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We are pleased to release the latest edition of our RBI Regulatory updates, covering the updates from September, October and November 2024. Like other editions, this edition covers significant events in these three months impacting the banking and monetary sectors.
In September 2024, the Reserve Bank of India (RBI) held its Monetary Policy Committee (MPC) meeting. In this meeting, several key decisions were made to address liquidity stress and maintain a neutral monetary policy stance amidst rising inflation and economic uncertainties.
One of the major highlights of the MPC meeting was the decision to lower the Cash Reserve Ratio (CRR) by 50 basis points, bringing it down to 4%. This measure is expected to inject INR 1.16 lakh crore into the banking system, providing much-needed liquidity to address current financial stress. By reducing the CRR, the RBI aims to ensure that banks have more funds available for lending, thereby stimulating economic activity.
The repo rate remains unchanged at 6.5% for the 11th consecutive time. This decision reflects the RBI's commitment to maintaining a neutral monetary policy stance. Despite rising inflation and economic uncertainties, the RBI has chosen to keep the repo rate steady to balance growth and inflation dynamics.
The RBI has revised its inflation forecast for the fiscal year 2025 to 4.8%, up from the previous estimate of 4.5%. This adjustment acknowledges the persistent inflationary pressures in the economy. Additionally, the GDP growth estimates have been lowered to 6.6% from 7.2%, reflecting slower economic activity and the impact of inflation on consumer demand.
At the RBI@90 High-Level Conference on “Central Banking at Crossroads,” the RBI Governor Mr. Shaktikanta Das highlighted the success of central banking over the decades despite numerous challenges. He emphasised emerging risks to overall financial stability, such as the rapid growth of private credit markets with limited regulation, the impact of high interest rates on debt servicing costs, and financial market volatility. These factors, collectively or individually, can potentially trigger a global financial crisis. The Governor underscored the importance of vigilance and proactive measures to safeguard financial stability.
October 2024 was marked by significant developments as outlined in the RBI’s Statement on Developmental and Regulatory Policies. The central bank introduced key measures to enhance the regulatory framework for lending, payments, technology, and other areas.
The RBI is broadening its responsible lending conduct norms to include loans to micro and small enterprises (MSEs). This move aims to ensure that lending practices are fair and transparent, thereby protecting the interests of small borrowers.
To reduce the risk of incorrect credits and related fraud, the RBI has issued new directives for Unified Payments Interface (UPI), Real-Time Gross Settlement (RTGS), and National Electronic Funds Transfer (NEFT) payments. These measures are expected to enhance the security and reliability of digital payment systems.
The RBI plans to introduce focused measures for capital raising for primary (urban) co-operative banks. A discussion paper on this topic will be released, aiming to strengthen the financial health of these institutions.
In a proactive step to address climate-related financial risks, the RBI has proposed the creation of the Reserve Bank – Climate Risk Information System (RB-CRIS). This system will provide high-quality, standardised climate data to help financial institutions manage climate risks effectively.
At the ‘Financing 3.0 Summit’ organised by the Confederation of Indian Industry (CII), the RBI Deputy Governor highlighted the ‘India growth story’ powered by a robust financial sector. He outlined five strategic facets contributing to aspirational growth:
The RBI introduced MuleHunter, an AI and ML-based infrastructure designed to combat digital fraud through mule bank accounts. This system aggregates data from banks and payment operators to identify and mitigate frauds effectively, enhancing the security of the financial ecosystem.
The RBI has raised interest rate ceilings on Foreign Currency Non-Resident Bank [FCNR (B)] deposits to attract higher capital inflows. Small finance banks (SFBs) are now allowed to offer pre-sanctioned credit lines via UPI, following its introduction by scheduled commercial banks (SCBs) in September 2023. This initiative aims to boost financial inclusion and formal credit access.
This edition of the RBI Regulatory Banking Insights covers key regulatory updates from September to November 2024. These include amendments to KYC guidelines, directives for supervised entities to review Gold Loan Policies, and updated guidelines for credit institutions and credit information companies. Additionally, the RBI has issued a draft circular on forms of business and prudential regulation for investments, targeting banks, NBFCs, and financial holding companies to eliminate potential regulatory arbitrage.
We are pleased to release the latest edition of our RBI Regulatory updates, covering the updates from September, October and November 2024.
