The Reserve Bank of India (RBI) on Monday announced detailed rules for exempting incremental car, home and MSME loans from maintaining cash reserve ratio (CRR).

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The RBI said CRR will not have to be maintained for five years or for the tenure of the loan, depending upon which-ever is less. This will essentially mean a lower cost for banks and will help improve liquidity, CNBC-TV18’s Latha Venkatesh reports.

RBI had announced during the monetary policy committee meeting that car, home and MSME loans will be deducted from the total amount of deposits while calculating CRR. Now, the actual rules have come. The only important additional point is that CRR exemption will be available for five years or the life of the loan.

Now, most car loans are mostly for five years, so the entire period of the loan.

If it is a home loan or an SME loan, it will be available for the period of five years and the remaining years either the loan has to be reset or from the start it will have to be priced in such way that the lower cost is available only for five years.

Most bankers are happy that it is five years because if the exemption was given for only one year then it would have to be priced very differently.

It was difficult to price it because one has to give the exemption for one year and not for the remaining tenure of the loan. So, five years is something people are happy with.

First Published:Feb 10, 2020 9:23 PM IST