CRR cut to new podcast service: 5 major announcements by Das

Reserve Bank of India (RBI) Governor Shaktikanta Das today announced some key decisions related to various developmental and regulatory policy measures concerning liquidity, financial inclusion, payment systems and communication space. Here are 5 key announcements made by RBI Governor Shaktikanta Das during the last speech of his current tenure as the central bank chief.

1) Reduction in cash reserve ratio

With regards to measures taken to boost liquidity, the RBI governor said the central bank has decided to reduce the cash reserve ratio (CRR) of all banks by 50 bps in two equal tranches of 25 bps each to 4% of net demand and time liabilities (NDTL) with effect from the fortnight beginning December 14, 2024, and December 28, 2024, respectively.

"This will restore the CRR to 4 per cent of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022. This reduction in the CRR would release primary liquidity of about ₹ 1.16 lakh crore to the banking system," he said.

2) Collateral-free agri loan limit up

The central bank under Das also decided to raise the limit for "collateral-free agriculture loans" from ₹1.6 lakh to ₹2 lakh. At present, banks are required to extend collateral-free agriculture loans up to ₹1.6 lakh per borrower. This limit was enhanced from ₹1 lakh, set in the year 2010 to ₹1.6 lakh in the year 2019.

"Keeping in view the overall inflation and rise in agricultural input costs since then, it has been decided to raise the limit for collateral-free agriculture loans. "This will enhance coverage of small and marginal farmers in the formal credit system. The circular to this effect will be issued shortly," says Das.

3) Credit lines via extend to SFBs

The central bank has proposed to allow small finance banks (SFBs) to extend "pre-sanctioned credit lines" through the UPI or Unified Payments Interface. In September 2023, the scope of UPI was expanded by enabling pre-sanctioned credit lines to be linked through UPI and used as a funding account by banks excluding payments banks, small finance banks (SFBs) and regional rural banks.

The RBI believes the credit line on UPI has the potential to make available low-ticket, low-tenor products to ‘new-to-credit’ customers. "SFBs leverage a high-tech, low-cost model to reach the last mile customer and can play an enabling role in expanding the reach of credit on UPI," says Das, adding that the related guidelines will be issued shortly.

4) RBI's new podcast service

The Reserve Bank of India (RBI) proposed to launch podcasts for "wider dissemination" of information that is of interest to the general public. RBI Governor Shaktikanta Das made this announcement in the last speech of this term as the RBI Governor.

"The Reserve Bank has been expanding the scope of its public awareness activities including through social media over the last few years. In continuance of this endeavour, the Reserve Bank proposes to launch podcasts for wider dissemination of information that is of interest to the general public," says the RBI Governor.

The RBI Governor says the central bank has been deploying "traditional" as well as "new-age communication techniques" as a key part of its toolkit to ensure transparency and greater impact of its decisions, explain the rationale behind its decisions, and disseminate various awareness messages to a wider audience.

5) Interest rates on FCNR(B) deposits

At present, interest rates on foreign currency non-resident bank [FCNR(B)] deposits are subject to ceilings of overnight alternative reference rate (ARR) for the respective currency or swap, plus 250 basis points for deposits of 1 year to less than 3 years maturity and overnight ARR plus 350 basis points for deposits of 3 years and above and up to 5 years maturity. The RBI, in order to attract more capital inflows, has decided to increase the interest rate ceilings on FCNR(B) deposits.

"Accordingly, with effect from today (December 6, 2024), banks are permitted to raise fresh FCNR(B) deposits of 1 year to less than 3 years maturity at rates not exceeding ARR plus 400 bps and deposits with maturity between 3 to 5 years at rates not exceeding ARR plus 500 bps." This relaxation will be available till March 31, 2025.