8-Jun-2022: RBI hikes Repo Rate by 50 basis points

Key Policy Rates

• The Monetary Policy Committee of Reserve Bank of India, which met from 6-8 June 2022, has unanimously decided to hike the Repo Rate by 50 basis points to 4.90 %
• Consequently, Standing Deposit Facility Rate stands adjusted to 4.65% and Marginal Standing Facility rate and Bank Rate to 5.15%
• The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
• Inflation
  • Assuming normal monsoon in 2022 and average crude oil price of $105 per barrel in Indian basket, inflation is projected at 6.7% in 2022-23

Q1 - 7.5%

Q2 - 7.4%

Q3 - 6.2%

Q4 - 5.8%

• Growth forecast: The MPC has observed that the global economy continues to grapple with multi-decadal high inflation and slowing growth, persisting geopolitical tensions and sanctions, elevated prices of crude oil and other commodities and lingering COVID-19 related supply chain bottlenecks.
• Economic indicators for April –May indicate a broadening of the recovery in economic activity in India. Urban demand is recovering and rural demand is gradually improving. Merchandise exports posted robust double-digit growth for the fifteenth month in a row during May while non-oil non-gold imports continued to expand at a healthy pace, pointing to recovery of domestic demand.
• Real GDP growth for 2022-23 is estimated at 7.2%

Q1 - 16.2%

Q2 - 6.2%

Q3 - 4.1%

Q4 - 4.0%

• According to NSO provisional estimates released on May 31, India's GDP growth in 2021-22 is estimated at 8.7%, higher than pre-pandemic level.

Measures to benefit Cooperative Banks

1. Taking into account the increase in housing prices since the limits were last revised and considering the customer needs, it has been decided to increase the existing limits on individual housing loans by cooperative banks. Accordingly, the limits for Tier I /Tier II UCBs shall stand revised from ₹30 lakh/ ₹70 lakh to ₹60 lakh/ ₹140 lakh, respectively. As regards RCBs, the limits shall increase from ₹20 lakh to ₹50 lakh for RCBs with assessed
2. net worth less than ₹100 crore; and from ₹30 lakh to ₹75 lakh for other RCBs.
3. Urban cooperative banks can now extend doorstep banking services to customers Will enable these banks to better meet the needs of their customers, especially senior citizens and differently abled persons-
   • Rural cooperative banks can now extend finance to commercial real estate (loans to residential housing projects) within existing aggregate housing finance limit of 5% of total assets
   • Enhancement of limit on e-mandate transactions

To further augment customer convenience  and facilitate recurring payments like subscriptions, insurance premia and education fees of larger value, limit per transaction for e-mandate based recurring payments increased from ₹5,000 to ₹ 15,000

• Enhancing scope of UPI payment system. Now, credit cards too can be linked with UPI platform, beginning with RuPay cards.  This will provide additional convenience to users and enhance scope of digital payments.  UPI has become the most inclusive mode of payment in India. Currently, over 26 crore unique users and 5 crore merchants are onboarded on the UPI platform.
• The Monetary Policy Committee, besides the Governor Shri Shaktikanta Das comprised Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Rajiv Ranjan and  Dr. Michael Debabrata Patra.

The next meeting of the MPC is scheduled during August 2-4, 2022

6-Dec-2021: RBI Retail Direct Scheme' and ‘Integrated Ombudsman Scheme, 2021

The Reserve Bank of India (RBI) has launched the ‘RBI Retail Direct Scheme' and ‘Integrated Ombudsman Scheme, 2021’. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in written reply to a question in Lok Sabha today.

The Minister stated that the Government has not conducted any survey to find out the extent to which these schemes will be able to expand the scope of investment, access to capital markets, and security for investors but the Reserve Bank of India has designed the Scheme based on the feedback received from the market participants for simplifying the access to the G-Sec market by retail investors. The online portal developed for the Scheme is secure and user-friendly. The scheme expects to bring the government securities within easy reach of the general public by simplifying the investment process and widening the investor base, the Minister stated.

