RBI Monetary policy: Governor announces eight additional measures across segments; check details
RBI Governor Shaktikanta Das has announced eight additional measures to improve and amend various segments, including the money market to the issuance of e-RUPI vouchers by non-banking firms.
PremiumReserve Bank of India (RBI) Governor Shaktikanta Das on Thursday (June 8) announced eight additional measures to improve and amend the rules of various segments. These measures include expanding the scope and reach of e-RUPI vouchers and permitting the issuance of RuPay Prepaid Forex cards by banks to expand payment options for Indians travelling abroad.
Let's take a look:
1. SCBs can set their own limits for borrowing in Call and Notice Money Markets
"With a view to providing greater flexibility for managing their liquidity, it has been decided that Scheduled Commercial Banks (excluding small finance banks) can set their own limits for borrowing in Call and Notice Money Markets within the prescribed prudential limits for inter-bank liabilities," RBI Governor Das announced.
The extant regulatory guidelines prescribe prudential limits for outstanding borrowing in Call and Notice Money Markets for Scheduled Commercial Banks (SCBs). Now, SCBs can set their own limits for borrowing in Call and Notice Money Markets within the prescribed limits.
2. Widening of the scope of the Framework for the Resolution of Stressed Assets:
Compromise settlement is recognised as a resolution mechanism in respect of non-performing assets (NPA) under the Prudential Framework, which is currently applicable to SCBs and select NBFCs.
"It is proposed to issue comprehensive guidelines on compromise settlements and technical write-offs which will now be applicable to all regulated entities including co-operative banks," said Das.
"Further, it is also proposed to rationalise the extant prudential norms on the restructuring of the borrower accounts affected by natural calamities," Das added.
3. Default loss guarantee arrangement in digital lending
The Reserve Bank issued the regulatory framework for Digital Lending in August/September 2022. With a view to further promoting responsible innovation and prudent risk management, RBI has decided to issue guidelines on Default Loss Guarantee arrangements in Digital Lending. As per the RBI, this will further facilitate the orderly development of the digital lending ecosystem and enhance credit penetration in the economy.
4. Timelines for achieving priority sector lending targets by UCBs extended
The Reserve Bank has undertaken several initiatives in recent years to strengthen the UCB (Urban Cooperative Banks) sector as well as to deepen financial inclusion. Such initiatives include the revision of the priority sector lending targets for UCBs in 2020.
While revising the PSL targets, a glide path up to March 2024 was provided for a non-disruptive transition to achieve the revised targets. While a number of UCBs have met the required milestones as of March 2023, a need has arisen to ease the implementation challenges faced by other UCBs.
"It has been decided to extend the timelines for achieving the targets by two more years up to March 2026. Further, UCBs which have met the targets as on March 31, 2023, shall be suitably incentivised," said Das.
Read more: MPC keeps repo rate unchanged at 6.5%; FY24 GDP growth forecast retained at 6.5%
5. Rationalisation of licensing framework
"The licensing framework for Authorised Persons (APs) issued under FEMA was last reviewed in March 2006. Keeping in view the developments, including progressive liberalisation under FEMA, over the last several years and to effectively meet the emerging requirements of the rapidly growing Indian economy, it has been decided to rationalise and simplify the licensing framework for APs," said Governor Das.
"This is expected to improve the efficiency in the delivery of foreign exchange facilities to various segments of users including common persons, tourists and businesses," he said.
6. Expanding the scope and reach of e-RUPI vouchers
Governor Das proposed to expand the scope and reach of e-RUPI vouchers by (i) permitting non-bank prepaid payment instruments (PPI) issuers to issue e-RUPI vouchers; (ii) enabling issuance of e-RUPI vouchers on behalf of individuals; and (iii) simplifying the process of issuance, redemption, etc. These measures will make the benefits of eRUPI digital vouchers accessible to a wider set of users and further deepen the penetration of digital payments in the country.
Read more: RBI to allow non-bank companies to issue e-RUPI vouchers, says Governor Shaktikanta Das
7. Streamlining the Bharat Bill Payment System
The Bharat Bill Payment System (BBPS) is operational since August 2017. The scope of BBPS was further expanded in December 2022. "To further enhance the efficiency of the BBPS system and to encourage greater participation, it is proposed to streamline the process flow of transactions and membership criteria for operating units," said Das.
8. RuPay cards
RuPay Debit and credit cards issued by banks in India are gaining increased acceptance abroad. It has now been decided to permit the issuance of RuPay Prepaid Forex cards by banks. "This will expand the payment options for Indians travelling abroad. Further, RuPay cards will be enabled for issuance in foreign jurisdictions. These measures will expand the reach and acceptance of RuPay cards globally," said Das.
Experts' Views
Jyoti Prakash Gadia, Managing Director of Resurgent India underscored that the additional measures announced by RBI in today's policy review are aimed at bringing about reforms and relaxations in the rules and regulations to further facilitate a robust and resilient financial system.
"The relaxation in respect of call money borrowings will improve the short-term liquidity of market operations. The fresh set of guidelines on restructuring of advances, a compromise settlement, and technical write-off is expected to strengthen the mechanism of handling the credit portfolio of commercial banks with a greater element of standardization and a balanced risk management framework, while effectively planning the balance sheet growth and profitability" said Gadia.
"Digital learning and the role of Fintechs are expected to be boosted with revised guidelines on Default Loss Guarantee Arrangement, which may facilitate the Fintechs to indirectly take partial credit risk by way of providing such guarantees, which have so far not been permitted. This is going to be a major decision to further increase the domain of digital lending which will contribute to a deeper and widened credit market. The forex market shall also get a chance to grow further with the proposed reforms in licensing mechanisms under FEMA, in line with the overall growth of the economy," Gadia said.
Shashank Sharma, Director of Scoreme Solutions said the introduction of various measures, such as the expansion of e-RUPI vouchers and the allowance for banks to issue RuPay Prepaid Forex cards for Indians travelling abroad, will contribute to the deepening of the financial market. Additionally, the Default Loss Guarantee Arrangement may enable Fintech companies to indirectly assume partial credit risk through the provision of such guarantees, a practice that was previously not permitted.
Sharma believes the recently issued guidelines on restructuring advances, compromise settlements, and technical write-offs are expected to fortify credit portfolio management in commercial banks. These guidelines seek to enhance standardization and establish a well-balanced risk management framework, empowering banks to strategically plan for their growth and profitability
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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