RBI Notification

FLDG- RBI’s Statement on Developmental and Regulatory Policies

RBI released a developmental and regulatory policy statement on June 8, 2023. The objective of the plan is to encourage sustainability and stability in the financial ecosystem. This statement sets out various regulatory and developmental policy measures relating to Financial Markets, Regulation, and Payment Systems. Following is a detailed discussion of the main recommendations as stated in the Statement on Developmental and Regulatory Policies.

1. Financial Markets

The RBI periodically publishes announcements and statements on the financial markets to provide an assessment of the current economic and financial conditions. Typically, RBI¹ releases these statements as part of its regulatory measure for the purpose of transparency, communication, policy direction, stability, and efficient functioning of the financial market. The statement on developmental and regulatory policies related to the financial market is discussed below:

a. Borrowing in Call and Notice Money Markets by Scheduled Commercial Banks

Prudential restrictions for outstanding borrowing in Call and Notice Money Markets for Scheduled Commercial Banks are set forth in the current guidelines on the Call, Notice, and Term Money Markets. 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 prudential limits for inter-bank liabilities prescribed by the RBI in order to provide greater flexibility for managing money market borrowings. The necessary directions are issued on the same day of the press release.

2. Regulation

The statement aims to safeguard the financial system’s stability, safeguard the interests of borrowers, encourage responsible lending and maintain the general health of the lending sector. The statement on developmental and regulatory policies related to lending and other regulation is discussed below:

a. Expansion of the Scope of Prudential Framework for Stressed Assets

The Prudential Framework provides a broad, principle-based framework for the Resolution of Stressed Assets, dated June 7, 2019.

Stressed Assets: Stressed assets are equal to non-performing assets plus written-off assets plus restructured loans. When assets are not performing, they become doubtful and non-performing assets. If those assets don’t recover, they become bad loans. The period of 90 days before becoming non-performing assets they are called Stressed Assets.

The statement is proposed mainly to:

• Issue a thorough regulatory framework governing compromise settlements and technical write-offs covering all regulated entities;
• Rationalize the existing prudential norms for implementation of resolution plans in respect of exposures affected by natural calamities, drawing upon the lessons from the resolution framework introduced during the Covid-19 pandemic, in order to encourage the same further and harmonize the instructions across all regulated entities. On the aforementioned, specific rules will be released separately.

b. Digital Lending Default Loss Guarantee Arrangement

The First Loss Default Guarantee (FLDG) recommendation is being looked into by the RBI, according to the Press Release dated August 10, 2022, on the Recommendations and Implementation of the Working Group on Digital Lending. It has been determined to establish a legal framework for allowing Default Loss Guarantee arrangements in Digital Lending based on thorough talks with various stakeholders and in line with our objective of maintaining a balance between innovation and sensible risk management. Detailed guidelines on this matter will be issued separately.

c. Priority Sector Lending (PSL) Targets Primary (Urban) Cooperative Banks (UCBs)

In 2020, the PSL targets for UCBs were updated. A glide path was given until March 31, 2024, to achieve the amended targets, ensuring a smooth transition. It has been decided to prolong the phase-in period for the achievement of the aforementioned targets by two years, i.e. up until March 31, 2026, in order to lessen the implementation issues faced by the UCBs. Furthermore, UCBs that had achieved the predetermined targets as of March 31, 2023, would get the proper incentives. On this subject, a thorough circular will be released separately.

d. Rationalization of Licensing Framework for Authorised Persons (Aps) under Foreign Exchange Management Act (FEMA), 1999

The Authorised Persons (APs) licensing framework established by FEMA in 1999 was last examined in March 2006. It has been decided to rationalize and simplify the licensing framework for APs to more effectively meet the evolving requirements of the rapidly expanding Indian economy.

This decision was made in light of the progressive liberalization under FEMA, the growing integration of the Indian economy with the global economy, the digitization of payment systems, evolving institutional structure, etc., over the last 20 years. The goal is to efficiently supply foreign exchange services to common people, tourists, and enterprises while keeping the necessary precautions. The updated authorization framework’s draft will be made available to the public for feedback.

3. Payments Systems

The RBI periodically issues statements on developmental and regulatory initiatives pertaining to payment systems. These statements provide an overview of the RBI’s vision, objectives, and measures for promoting India’s payment systems’ growth, effectiveness, and security. The revised guidelines and detailed instructions will be issued separately. The statement on regulatory and developmental policies on payments systems is discussed below:

a. Widening the Purpose and Reach of e-RUPI Vouchers

The (NPCI) National Payments Corporation of India’s (UPI) Unified Payments Interface (UPI) system powers the e-RUPI, a digital voucher introduced in August 2021. Currently, banks offer purpose-specific vouchers on behalf of the state, federal, and, to a lesser extent, corporate governments. It is suggested to broaden the use and reach of e-RUPI vouchers by

• Allowing non-bank Prepaid Payment Instrument (PPI) issuers to issue e-RUPI vouchers.
• Authorizing the issuance of e-RUPI vouchers on behalf of individuals, keeping in mind the benefits for users and beneficiaries alike.

To make using e-RUPI vouchers easier, additional factors like reloading coupons, the authentication process, issuance restrictions, etc., will also be changed.

b. Streamlining Bharat Bill Payment System Processes and membership criteria

Since August 2017, the “anytime, anywhere” bill payment platform known as the Bharat Bill Payment System (BBPS) has been in use. Currently, BBPS processes over 9.8 crore transactions each month and has onboarded over 20,500 billers. In December 2022, the BBPS’s purview was further broadened to encompass all types of recurring and non-recurring payments and collections, as well as the facilitation of inbound cross-border bill payments. The transaction flow and membership requirements for onboarding operating units in BBPS will be reduced to increase system efficiency and promote broader participation. Soon, revised instructions will be released on this matter.

c. Internationalising Issuance and Acceptance of RuPay Cards

Through bilateral agreements with foreign partners and co-badging agreements with international card schemes, the banks in India that issue the RuPay Debit and Credit cards have increased their recognition on a global scale. It has been decided to permit banks in India to issue RuPay Prepaid Forex cards for usage at ATMs, PoS devices, and online merchants abroad to increase the number of payment choices available to Indians going abroad.

Additionally, RuPay Debit, Credit, and Prepaid Cards will be allowed to be issued in foreign countries and used globally, including in India. These actions will increase RuPay cards’ accessibility and acceptance throughout the world. Instructions will be provided separately on this matter.

FLDG-June-8-Press-Release

Conclusion

Statements by the Reserve Bank of India regarding developmental and regulatory policies are crucial instruments for promoting transparency and guidance in the financial sector. It helps to understand the financial market environment, coordinate their actions, and to make important decisions in the financial industry. These statements play a crucial role in shaping the financial landscape, maintaining stability and sustainable growth.

1. https://en.wikipedia.org/wiki/Reserve_Bank_of_India