The Minister further stated that the RBI Retail Direct Scheme is expected to widen the investor base for the government securities which may result in increased demand for these securities leading to reduced cost of borrowing for the Government. Secondly, the increased retail participation in Indian government securities (G-sec) will improve G-sec market liquidity which would facilitate further deepening of the Indian G-sec market. A well-developed G-sec market bodes well for the development of other segments of the Indian fixed income market.

12-Nov-2021: PM launches two innovative customer centric initiatives of RBI

Prime Minister Shri Narendra Modi launched two innovative customer centric initiatives of RBI viz. Retail Direct Scheme and the Reserve Bank - Integrated Ombudsman Scheme, here today via video conference. The Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman and the Governor of the Reserve Bank of India Shri Shaktikanta Das were also present at the event.

Addressing the event, the Prime Minister praised the Finance Ministry and institutions like RBI for their efforts during the pandemic. “This period of Amrit Mahotsav, this decade of the 21st century is very important for the development of the country. In such a situation, the role of RBI is also very big. I am confident that Team RBI will live up to the expectations of the country”, the Prime Minister said.

Referring to the two schemes that have been launched today, the Prime Minister said that these schemes  will expand the scope of investment in the country and make access to capital markets easier, more secure for investors. Retail direct scheme has given small investors in the country a simple and safe medium of investment in government securities. Similarly, One Nation, One Ombudsman System has taken shape in the banking sector with the Integrated Ombudsman Scheme today, he said.

The Prime Minister emphasized the citizen centric nature of these schemes. He said that one of the biggest touchstones of any democracy is the strength of its grievance redressal system. The Integrated Ombudsman Scheme will go a long way in that direction. Similarly, the Retail Direct Scheme  will give strength to the inclusion of everyone in the economy as it will bring in the middle class, employees, small businessmen and senior citizens with their small savings directly and securely in government securities. As Government securities have the provision of guaranteed settlement, this gives assurance of safety to the small investor, he said.

The Prime Minister said that in the last 7 years, NPAs were identified with transparency, the focus was on resolution and recovery, Public Sector Banks were recapitalized, one after the other reforms were carried out in the financial system and public sector banks. He added, to further strengthen the banking sector, cooperative banks were also brought under the purview of RBI. Due to this the governance of these banks is also improving and the trust in this system is getting stronger among the depositors, he added.

The Prime Minister said in the past few years, in the country's banking sector reforms ranging from inclusion in the financial sector to technological integration have been carried out. “We have seen their strength in this difficult time of Covid. The decisions of the RBI also helped in increasing the impact of the big decisions that the government has taken in recent times”, he said.

The Prime Minister said till 6-7 years ago, banking, pension and insurance, used to be like an exclusive club in India. All these facilities were not accessible to the common citizens in the country, poor families, farmers, small traders-businessmen, women, Dalits-deprived-backward, etc. Criticizing the earlier system, the Prime Minister said those who had the responsibility of taking these facilities to the poor never paid any attention to it. Rather, various excuses were made for not changing. It was said that there is no bank branch, no staff, no internet, no awareness, no idea what the arguments were, he lamented.

The Prime Minister said UPI has made India the world's leading country in terms of digital transactions in a very short span of time. In just 7 years, India has jumped 19 times in terms of digital transactions. Today our banking system is operational 24 hours, 7 days and 12 months anytime, anywhere in the country, Shri Modi stressed.

The Prime Minister said we have to keep the needs of the citizens of the country at the center and keep on strengthening the trust of the investors. “I am confident that RBI will continue to strengthen India's new identity as a sensitive and investor-friendly destination”. The Prime Minister concluded.

2-Aug-2021: Major initiatives taken by Government & RBI to mitigate hardship faced by farmers due to COVID-19

The Government and the Reserve Bank of India (RBI) have taken major initiatives to mitigate the hardship being faced by farmers due to COVID-19.

