Statement on Developmental and Regulatory Policies (RBI Press Release)

Ashish M. Shaji

22 Jan, 2021

The Reserve bank of India recently issued various developmental and regulatory policies. These policy measures intend to achieve various objectives. We will be discussing these policy measures set out by the RBI in this article.

Objective of the Statement on Developmental and Regulatory Policies

The objective of these policy measures is to achieve the following:

• Enhance liquidity support to targeted sectors of the economy with linkages to other sectors;
• Deepen financial markets;
• Conserve capital among banks and NBFCs through the regulatory initiatives;
• Strengthen supervision through the audit function;
• Facilitate external trade by improving the ease of doing business for exporters; and
• Upgrade the payment system services to expand financial inclusion and improve on customer service. 

Statement on Developmental and Regulatory Policies: Liquidity Measures

To increase the focus of liquidity measures on the revival of activity in sectors that have backward and forward linkages and have multiplier effects on growth, the RBI had announced the TLTRO on Tap scheme, which will be available up to 31^st March 2021.

As part of the Atmanirbhar Bharat Package 3.0, the central government had launched the Emergency Credit Line Guarantee Scheme under which the corpus of 3 lakh crore rupees of the existing Emergency Credit Line Guarantee Scheme was extended to provide 100% guaranteed collateral free additional credit to entities in 26 stressed sectors identified by the Kamath Committee of RBIplus health care sector having credit outstanding of more than 50 crore rupees and up to 500 crore rupees as on 29^th February 2020.

In addition to the five sectors announced as part of the scheme, it has been proposed to bring the 26 stressed sectors within the ambit of sectors eligible under the tap TLTRO. Banks have been encouraged to synergize the two schemes by availing funds from RBI and seek a guarantee under the Emergency Credit Line Guarantee Scheme 2.0 to provide credit support to stressed sectors.

Further, in order to facilitate more efficient liquidity management by the regional rural banks at competitive rates, it has been decided to extend the Liquidity Adjustment facility and Marginal Standing Facility to Regional Rural Banks.

Statement on Developmental and Regulatory Policies: Regulation and Supervision

The RBI stated that it has been focusing on mitigating the immediate impact of the debt repayments by the borrowers, enabling credible resolution of the stress of the borrower entities and facilitating credit flow to the economy while keeping a watch on the financial stability imperatives.

Therefore in furtherance of this, the following measures have been announced by the RBI:

• Dividend distribution by banks;
• Dividend distribution policy for NBFCs;
• Discussion paper on Scale based regulatory framework for NBFCs;
• Strengthening audit systems of supervised entities;
• Digital payments Security control;
• Financial Literacy and Education;
• Grievance redressal mechanism in banks

Statement on Developmental and Regulatory Policies: Deepening Financial Markets

It has been decided by the RBI to review the guidelines for Credit Default Swaps^[1]. The Credit Default Swaps guidelines were last issued in January 2013.

Moreover, in line with the international standards and recent changes in the regulations pertaining to interest rate and currency derivatives, the extant guidelines on Derivatives have been reviewed. The revised guidelines aim to promote efficient access to derivative markets.

As announced in the June 6, 2019 statement on developmental and regulatory policy, the existing directions on money market instruments, including call money, commercial paper, certificates of deposit, and other debt instruments, have been reviewed comprehensively by the RBI and rationalized to bring consistency across product.  

Accordingly, three sets of draft directions on call, notice and term money markets, certificate of deposit and commercial papers, and non-convertible debentures with an original maturity of less than 1 year have been released for public feedback.

Statement on Developmental and Regulatory Policies: External Trade- facilitation

The RBI stated that it had announced many measures to enhance the export competitiveness of the country and helping exporters and importers to cope with the challenges posed by the pandemic. The RBI has further decided to liberalize the extant policies governing certain export transactions. The RBI said that these measures would quicken the approval process, thereby improving the ease of doing business.

Statement on Developmental and Regulatory Policies: Payment and Settlement Systems

As of now, the facility of positing settlement files of payment systems, operated by authorized payment system operators to the RBI is available on RTGS working days. It is now proposed to allow the settlement files of payment systems to be posted to the RBI on all days of the year.

The RBI stated that this can reduce build up of settlement and default risks and enable better management of funds by member banks. It is expected to enhance the overall efficiency of the payments ecosystem.

Further, the RBI stated that contactless card transactions have enhanced customer convenience in general while benefiting from the increased usage of technology. This also helps in these times of Covid-19 pandemic, making payments safe and secure manner. With a view to further the adoption of digital payments in a safe manner, it has been proposed to enhance the limit for contactless card transactions at the discretion of the user. RBI has proposed to enhance the limit from 2000 rupees to 5000 rupees from 1^st January 2021. 

Conclusion

The Reserve Bank had released this statement on developmental and regulatory policies on December 4 2020. These policy measures are expected to help in achieving the goal that the RBI has set out and has been discussed at the start of this article.

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