[Analysis] RBI Regulatory Reforms 2024 – UPI Limits | MSME Guidelines | Others

RBI Regulatory Reforms refer to the series of policy updates and changes implemented by the Reserve Bank of India to enhance the regulatory framework governing India's financial ecosystem. These reforms, announced in 2024, aim to improve financial stability, increase transparency, and foster innovation within the banking and financial sectors. Key aspects of the 2024 reforms include:
– Introduction of a beneficiary name look-up feature for RTGS and NEFT transactions to prevent erroneous transfers and fraud
– Significant increases in transaction limits for UPI123 Pay and UPI Lite to promote wider financial inclusion
– Extended foreclosure charge guidelines to micro and small enterprises to ensure fair lending practices
Additionally, these reforms address the evolving needs of cooperative banks in capital management and prepare financial institutions to better manage climate-related risks by creating a comprehensive data repository.

Table of Contents

1. Introduction
2. Beneficiary Name Look-up Feature for RTGS/NEFT Transfers
3. Enhancement of UPI123 Pay Transaction Limit to Rs 10,000 and UPI Lite Wallet Limit to Rs 5,000
4. Extension of ‘Foreclosure Charge Guidelines’ to Micro and Small Enterprises
5. ‘Capital Raising Avenues for Primary (Urban) Co-operative Banks
6. Creation of Data Repository, ‘Reserve Bank Climate Risk Information System’
7. Conclusion

1. Introduction

The Reserve Bank of India (RBI) vide. Press Release No. 2024-2025/1254, dated October 9, 2024, unveiled a series of significant development and regulatory policies aimed at enhancing financial stability and promoting sustainability in the financial ecosystem. These initiatives cover key areas such as regulatory reforms and payment systems, with a focus on encouraging innovation, improving transparency and safeguarding customer interests. The key proposals outlined in the Statement on Developmental and Regulatory Policies are discussed in detail hereunder:

2. Beneficiary Name Look-up Feature for RTGS/NEFT Transfers

Payment Systems like Unified Payments Interface (UPI) and Immediate Payment Service (IMPS) allow the remitter to verify the name of the receiver (beneficiary) before initiating a payment transaction. Requests have been made to introduce such a facility for Real Time Gross Settlement System (RTGS) and National Electronic Funds Transfer (NEFT) systems.

Accordingly, the RBI has proposed introducing a beneficiary account name look-up facility to enable remitters in RTGS and NEFT to verify the name of the beneficiary account holder before initiating funds transfer. Remitters can input the account number and the branch IFSC code of the beneficiary, following which the beneficiary’s name will be displayed. This facility will increase customer confidence by reducing the possibility of wrong credits and fraud.

3. Enhancement of UPI123 Pay Transaction Limit to Rs 10,000 and UPI Lite Wallet Limit to Rs 5,000

In order to encourage wider adoption of UPI, the RBI has decided to enhance the limits for the following UPI products –

• UPI123 Pay – UPI123 was launched in March 2022, with a view to enable feature-phone users to use UPI. This facility is currently available in 12 languages. At present, the per-transaction limit for UPI123 Pay is capped at Rs 5,000. To widen the use cases, after consultation with the stakeholders, the RBI has decided to increase the per transaction limit to Rs 10,000.
• UPI Lite – Currently, a limit of Rs 500 per transaction and an overall limit of Rs 2,000 per UPI Lite wallet are in place, along with the auto-replenishment facility. To expand the scope of usage of this product, the RBI has now decided to raise the UPI Lite wallet limit to Rs 5,000 and the per-transaction limit to Rs 1,000.

4. Extension of ‘Foreclosure Charge Guidelines’ to Micro and Small Enterprises

As per the extant guidelines, banks and NBFCs are not permitted to levy foreclosure charges/pre-payment penalties on any floating rate term loan sanctioned to individual borrowers, with or without co-obligants, for purposes other than business.

To further safeguard customers’ interests by promoting better transparency and customer centricity among lenders, the RBI has decided to extend the scope of these regulations to cover loans to Micro and Small Enterprises (MSEs) provided by the Regulated Entities of the Reserve Bank.

5. ‘Capital Raising Avenues for Primary (Urban) Co-operative Banks

The initial set of guidelines on the issuance and regulation of share capital and securities for Primary (Urban) Co-operative Banks (UCBs), aimed at ensuring alignment with the Banking Regulation (Amendment) Act 2020, was issued in 2022. However, these guidelines did not cover the newly enabled capital-related provisions, such as the issuance of special shares, shares at a premium, etc., which are new to the co-operative banking sector.

The Report of the Expert Committee on Primary (Urban) Co-operative Banks, chaired by Shri. N.S. Vishwanathan, former Deputy Governor, RBI, had provided broad guiding principles through its recommendations on these provisions.

To further operationalise these recommendations, a Working Group was constituted within the RBI to address the newly enabled capital-related provisions. Based on the recommendations of the Working Group, a Discussion Paper on Capital Raising Avenues for Primary (Urban) Co-operative Banks will be issued to solicit feedback and suggestions from stakeholders.

6. Creation of Data Repository, ‘Reserve Bank Climate Risk Information System’

Climate change is emerging as one of the significant risks to the financial system. Regulated entities must undertake climate risk assessments to ensure the stability of their balance sheets and the financial system. These assessments require high-quality data relating to local climate scenarios, climate forecasts, and emissions.

However, the available climate-related data is characterised by various gaps, such as fragmented and varied sources and differing formats, frequencies, and units. To address these gaps, the RBI has proposed creating a data repository, namely, the Reserve Bank—Climate Risk Information System (RB-CRIS), comprising of two parts.

The first part will be a web-based directory listing various data sources (meteorological, geospatial, etc.), and will be publicly accessible on the RBI website. The second part will be a data portal comprising datasets (processed data in standardised formats). Further, access to this data portal will be made available only to the regulated entities in a phased manner.

7. Conclusion

In conclusion, the RBI’s recent regulatory and development initiatives aim to enhance financial stability, transparency and inclusivity in India’s financial ecosystem. The introduction of the beneficiary account name look-up feature will improve users’ safety and confidence by reducing errors and potential fraud. Similarly, increasing UPI123 Pay and UPI Lite transaction limits will encourage broader UPI adoption, particularly for feature phone users, thereby promoting financial inclusion.

The extension of foreclosure charge guidelines to MSMEs highlights the commitment to customer-centric banking and fair lending practices. Further, the creation of the Reserve Bank Climate Risk Information System reflects the RBI’s forward-looking approach to addressing the growing risks posed by climate change. Overall, these initiatives reflect the RBI’s ongoing efforts to strengthen regulations, encourage innovation and address new challenges, with the goal of maintaining a strong and stable financial system.