The Minister further stated the efforts made/being made by the Government for the remedy of the problems regarding agriculture loan being faced by the farmers in the country as under:

• The moratorium for the total period of six months upto 31st August, 2020, was permitted in respect of all term loans (including agricultural term loans, retail and crop loans). This was aimed at providing temporary reprieve to borrowers affected by the pandemic, while attempting to preserve the resilience of the financial system. In order to ensure that farmers do not pay higher interest during the moratorium period, the benefit of 2% Interest Subvention and 3% Prompt Repayment Incentive was also extended to them for the moratorium period up to 31st August, 2020 or date of repayment, whichever is earlier. As advised by RBI, the moratorium has not been extended beyond August 31, 2020 taking into account the larger implications on the banking sector, credit culture and financial stability.
• In respect of loans to allied activities viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture, RBI has also issued a clarification that these loans can be taken up for resolution under the Resolution Framework for Covid-19 related Stress issued on 6th August 2020 which, inter alia, provides for a moratorium upto two years.
• Further, RBI’s extant directions on relief measures to be provided by respective lending institutions in areas affected by natural calamities, such as flood, cyclone, drought, hailstorm, cold wave/frost, etc., inter alia, include, restructuring/rescheduling of existing crop loans and term loans, extending fresh loans, relaxed security and margin norms, moratorium, etc. These directions have been so designed that the moment calamity is declared by the concerned State Governments/District Authorities they are automatically set in motion without any intervention, thus saving precious time. The benchmark for initiating relief measures by banks has also been reduced to 33% crop loss in line with the National Disaster Management Framework.
• To meet the credit needs for post-harvest and kharif sowing requirements of farmers including small and marginal farmers, a front-loaded Special Liquidity Facility (SLF) of Rs. 55,000 crore under SLF–I and SLF-II has been extended by NABARD during COVID-19 pandemic for Regional Rural Banks, Cooperative Banks and Non-Banking Financial Company (NBFCs)-Micro Finance Institutions (mFIs). This additional special liquidity facility to the rural financial institutions at concessional rate of interest will ensure enhanced credit flow to the agriculture and the allied sector.

27-Apr-2020: RBI Announces ₹ 50,000 crore Special Liquidity Facility for Mutual Funds (SLF-MF)

Heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on mutual funds (MFs), which have intensified in the wake of redemption pressures related to closure of some debt MFs and potential contagious effects therefrom. The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid.

The RBI has stated that it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability. With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility for mutual funds of ₹ 50,000 crore.

Under the SLF-MF, the RBI shall conduct repo operations of 90 days tenor at the fixed repo rate. The SLF-MF is on-tap and open-ended, and banks can submit their bids to avail funding on any day from Monday to Friday (excluding holidays). The scheme is available from today i.e., April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. The Reserve Bank will review the timeline and amount, depending upon market conditions.

Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by (1) extending loans, and (2) undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.

Liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF). The face value of securities acquired under the SLF-MF and kept in the HTM category will not be reckoned for computation of adjusted non-food bank credit (ANBC) for the purpose of determining priority sector targets/sub-targets. Support extended to MFs under the SLF-MF shall be exempted from banks’ capital market exposure limits.

20-Apr-2020: Review of WMA Limit for Government of India for remaining part of the first half of the Financial Year 2020-21 (April 2020 to September 2020)

To tide over the situation arising from the outbreak of the COVID-19 pandemic, it has been decided, in consultation with the Government of India, that the limit for Ways and Means Advances (WMA) for the remaining part of first half of the financial year 2020-21 (April 2020 to September 2020) will be revised to ₹ 2,00,000 crore.

1-Apr-2020: RBI announces further measures for dealing with the COVID-19 pandemic

Extension of realisation period of export proceeds: Presently value of the goods or software exports made by the exporters is required to be realized fully and repatriated to the country within a period of 9 months from the date of exports. In view of the disruption caused by the COVID-19 pandemic, the time period for realization and repatriation of export proceeds for exports made up to or on July 31, 2020, has been extended to 15 months from the date of export. The measure will enable the exporters to realise their receipts, especially from COVID-19 affected countries within the extended period and also provide greater flexibility to the exporters to negotiate future export contracts with buyers abroad.

