New Delhi: Even though the Reserve Bank of India (RBI) on Thursday kept its repo rate unchanged at 5.15 per cent in the Monetary Policy Meeting, the announcement will make loans to home, automobile and small businesses cheaper. Even though the government said that the move was aimed in view of the uptick in inflation, maintaining a status quo will help the Central Bank push lending as it has relaxed the requirements for banks to maintain the cash reserve ratio for these loans.

The cash reserve ratio (CRR) is the per cent of the loans that banks have to set aside with the RBI. As per the official statement by Central Bank, the special dispensation will be for all bank credit to these sectors for a period of six months — between 31 January and 31 July.

Uplifting the lending sentiment, RBI has eased the CRR requirement of commercial banks for sectors with multiplier effect such as automobiles, residential housing and MSMEs. Some of the key non-banking finance companies such as M&M finance, L&T finance, Bajaj Finance, PEL and LIC Housing finance saw their shares rising on the bourses as the RBI move would spur the consumer demand.

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The central bank said that alongside sustained efforts to improve monetary transmission, it is actively engaged in revitalising the flow of bank credit to productive sectors having multiplier effects to support impulses of growth.

With Central Bank further adding that every reporting Friday, it will conduct a 14-day variable repo and a reverse repo. The RBI retains daily fixed rate reverse repo at 4.90 percent. This means banks with decent cash inflow will dump part of the money at both daily and 14-day window resulting in bringing down of the deposit rate and consequently, the lending rates as well.

"The RBI Credit Policy has given a boost to critical sectors such as automobiles, housing and MSMEs, besides infusing additional liquidity of Rs 1 lakh crore in the banking system. This is expected to reduce lending rates even though the policy rates have been left unchanged at 5.15 per cent Dr Niranjan Hiranandani, President, ASSOCHAM said.

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The three sectors of auto, housing and MSMEs are major job-creators and an impetus to them would give a major push to the overall growth in the country. It is generally believed that the budget presented last week would unlikely boost growth much as spending has not been raised significantly.

The RBI MPC considers CPI inflation for its monetary policy actions and inflation is expected to be within the comfort zone of the MPC in the next fiscal. However, fiscal deficit has not only breached the target but is budgeted at 3.5 per cent for 2020-21, including the reported off-budget liabilities, it works out to 4.3 per cent.

During today's MPC meet, the RBI also allowed banks to continue to treat as standard defaulting loans to commercial real estate borrowers if the repayment delays were due to reasons beyond the control of the company.