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

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The amounts received as claims from a credit guarantee company to be exempted from CRR, SLR: The Reserve Bank of India has stated that amounts received from National Credit Guarantee Trustee Company Ltd (NCGTC) for claims invoked and held by it pending adjustment of related advances need not be treated as liabilities external for the purpose of calculating deposits for maintaining legal reserve ratios.

Key points

  • Banks’ Cash Reserve Ratio (CRR) and Legal Liquidity Ratio (SLR) will increase as claims received from the NCGTC will not be considered external liabilities for the calculation of deposits for maintaining reserve ratios legal.
  • Credit guarantee programs are created to share the lending risk of lenders, which, in turn, makes it easier for potential borrowers to obtain financing.
  • The reduction in CRR is the increase in the amount of actual cash held by the bank for lending. Another source that can be used for new financing is the maintenance of the SLR at 18%, which is released at the reduced degree of calculation.

What is the 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 reservations. CRR is a bank’s cash deposit with the RBI. The Reserve Bank of India Act 1934 governs the CRR. Currently it is 4.5% of deposits.

What is the Statutory Liquidity Ratio (SLR)?

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

About National Credit Guarantee Trust Company Ltd.

National Credit Guarantee Trustee Company Ltd. (NCGTC) is a limited liability company which was established by the Department of Financial Services, Ministry of Finance, as a 100% owned company by the Government of India, to serve as a joint trust company for various credit guarantee funds. NCGTC was incorporated under the Companies Act 1956 on March 28, 2014.

Under the tutelage of NCGTC, there are nine credit guarantee trust funds, including Emergency Line of Credit Guarantee Scheme, Loan Guarantee Scheme for Covid Affected Sectors, Credit Guarantee Scheme for MFIs, Credit Guarantee Fund for Micro Units and the credit guarantee fund for education loans.

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