Review of Limits of Way and Means Advances of States/UT's: Reserve Bank had constituted an Advisory Committee (Chairman: Shri Sudhir Shrivastava) to review the Ways and Means limits for State Governments and Union Territories (UTs). Pending submission of the final recommendations by the Committee, it has been decided to increase WMA limit by 30 percent from the existing limit for all States/UTs to enable the State Governments to tide over the situation arising from the outbreak of the COVID-19 pandemic. The revised limits will come into force with effect from April 1, 2020 and will be valid till September 30, 2020.

Implementation of countercyclical capital buffer: The framework on countercyclical capital buffer (CCyB) was put in place by the Reserve Bank in terms of guidelines issued on February 5, 2015 wherein it was advised that the CCyB would be activated as and when the circumstances warranted, and that the decision would normally be pre-announced. The framework envisages the credit-to-GDP gap as the main indicator, which is used in conjunction with other supplementary indicators. Based on the review and empirical analysis of CCyB indicators, it has been decided that it is not necessary to activate CCyB for a period of one year or earlier, as may be necessary.

27-Mar-2020: COVID-19 – Regulatory Package

Certain regulatory measures were announced to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. In this regard, the detailed instructions are as follows:

Rescheduling of Payments – Term Loans and Working Capital Facilities

In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments1 falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020 upto May 31, 2020 (“deferment”). The accumulated accrued interest shall be recovered immediately after the completion of this period.

Easing of Working Capital Financing

In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working capital cycle. This relief shall be available in respect of all such changes effected up to May 31, 2020 and shall be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19. Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review with regard to their justifiability on account of the economic fallout from COVID-19.

Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA)

Since the moratorium/deferment/recalculation of the ‘drawing power’ is being provided specifically to enable the borrowers to tide over economic fallout from COVID-19, the same will not be treated as concession or change in terms and conditions of loan agreements due to financial difficulty of the borrower under paragraph 2 of the Annex to the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019 (“Prudential Framework”). Consequently, such a measure, by itself, shall not result in asset classification downgrade.

The asset classification of term loans which are granted relief as per paragraph 2 shall be determined on the basis of revised due dates and the revised repayment schedule. Similarly, working capital facilities where relief is provided as per paragraph 3 above, the SMA and the out of order status shall be evaluated considering the application of accumulated interest immediately after the completion of the deferment period as well as the revised terms, as permitted in terms of paragraph 4 above.

The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.

Other Conditions

Lending institutions shall frame Board approved polices for providing the above-mentioned reliefs to all eligible borrowers, inter alia, including the objective criteria for considering reliefs under paragraph 4 above and disclosed in public domain.

Wherever the exposure of a lending institution to a borrower is ₹ 5 crore or above as on March 1, 2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted.

The instructions in this circular come into force with immediate effect. The Board of Directors and the key management personnel of the lending institutions shall ensure that the above instructions are properly communicated down the line in their respective organisations, and clear instructions are issued to their staff regarding their implementation.

8-Oct-2019: Reserve Bank of India releases its annual study of state-level budgets.

Last week, the Reserve Bank of India released its annual study of state-level budgets. With each passing year, understanding about state government finances is becoming more and more important. That’s because of two broad reasons.

One, states now spend one-and-a-half times more than the Union government and, in doing so, they employ five times more people than the Centre. What these two trends mean is that not only do states have a greater role to play in determining India’s GDP than the Centre, they are also the bigger employment generators. As such, it is crucial to understand their spending pattern. If, for example, their combined expenditure contracts from one year to the other, then it will bring down India’s GDP.

Two, since 2014-15, states have increasingly borrowed money from the market — a trend captured in the fiscal deficit figure. In fact, their total borrowing almost rivals the borrowing by the Union government. This trend, too, has serious implications on the interest rates charged in the economy, the availability of funds for businesses to invest in new factories, and the ability of the private sector to employ new labour.

