{"id":62912,"date":"2023-02-16T15:55:12","date_gmt":"2023-02-16T10:25:12","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=62912"},"modified":"2024-06-01T14:37:27","modified_gmt":"2024-06-01T09:07:27","slug":"statement-on-developmental-and-regulatory-policies-rbi-notification","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/statement-on-developmental-and-regulatory-policies-rbi-notification\/","title":{"rendered":"Statement on Developmental and Regulatory Policies: RBI Notification"},"content":{"rendered":"

RBI notified the Statement on Developmental and Regulatory Policies on 8th<\/sup> 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.<\/p>\n\n\n\n

Financial Markets<\/h2>\n\n\n\n

 The Developmental and Regulatory Policies regarding the financial markets focus on the below-mentioned aspects.<\/p>\n\n\n\n

 Introducing Securities Lending and Borrowing in Government Securities<\/h3>\n\n\n\n

RBI has decided to introduce Securities Lending and Borrowing in Government Securities as a well-functioning market<\/a> 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.<\/p>\n\n\n\n

Regulation<\/h2>\n\n\n\n

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<\/p>\n\n\n\n

Recovery of Penal Charges on Loans<\/h3>\n\n\n\n

 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.<\/p>\n\n\n\n

 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.<\/p>\n\n\n\n

 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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Regulatory Initiatives on Sustainable Finance Climate Risk<\/h3>\n\n\n\n

 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:<\/p>\n\n\n\n