RBI Notification

Statement on Developmental and Regulatory Policies: RBI Notification

Regulatory Policies

RBI notified the Statement on Developmental and Regulatory Policies on 8th February 2023 with regard to the (i) Financial Markets; (ii) Regulation; (iii) Payment and Settlement Systems, and (iv) Currency Management. The present article shall discuss the various aspects of the same.

Financial Markets

 The Developmental and Regulatory Policies regarding the financial markets focus on the below-mentioned aspects.

 Introducing Securities Lending and Borrowing in Government Securities

RBI has decided to introduce Securities Lending and Borrowing in Government Securities as a well-functioning market of same shall be adding depth to the securities market of the government in order to aid efficient discovery of price. It will also augment the existing market for ‘special repos’.  Another expectation from this system is the facilitation of wider participation in the securities lending market by providing investors with an avenue for deploying idle securities, thereby enhancing portfolio returns.  The Apex bank would be issuing Draft Directions separately for the comments of the stakeholders.


The Developmental and Regulatory Policies with regard to regulation focus on 2 broad aspects i.e. Recovery of Penal Charges on Loans and Regulatory Initiatives on Climate Risk and Sustainable Finance

Recovery of Penal Charges on Loans

 As per the extant guidelines, Regulated Entities (REs) have the operational autonomy of formulating the policy approved by the Board for levying the penal interest on advances that shall be fair and transparent.

 The intent of penal interest was essentially the inculcation of a sense of credit discipline among borrowers through negative incentives, but such shouldn’t be used as a  tool for enhancing revenue over and above the contracted rate of interest.

 Divergent practices amongst REs were indicated by the supervisory review with regard to the levy of penal interest, which was excessive in certain cases, leading to customer grievances and disputes.

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The extant regulatory guidelines on the levy of penal interest were reviewed in the above context, which has led to the decision that any penalty with regard to default/ delay in servicing of the loan or any other non- adherence to material terms and conditions of the loan contract by the borrower be in as  ‘penal charges’ in a transparent and reasonable manner and won’t be levied in the form of ‘penal interest’ which is added to the rate of interest being charged on the advances.

Further, there won’t be capitalisation of penal charges. However, in the event of any deterioration in the borrower’s credit risk profileRegulated Entities shall have the freedom of altering the credit risk premium under extant guidelines on the interest rate. Draft guidelines with respect to the same shall be issued for comments from stakeholders.

Regulatory Initiatives on Sustainable Finance Climate Risk

 RBI is a full-service central bank with financial stability as part of its mandate; therefore, it recognises that climate change becomes a climate-related financial risk for Regulated Entities (REs), providing broader financial stability implications. In order to prepare a strategy based on global best practices for mitigating the adverse impacts of climate change, a Discussion Paper (DP) discussing the same was issued by the Apex bank on July 27, 2022, for  the comments and feedback on the public  O after analysing the feedback received for the same  it has been decided to issue the below-mentioned guidelines for REs:

  • Broad framework for  accepting the  Green Deposits;
  • Guidance on  Stress Testing and Climate Scenario Analysis
  • Disclosure framework on Climate-related Financial Risks,

These guidelines shall be issued in a phased manner. Further,  RBI shall consolidate all instructions, publications,  press releases, speeches and related RBI communication on sustainable finance and climate risk.

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Payment and Settlement Systems

Developmental and Regulatory Policies in respect of Payment and Settlement System are

Expansion of   the scope of the Trade Receivables Discounting System (TReDS)

RBI issued the guidelines with respect to the same in December 2014, with the objective being the facilitation of the financing of trade receivables of MSMEs.  After this, 3  entities started operating TReDS platforms, and 2  more entities have been granted in-principle authorisation, which shall process about ₹60,000 crore worth of transactions annually.

 For providing further impetus to TReDS platforms,   a proposal for the expansion of their scope of activity is stated below.  Such measures will help in further improvement of MSME’s[1] cash flows.

The facility of Insurance will now be permitted on TReDS with the objective of encouraging/discounting and financing of payables of buyers irrespective of their credit ratings.  In accordance with the same, insurance companies will  have permission of participating as a “fourth participant” on TReDS, apart from the MSME financiers, sellers, buyers and

All entities/institutions eligible to undertake factoring business as per the Factoring Regulation Act will be allowed to participate as financiers in TReDS.

Secondary market operations will now be enabled on TReDS platforms for allowing financiers to offload their existing portfolio to other financiers within the same TReDS platform if required.

Extending UPI for Inbound Travellers to India

 An enhancement has been made recently for providing  UPI access to NRIs having international mobile numbers linked to their NRE / NRO accounts.

There has been a proposal for permitting all inbound travellers to India to access UPI for their merchant payments (P2M)  when they are in India.

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For the starting, this facility will be extended to travellers from the G-20 countries that arrive at select international airports. Later on, this facility will be enabled across all other entry points in the country. Necessary operational instructions will be issued shortly.

Currency Management

The currency management segment of the Developmental and Regulatory Policies shall deal with the following –

QR Code-based Coin Vending Machine – Pilot project

 For the purpose of improving the distribution of coins among members of the public, RBI is focused toward the preparation of a pilot project on a QR Code-based Coin Vending Machine (QCVM) in collaboration with some leading banks.

 It is a cashless coin dispensation machine that shall dispense coins against debit to the customer’s bank account using UPI.

Unlike cash-based traditional Coin Vending Machines, the new machine aims towards eliminating the requirement for physical tendering of banknotes and their authentication. Customers will be having an option of withdrawing coins in the required denominations and quantity in QCVMs.

The pilot project is planned to be introduced at 19 locations in twelve cities across the nation initially. These vending machines would be installed at public places such as shopping malls, railway stations and marketplaces for enhancing ease and accessibility. On the basis of the observations from the pilot tests, the guidelines would be issued to banks for promoting the better distribution of coins using QCVMs.


The development and regulatory policies proposed by RBI can immensely contribute to the development of Financial Markets and the Payment and Settlement Systems and facilitate better currency management and regulations.

Also Read: What are the Regulatory Requirements of Non-Banking Financial Company in India?

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