Suppose there is only Rs 100 in the economy that is available in the form of investible savings. This money could be borrowed either by private businesses (to invest in a new or existing venture) or by the government (to make roads, pay salaries etc.). Suppose again that initially, businesses borrow Rs 50 and the central government borrows Rs 50. If, however, state governments also start borrowing, say Rs 20, then private businesses will have only Rs 30 left to borrow and invest. Worse, this Rs 30 would come at a higher interest rate because the same number of people would be now vying for less money. That is why economy observers and businesses fuss over the fiscal deficit number the most.

There is another reason why states borrowing more and more should raise concerns especially when they borrow to meet unexpected policy goals such as farm loan waivers. Each year’s borrowing (or deficit) adds to the total debt. Paying back this debt depends on a state’s ability to raise revenues. If a state, or all the states in aggregate, find it difficult to raise revenues, a rising mountain of debt — captured in the debt-to-GDP ratio — could start a vicious cycle wherein states end up paying more and more towards interest payments instead of spending their revenues on creating new assets that provide better education, health and welfare for their residents.

In short, with each passing year, state government finances have become more and more important not only for India’s GDP growth and job creation but also for its macroeconomic stability. That is why, the 14th Finance Commission had mandated prudent levels of both fiscal deficit (3% of state GDP) and debt-to-GDP (25%) that must not be breached.

The first thing of note that the RBI report has found is that, except during 2016-17, state governments have regularly met their fiscal deficit target of 3% of GDP. On the face of it, this should allay a lot of apprehensions about state-level finances, especially in the wake of extensive farm loan waivers that many states announced as well as the extra burden that was put on state budgets after the UDAY scheme for the power sector was introduced in 2014-15. Under UDAY, state governments had to take over the debts of power distribution companies (discoms).

However, any relief on the fiscal deficit front is of limited value because most states ended up meeting the fiscal deficit target not by increasing their revenues but by reducing their expenditure and increasingly borrowing from the market.

Nothing brings this out better than what happened in 2017-18. Fiscal deficit for all states had breached the 3% (of GDP) mark in 2016-17. But in the very next year, states reduced the fiscal deficit by 109 basis points and brought it down to just 2.4%. But the bulk of this cut was achieved by cutting expenditure — and that too capital expenditure, which was cut by 86 basis points.

But this cut had a flip side. It adversely affected the loans that state governments provided to power projects, food storage and warehousing. It also hurt the states’ capital budget allocation for key social and infrastructure sectors.

The RBI’s report states that this reduction in overall size of state budgets likely worsened the economic slowdown that was slowly setting in since the start of 2016-17, when India had grown by 8.2%. There has been a reduction in the overall size of the state budget in 2017-19. This retarding fiscal impulse has coincided with a cyclical downswing in domestic economic activity and may have inadvertently deepened it. It is noteworthy that 2017-18 saw India’s GDP growth rate decline to 7.2% and it has been declining since.

Possibly the most worrisome observation by the RBI is that while states have met their fiscal deficits, the overall level of debt-to-GDP has reached the 25% of GDP prudential mark. A slightly stringent criterion as prescribed by the FRBM Review Committee and in line with the revised FRBM implied debt target of 20 per cent will put most of the states above the threshold.

The trouble is, states have found it difficult to raise revenues. As the report explains, “States’ revenue prospects are confronted with low tax buoyancies, shrinking revenue autonomy under the GST framework and unpredictability associated with transfers of IGST and grants. Unrealistic revenue forecasts in budget estimates thereby leave no option for states than expenditure compression in even the most productive and employment-generating heads.

23-May-2019: Incentive for improving service to non-chest branches

It has been decided to allow the large modern Currency Chests to increase the service charges to be levied on cash deposited by non-chest bank branches from the existing rate of ₹ 5/- per packet of 100 pieces to a higher rate subject to a maximum of ₹ 8/- per packet. For this purpose, only a Currency Chest fulfilling the Minimum Standards for a Currency Chest shall be eligible to be classified as a large modern Currency Chest.

