Recently the RBI has given relief to additional CRR norms, which are bound to create a ripple effect in coming times. Here we have tried to understand the impact of latest RBI CRR norms on different loans. Whether it is home loan or personal or as a matter of fact any other loan, some plates are definitely going to shift. So, let’s understand the role of incremental CRR in our Indian economy and the impact it can create on the lending rates.
What is the importance of CRR in Indian banking system?
As we know that CRR(Cash Reserve Ratio) is a crux of the Indian Banking System for controlling the money supply, where a minimum percentage of the total deposits of the customers is reserved by the commercial banks fortnightly either in cash or as deposits with the central bank for meeting the timely payment demands of their depositors. The applicable current rate for CRR is 4%. It means with a reduced CRR, the cost of banks will come down which will reduce their basic lending rate/base rate, thereby leading a significant downfall in the cost of borrowings towards the general public i.e. bank reduces the interest rate on borrowings.
What caused this recent relaxation in additional CRR norms ?
In order to tackle the surge in deposits following demonetisation of Rs. 500 and Rs. 1000 notes, the Reserve Bank of India has announced an incremental cash reserve ratio (CRR ) of 100 % for banks for the fortnight starting from Sunday itself. But it has been observed that before the implementation of RBI directives, prominent banks such as HDFC Bank, Bank of Baroda, Bank of India and Dena Bank have geared themselves in advance by curtailing down their one-year marginal cost of lending to 8.9%, making it in tandem with SBI and ICICI Bank.
The RBI is currently under the review of its decision on December 9 as the incremental CRR is desired to be kept as a temporary prerogative within RBI’s liquidity management framework to flush out liquidity in the system. The excess liquidity is expected to be around Rs. 3 lakh crore. According to the RBI circular, the full amount collected would have to be stored with the RBI as CRR.
After the drain out of the legal tender status of Rs. 500 and Rs. 1,000 denominated bank notes starting from November 9,2016, there has been a surge in deposits commensurate with the expansion in bank credit, ushering a large excess liquidity in the system. In order to keep this flow of liquidity under control, RBI came out with directives to absorb a part of this surplus liquidity by imposing an incremental cash reserve ratio as a completely temporary measure. Banking officials expect to witness further downward trends in deposit and lending rates in the times to come.
Let’s take an overview on the segments which are bound to feel the impact of latest RBI CRR norms on the kind of loans offered to general customers :
Applicable Interest Rates on Loans
|Loan Segment||Interest Rates|
|Personal Loan||11.49% onwards|
|Home Loan||9.10% onwards|
|Car Loan||9.40% onwards|
|Gold Loan||10.50% onwards|
|Business Loan||15% onwards|
|Loan Against Property||9.65% onwards|