision and they are likely to pass on that cost increase to borrowers. The CRR was maintained at 4% level from February 2013 to January 2020. Now RBI wants to restore it to long-term level of 4%.
The meeting of the Monetary Policy Committee (MPC) was held on 3rd, 4th and 5th February, 2021 and deliberated on current and evolving macroeconomic and financial developments, both domestic and global. The MPC voted unanimously to leave the policy repo rate unchanged at 4 per cent. It was also decided to ensure that inflation remains within the target going forward. As such the Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent. The reverse repo rate stands unchanged at 3.35 per cent.
Consumer protection
To make the Ombudsman mechanism simpler, it has been decided to integrate the three Ombudsman for banks, NBFCs and non-bank prepaid payment issuers (PPIs) and follow a ‘One Nation One Ombudsman’ approach. At present these three schemes are operated by the RBI from twenty-two Ombudsman offices located across the country. This is intended to make the process of redress of grievances easier by enabling the customers to register their complaints under the integrated scheme, with one centralised reference point. The Integrated Ombudsman Scheme will be rolled out in June 2021.
Liquidity Measures
With a view to support revival of activity in specific stressed sectors that have both backward and forward linkages and have multiplier effects on growth, the RBI had announced the TLTRO on Tap Scheme for banks on 09 October 2020. Given that NBFCs are well recognised conduits in reaching out to the last mile in various sectors, it is now proposed to provide funds from banks under the TLTRO on Tap scheme to NBFCs for incremental lending to the specified stressed sectors.
Credit to MSME Entrepreneurs
In order to incentivise new credit flow to the micro, small, and medium enterprise (MSME) borrowers, Scheduled Commercial Banks will be allowed to deduct credit disbursed to ‘New MSME borrowers’ from their net demand and time liabilities (NDTL) for calculation of CRR. For the purpose of this exemption, ‘New MSME borrowers’ would be those who have not availed any credit facilities from the banking system as on 01 January, 2021. This exemption will be available for exposures up to Rs.25 lakh per borrower for credit extended up to the fortnight ending October 1, 2021. Details of the scheme would be spelt out in the circular.
Inflation
CPI inflation moved below 6 per cent in December for the first time in the post-lockdown period, supported by favourable base effects and a sharp fall in key vegetable prices. It is expected that vegetable prices will remain soft in the near-term, while pressures may continue to persist in certain key food items. The outlook for core inflation is influenced by the escalation in cost-push pressures seen in recent months. Petroleum product prices have reached historic highs as international crude prices surged in recent months and the high indirect taxes remain, both in the Centre and States, RBI statement said.
