RBI’s Statement on Developmental and Regulatory Policies | Key Highlights

Table of Contents

I. Liquidity Measures

II. Regulation and supervision

III. Payment and Settlement Systems

The Monetary Policy Committee (MPC) of RBI at its meeting on April 8, 2022, decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0%. The marginal standing facility (MSF) rate and the Bank Rate remain unchanged at 4.25%. The standing deposit facility (SDF) rate, will be at 3.75%. RBi stated that decisions are harmoniousness intending to achieve the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%.

The RBI has also issued the Statement on Developmental and Regulatory Policies. The statement sets out various developmental and regulatory policy measures relating to liquidity measures, regulation and supervision; and payment and settlement systems.

The key measures include a) Introduction of Interoperable Card-less Cash Withdrawal (ICCW) at ATMs through the use of UPIs b) issuance of new directions for Cyber Resilience and Payment Security Controls of Payment System Operators (PSOs) c) Introduction of the Standing Deposit Facility. d) Restoration of the Symmetric LAF Corridor e) Rationalisation of Net-worth Requirement for Operating Units of Bharat Bill Payment Systems f) Proposal to set up a committee for Review of Customer Service Standards in RBI Regulated Entities.

The key highlight of the statement on the development and Regulatory policies are summed up hereunder:

I. Liquidity Measures

1. Introduction of the Standing Deposit Facility

Reserve Bank is empowered u/s 17 to introduce the Standing Deposit Facility (SDF) – an additional tool for absorbing liquidity without any collateral.

Accordingly, the RBI has decided to institute the SDF with an interest rate of 3.75 percent with immediate effect. The SDF will replace the fixed-rate reverse repo (FRRR) as the floor of the LAF corridor. Both the standing facilities viz., the MSF, and the SDF will be available on all days of the week, throughout the year.

RBI has retained the fixed-rate reverse repo (FRRR) rate at 3.35 percent. RBI said that FRRR will remain as part of the RBI’s toolkit and its operation will be at the discretion of the RBI for purposes specified from time to time. The FRRR along with the SDF will impart flexibility to the RBI’s liquidity management framework.

2. Restoration of the Symmetric LAF Corridor

In 2020 during the pandemic, the width of the Liquidity Adjustment Facility (LAF) corridor was widened to 90 basis points (bps) by asymmetric adjustments in the reverse repo rate vis-à-vis the policy repo rate.

RBI has decided to restore the width of the LAF corridor to its pre-pandemic level. With the introduction of the SDF at 3.75 percent, the policy repo rate being at 4.00 percent, and the MSF rate at 4.25 percent, the width of the LAF corridor is restored to its pre-pandemic configuration of 50 bps. Thus, the LAF corridor will be symmetric around the policy repo rate with the MSF rate as the ceiling and the SDF rate as the floor with immediate effect.

II. Regulation and supervision

3. Individual Housing Loans – Rationalisation of Risk Weights

The Reserve Bank vide circular dated October 12, 2020, had rationalized the risk weights for individual housing loans by linking them only with the loan to value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022.

Recognizing the importance of the housing sector, its multiplier effects, and its role in supporting the overall credit growth, the RBI has decided that the risk weights as prescribed in the circular ibid shall continue for all new housing loans sanctioned up to March 31, 2023.

4. SLR Holdings in HTM category

The Reserve Bank had increased the limits under Held to Maturity (HTM) category from 19.5 percent to 22 percent of net demand and time liabilities (NDTL) in respect of statutory liquidity ratio (SLR) eligible securities acquired on or after September 1, 2020, up to March 31, 2022.

To enable banks to better manage their investment portfolio in FY 2022-23, the RBI has decided to enhance the limit for inclusion of SLR eligible securities in the HTM category to 23 percent of NDTL and allow the banks to include securities acquired between April 1, 2022, and March 31, 2023, under the enhanced limit of 23 percent. The HTM limits would be restored from 23 per cent to 19.5 per cent in a phased manner starting from the quarter ending June 30, 2023.

5. Proposal to set up committee for Review of Customer Service Standards in RBI Regulated Entities

RBI stated that the financial landscape is undergoing a revolutionary transformation consequent to the rising customer base of the banks, advent of digital products, technology platforms and service providers as also the rising volumes of digital transactions emerging from innovations in payment systems.

Accordingly, it has proposed to set up a committee to examine and review the state of customer service in the REs and adequacy of customer service regulations and suggest measure to improve the same.

III. Payment and Settlement Systems

6. Introduction of Interoperable Card-less Cash Withdrawal (ICCW) at ATMs through use of UPIs

Card-less cash withdrawal through ATMs is a permitted mode of transaction offered by a few banks in the country on an on-us basis (for their customers at their own ATMs).

In order to encourage card-less cash withdrawal facility across all banks and all ATM networks/operators, RBI has proposed to enable customer authorisation through the use of Unified Payments Interface (UPI) while settlement of such transactions would happen through the ATM networks. Separate instructions would be issued to NPCI, ATM networks, and banks shortly.

7. Bharat Bill Payment System – Rationalisation of Net-worth Requirement for Operating Units

RBI stated that Bharat Bill Payment System (BBPS) is an interoperable platform for bill payments and the scope and coverage of BBPS extend to all categories of billers who raise recurring bills. Users of BBPS enjoy benefits like standardized bill payment experience, centralized customer grievance redressal mechanism, prescribed customer convenience fee, etc. BBPS has seen an increase in the volume of transactions as well as the number of on boarded billers.

RBI observed that there has not been a corresponding growth in the number of non-bank Bharat Bill Payment Operating Units (BBPOUs). The current requirement of net worth for a non-bank BBPOU to obtain authorisation is ?100 crore and it is viewed as a constraint to greater participation.

Therefore, the RBI has proposed to align the net worth requirement of non-bank BBPOUs with that of other non–bank participants who handle customer funds (like Payment Aggregators) and have a similar risk profile. Accordingly, the net worth requirement for non-bank BBPOUs is being reduced to ?25 crore.

8. RBI to issue new directions for Cyber Resilience and Payment Security Controls of Payment System Operators (PSOs)

The RBI stated that it is important to ensure that payment system infrastructures are not only efficient and effective but also resilient to conventional and emerging risks, specifically those relating to cyber security. RBI had prescribed the necessary security controls for digital payment products and services offered by banks and credit card issuing NBFCs.

Now, the RBI has proposed to issue similar directions for Payment System Operators (PSOs), covering robust governance mechanisms for identification, assessment, monitoring, and management of cybersecurity risks including information security risks and vulnerabilities, and specify baseline security measures for ensuring safe and secure digital payment transactions.