NEW DELHI: Facing its worst slowdown in two decades, the automobile and real estate sector has got a breather on Thursday with the Reserve Bank of India (RBI) implicitly slashing rate by incentivising banks to lend more to these productive sectors.

The move, industry captains say, would open the spending taps, thereby boosting the country’s moribund economic growth.

“The thrust on retail loans for specific sectors including real estate by way of providing additional liquidity will enhance credit supply, uplift buyers’ confidence and boost demand for residential properties,” said Niranjan Hiranandani, president, National Real Estate Development Council.

“It has been decided that banks will be allowed to deduct the equivalent of incremental credit disbursed as retail loans for automobiles, residential housing and loans to MSMEs, over and above the outstanding level of credit to these segments as on January 2020 from their net demand and time liabilities for maintenance of cash reserve ratio (CRR),” RBI said in a statement on Developmental and Regulatory Policies, released alongside the Monetary Policy.

Typically, the CRR is 4 per cent and the funds kept for maintaining CRR does not earn any return, thereby having a negative carry-on on overall borrowings. With the waiver of CRR, it would now increase flow of credit to these troubled sectors. Research firm CRISIL estimates that savings for banks would be in the range of 8-10 basis points. If this is passed on to customers by way of lower interest rate, it could spur demand, addressing the persistent sluggishness.

“Any incremental lending over the next six months (till July 2020) will be exempted from CRR. This is a modest rate cut for the three segments and therefore may help at margin,” said Kapil Gupta, economist, Edelweiss Securities. Auto industry too hailed the move.

“Though the industry is in need of direct measures to uplift consumption, the CRR leeway for fresh retail loans could translate into lower EMIs for borrowers, inducing higher demand for vehicles, provided that benefits are passed onto end consumers,” said a senior executive of a leading auto manufacturer.