Banks may approach the Issue Office of Reserve Bank under whose jurisdiction the Currency Chest is located for such classification. The increased rates can be charged only after such classification by the Issue Office concerned. The Non-Chest bank branches linked with such large modern Currency Chests may be advised of the applicability of the increased rates at least 15 days in advance.

21-May-2019: RBI to create regulatory cadre

The Reserve Bank of India’s Central Board has decided to create a specialised supervisory and regulatory cadre.

The cadre is being created with a view to strengthening the supervision and regulation of commercial banks, urban cooperative banks and non-banking financial companies.

The Central Board, in its 576th meeting in Chennai chaired by RBI Governor Shaktikanta Das, reviewed the current economic situation, global and domestic challenges and various areas of operations of the Reserve Bank.

Other matters discussed included issues related to currency management and the banker to government functions of the RBI.

24-Apr-2019: RBI sells entire stake in NHB, NABARD to government.

The Reserve Bank of India has divested its entire stake in National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB) amounting to Rs 20 crore and Rs 1,450 crore to the government. With this, the Centre now holds 100 per cent stake in both the financial institutions. The divestment was done on February 26 and March 19 respectively.

Divestment of the RBI’s stake in NABARD and NHB has its basis in the recommendation of Narasimham Committee II and the Discussion Paper prepared by the RBI on “harmonizing the role and operations of development financial institutions and banks”.

Divestment of the RBI’s shareholding in NABARD was done in two phases. The RBI held 72.5 per cent of equity in NABARD amounting to Rs 1,450 crore out of which 71.5 per cent amounting to Rs 1,430 crore was divested in October 2010 based on the government notification on September 16, 2010. The residual holding was divested on February 26, 2019. The RBI held 100 per cent shareholding in NHB, which was divested on March 19, 2019.

2-Apr-2019: RBI sets WMA Limit for Government at Rs 75000 crore for H1 of 2019-20

The Reserve Bank of India, in consultation with the Government of India, has decided that the limits for Ways and Means Advances (WMA) for the first half of the financial year 2019-20 (April 2019 to September 2019) will be Rs 75000 crore. The Reserve Bank may trigger fresh floatation of market loans when the Government of India utilises 75% of the WMA limit.

The Reserve Bank retains the flexibility to revise the limit at any time, in consultation with the Government of India, taking into consideration the prevailing circumstances.

The interest rate on WMA will be Repo Rate and overdraft will be 2% above the Repo Rate. The Reserve Bank, in consultation with Government of India, will put in place a rule- based WMA limit in future, based on objective parameters.

10-Feb-2019: RBI MSME package to help recast Rs 1-trillion loans

The Reserve Bank's restructuring package for small businesses announced last month will help recast Rs 1 trillion of loans for 700,000 eligible micro, small and medium enterprises. The estimate from the Department of Financial Services (DFS) is much higher than domestic rating agency ICRA's assessment of Rs 10,000 crore. It comes even as some banks have seen a reluctance among the target MSMEs to take advantage of the scheme. DFS said 700,000 MSME units need restructuring.

They all can be restructured till March 2020 without downgrading the asset. Rs 1 trillion worth loans will get restructured. The scheme will help free up additional resources which will fuel demand and create further opportunities in the industry.

The scheme was termed as "regressive" by analysts, as the RBI had officially discontinued the practice of restructuring of advances, which is among the factors blamed for the high NPAs as banks indulged in "ever-greening".

During the past few years, RBI has been doing away with various schemes for asset quality forbearance and hence this is regressive from a credit culture point of view, given the past experiences of the banking sector with restructuring.

The scheme announced by RBI is a one-time scheme wherein a loan tenure and interest rate can be revised without classifying the asset as an NPA. The facility is available for standard advances of up to Rs 25 crore only.

