RBI Governor announces key measures: CRR cut, agri loan boost, podcast launch, and credit line expansion

On December 6, Reserve Bank of India (RBI) Governor Shaktikanta Das outlined a series of policy measures aimed at boosting liquidity, enhancing financial inclusion, and strengthening economic stability. These measures include a reduction in the Cash Reserve Ratio (CRR), an increase in the limit for collateral-free agriculture loans, an expansion of credit access through the Unified Payments Interface (UPI), revised interest rates for Foreign Currency Non-Resident (FCNR) deposits, and a new podcast series for enhanced communication. Each decision is intended to address key aspects of the economy, facilitating smoother financial transactions and greater public engagement.

The RBI announced a reduction in the Cash Reserve Ratio (CRR) for all commercial banks by 50 basis points (bps), which will be implemented in two phases. The first phase, a 25 bps reduction, will take effect on December 14, 2024, followed by another 25 bps cut on December 28, 2024. This reduction will bring the CRR to 4% of net demand and time liabilities (NDTL), restoring it to the level seen before the tightening cycle began in April 2022. The reduction is expected to release ₹1.16 lakh crore into the banking system, providing banks with more liquidity to support lending and economic activity.

In another significant move, the RBI decided to raise the limit for collateral-free agriculture loans from ₹1.6 lakh to ₹2 lakh per borrower. This change is designed to make formal credit more accessible to small and marginal farmers, who often face barriers to securing loans. The increase in the loan limit aims to reduce the financial burden on farmers, especially in light of rising agricultural input costs. By allowing farmers to borrow larger amounts without collateral, the RBI hopes to enhance their financial inclusion and enable them to better manage their agricultural needs.

The central bank also announced that small finance banks (SFBs) will be allowed to extend pre-sanctioned credit lines through the Unified Payments Interface (UPI). This initiative will enable SFBs to offer low-ticket, low-tenor loans to "new-to-credit" customers, who are typically underserved by traditional banking channels. This move is part of the RBI's broader strategy to expand access to credit for individuals with limited or no credit history. By leveraging UPI, SFBs can efficiently offer pre-approved credit to a wider range of customers, helping to improve financial inclusion.

To attract more foreign currency deposits, the RBI raised the interest rate ceilings on Foreign Currency Non-Resident (FCNR) deposits. Effective from December 6, 2024, banks are permitted to offer interest rates on FCNR deposits that exceed the previous ceilings. For deposits with maturities of one year to less than three years, the interest rate ceiling is now ARR (Alternative Reference Rate) plus 400 basis points, and for deposits with maturities between three and five years, it is ARR plus 500 basis points. This measure is aimed at encouraging more foreign capital inflows, strengthening India’s foreign exchange reserves, and contributing to greater economic stability.

Finally, the RBI announced plans to launch a podcast series as part of its ongoing efforts to improve communication with the public. The podcast will serve as a tool for disseminating important information about RBI policies, decisions, and their implications. The initiative is in line with the RBI’s broader strategy to enhance transparency and engage with a wider audience. The podcast will provide insights into key economic decisions and policies, helping the general public understand their impact and the rationale behind them. This new communication channel will further strengthen the RBI's efforts to promote financial literacy and public awareness.