RBI Sentences: RBI Keeps Rates Stable: Here’s the fine print from MPC’s last meeting in FY21

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The Reserve Bank of India kept rates at record lows, as widely expected on Friday, and reiterated that it will continue to support the recovering economy by maintaining ample rupee liquidity in the banking system.

The RBI’s repo rate or key interest rate was kept at 4%, while the reverse repo rate or its borrowed capital rate was left unchanged at 3.35%.

The RBI forecast GDP growth of 10.5% for 2021-22.

After continuously exceeding the upper tolerance threshold, CPI inflation fell to 4.59 percent in December, moving back into the central bank’s comfort zone for the first time in nine months.

Here are the key takeaways from today’s policy meeting …

1. Extension of the TLTRO system

Targeted Long Term Repo Operations (TLTRO), a Rs1 trillion worth of liquidity support program for various sectors and banks, has been expanded to include Non-Banking Financial Companies (NBFCs).

In order to increase the focus of liquidity measures on reviving activity in certain sectors that have both backward and forward links and have multiplier effects on growth, the RBI announced the TLTRO on Tap Scheme on October 9, 2020, which will run until March 31, 2020 .2021.

2.
Recovery of CRR

Upon reviewing money and liquidity conditions, Das said, RBI decided to restore the cash reserve ratio (CRR) in two phases. In the first phase, the CRR will be increased to 3.5% from March 27th and then to 4.0% from May 22nd.

To help banks bridge the disruptions caused by the pandemic, the CRR of all banks was reduced by 100 basis points to 3.0 percent of net demand and time liabilities (NDTL) from March 28, 2020.

3. Expansion of the MSF support facility

In order to relieve banks of their liquidity needs, the easing of the Marginal Standing Facility (MSF) will continue for a further six months, ie until September 30, 2021.

On March 27, 2020, banks were allowed to draw funds from the MSF by dipping into the Statutory Liquidity Ratio (SLR) up to an additional percent of Net Demand and Time Liabilities (NDTL).

This was initially available until June 30, 2020 and was later extended in phases until March 31, 2021.

4. Expansion of the SLR stocks in the HTM category

On September 1, 2020, RBI had the limits in the Held to Maturity (HTM) category from 19.5 percent to 22 percent of the net demand and time liabilities (NDTL) with regard to those on or after September 1, 2020 to March 31, 2021 . This was made available until March 31, 2022.

To provide reassurance to market participants under the Center and States’ lending program for 2021-22, the extended HTM waiver of 22 percent has been extended to March 31, 2023 to include securities acquired between April 1, 2021 and March 31, 2022.

In general, banks must have a certain portion of their NDTL in the form of cash, gold, or other liquid assets. The ratio of these NDTLs is defined as SLR. The central bank is authorized to increase this quota up to 40% of the NDTL.

5. Credit to MSMEs

Planned commercial banks are allowed to deduct loans disbursed to new MSME borrowers from their NDTL for the calculation of the CRR.

New MSME borrowers would be those who had not drawn any credit facilities from the banking system as of January 1, 2021.

This exemption will be available for loans up to Rs 25 lakh per borrower for loans that have been extended for up to two weeks to October 1, 2021, Das said.

6. Postponement of NSFR

While banks are comfortably positioned on the liquidity front, in view of the ongoing stress caused by COVID-19, banks have now been given until October 1, 2021 to meet the higher requirements of the net stable funding ratio.

7. Regulatory framework for microfinance

In March 2021, RBI will publish an advisory document on the harmonization of the regulatory framework for various regulated lenders in the microfinance sector.

8. Committee on primary (municipal) credit unions

An Expert Committee on Public Central Banks, involving all stakeholders, will be set up to present a medium-term roadmap to strengthen the sector, enable faster recovery / resolution of public central banks and examine other critical issues related to these companies.

9. Transfers to IFSCs

In order to deepen the financial markets in IFSCs and give resident individuals the opportunity to diversify their portfolios, RBI has decided to allow resident individuals to make transfers to IFSCs domiciled in India under the Scheme.

10. Online access to the securities market

The central government and the RBI have taken several steps to encourage private investment in government bonds.

This announced that private investors now have direct access to participation in the Gsec market through RBI, both primary and secondary. It’s called Retail Direct.

Up until now, investing directly in government bonds has been a cumbersome affair for private investors. This was only possible through various Gsec or Income funds offered by asset management companies.


11. FPI investments in distressed bonds


In order to encourage investments by FPIs, RBI will extend the exceptions to the short-term limit and the minimum remaining term in accordance with the Medium Term Framework (MTF) to include corporate bonds in default.

Accordingly, FPI investments in distressed corporate bonds are excluded from the short-term limit and the minimum remaining term of the MTF.

12. Integrated ombudsman system

RBI has decided to integrate three existing ombudsman schemes for redressing customer complaints and to provide a centralized scheme. This integrated program will be implemented by June 2021.

13. 24×7 helpline for digital payment services

The helpline will not only create trust, it will also reduce the financial and human effort that would otherwise be required to process inquiries and complaints.

Large payment system operators would have to facilitate the establishment of a centralized, industry-wide 24×7 hotline for customer inquiries about various digital payment products and provide information on available complaint procedures by September 2021.

14. Guidelines on Outsourcing Authorized Payment Systems

In order to manage the associated risks of outsourcing and to ensure that a code of conduct is followed when outsourcing payment and processing services, the Reserve Bank issues guidelines to the operators and participants of authorized payment systems.

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