8-Jan-2019: RBI sets up panel under Nandan Nilekani to boost digital payments

The Reserve Bank of India constituted a high-level committee under Nandan Nilekani to suggest measures to strengthen the safety and security of digital payments in the country. The five-member panel on deepening of digital payments has been constituted with a view to encourage digitisation of payments and enhance financial inclusion through digitisation.

The committee shall submit its report within a period of 90 days from the date of its first meeting. The panel has been tasked with reviewing the existing status of digitisation of payments in the country, identifying the current gaps in the ecosystem and suggesting ways to bridge them and assessing the current levels of digital payments in financial inclusion.

It will also suggest measures to strengthen the safety and security of digital payments and a road map for increasing customer confidence and trust while accessing financial services through digital modes.

It has also been asked to undertake cross country analyses with a view to identify best practices that can be adopted in our country to accelerate digitisation of the economy and financial inclusion through greater use of digital payments.

Also a medium-term strategy is to be suggested for deepening of digital payments.

Besides co-founder Nilekani, other members of the panel are former RBI deputy governor H R Khan, former MD and CEO of Vijaya Bank Kishore Sansi and former secretary in ministries of IT and steel Aruna Sharma. The fifth member is Sanjay Jain, chief innovation officer, Centre for Innovation, Incubation & Entrepreneurship (CIIE), IIM Ahmedabad.

14-Dec-2018: Autonomy of RBI

The autonomy for the Central Bank, within the framework of the Reserve Bank of India (RBI) Act, is an essential and accepted governance requirement. A press release was issued by the Government on 31.10.2018 as below:

“The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this. Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy. For the purpose, extensive consultations on several issues take place between the Government and the RBI from time to time. This is equally true of all other regulators. Government of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated. The Government, through these consultations, places its assessment on issues and suggests possible solutions. The Government will continue to do so.”

The Government asked RBI for a review of its Economic Capital Framework (ECF) adopted in 2016. As per press release by RBI on 19.11.2018, the Board has decided to constitute an Expert Committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government and RBI and that RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs. 25 crore, subject to conditions for ensuring financial stability.

The details of RBI surplus transferred to the Government during the last five years are as follows:

19-Oct-2018: Reserve Bank of India releases Dissent Note on Inter-Ministerial Committee for finalization of Amendments to PSS Act

An Inter-Ministerial Committee for finalization of amendments to the Payment & Settlement Systems Act, 2007 was formed by the Government under the chairmanship of Secretary, Department of Economic Affairs. RBI was represented in the Committee.

Draft report of the Committee has been placed in public domain by the Government. RBI representative has submitted a dissent note on certain recommendations of the Committee, a copy of which is reproduced below for public information.

Dissent Note:

1. Payment systems are a sub-set of currency which is regulated by the RBI. The overarching impact of Monetary policy on payment and settlement systems and vice versa provides support for regulation of payment systems to be with the monetary authority.
2. There is an underlying bank account for payment systems which is under the purview of banking system regulation which is vested with the RBI.
3. Settlement systems are finally posted in the books of account of banks with the RBI to attain settlement finality. Regulating these entities goes hand in hand with the settlement function.
4. There are certain payment systems like cards which are issued by banks globally. Dual regulation over such instruments will not be desirable.
5. In India, the payment system is bank-dominated. Regulation of the banking systems and payment system by the same regulator provides synergy and inspires public confidence in the payment instruments.
6. Regulation of the Payment System by the Central Bank is the dominant international model for stability consideration. Thus, having the regulation and supervision over Payment and Settlement systems with the central bank will ensure holistic benefits.
7. There has been no evidence of any inefficiency in payment systems of India. The digital payments have made good and steady progress. India is gaining international recognition as a leader in payment systems. Given this, there need not be any change in a well-functioning system.
8. The Payments Regulatory Board (PRB) must remain with the Reserve Bank and headed by the Governor, Reserve Bank of India. It may comprise 3 members nominated by the Government and RBI respectively, with a casting vote for the Governor to ensure smooth operations of the Board. The composition of the PRB is also not in conformity with the announcements made in the Finance Bill by the Honorable Finance Minister.