Amounts received as claims from credit guarantee company to be exempt from CRR, SLR

Amounts received as claims from a credit guarantee company to be exempt from CRR, SLR: The Reserve Bank of India has stated that amounts received from the National Credit Guarantee Trustee Company Ltd (NCGTC) for claims invoked and held by them pending adjustment towards relative advances do not need to be treated as outside liabilities for the purpose of computing deposits for maintaining statutory reserve ratios.

Key Points

• The cash reserve ratio (CRR) and statutory liquidity ratio (SLR) of banks will increase to the degree that claims received from NCGTC will not be considered as outside liabilities for the computation of deposits for maintaining statutory reserve ratios.
• Credit guarantee programs are created to share the lending risk of lenders, which in turn makes it easier for potential borrowers to get financing.
• CRR reduction is the increase in the amount of actual cash held by the bank for lending. A further source that can be used for new financing is SLR maintenance at 18%, which is liberated to the degree of reduced computation.

What is Cash Reserve Ratio (CRR)?

The Cash Reserve Ratio (CRR) is the minimum percentage of total deposits (i.e. NDTL) that a commercial bank is required to keep with the RBI as cash reserves. CRR is a bank’s cash deposit with the RBI. The Reserve Bank of India Act, of 1934 governs CRR. Currently, it is 4.5 percent of deposits.

What is Statutory Liquidity Ratio (SLR)?

The statutory liquidity ratio (SLR) is the minimum percentage of a commercial bank’s deposits that must be kept in liquid cash, gold, or other assets. It is simply the reserve requirement that banks must achieve before extending credit to their consumers. The Statutory Liquidity Ratio was created under Section 24 (2A) of the Banking Regulation Act of 1949. Currently, it is 18 percent of deposits.

About National Credit Guarantee Trustee Company Ltd.

National Credit Guarantee Trustee Company Ltd. (NCGTC) is a private limited company that was established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of the Government of India, to serve as a common trustee company for various credit guarantee funds. NCGTC was incorporated under the Companies Act 1956 on March 28, 2014.

Under the trusteeship management of NCGTC, there are nine Credit Guarantee Trust Funds, including the Emergency Credit Line Guarantee Scheme, Loan Guarantee Scheme for Covid Affected Sectors, Credit Guarantee Scheme for MFIs, Credit Guarantee Fund for Micro Units, and Credit Guarantee Fund for Education Loans.