Inquisitive Mind

Reserve Bank of India (RBI) has added another tool to its monetary policy kit with the introduction of Standing Deposit Facility (SDF). What is Standing Deposit Facility (SDF)? Standing Deposit Facility (SDF) is an arrangement wherein banks can park their surplus liquidity with Reserve Bank of India (RBI), without the need for any collateral in exchange. SDF rate is the interest rate offered by RBI on the funds parked by banks under SDF. What is the basis of introduction of SDF? In 2014, Expert Committee set up by RBI to revise and strengthen monetary policy framework (Chairman: Dr. Urjit Patel) had recommended the introduction of SDF.  To empower RBI to introduce SDF, Section 17(1A) was added to Reserve Bank of India Act, 1934 in 2018, which reads as – “Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management”. From when is SDF operational? SDF is o...

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the seventh article in the series.  Chapter IIIC – Prohibition of Acceptance of Deposits by Unincorporated Bodies Section 45S – Interpretation An individual / firm / unincorporated association of individuals shall not accept any deposits if – his / its business wholly or partly includes the activities specified in Section 45-I. his / its principal business is that of receiving deposits, or lending in any manner. Section 45T – Power to issue search warrants On an application by RBI / State Government, the Court to issue search warrant for the documents relating to acceptance of deposits in contravention of the provisions of Section 45S. Chapter IIID – Regulation of Transactions in Derivatives, Money Market Instruments, Securities, etc. Section 45V – Transactions in derivati...

Reserve Bank of India (RBI) has reviewed the guidelines for non-bank Payment System Operators (PSOs). Prior approval of RBI RBI to be intimated The non-bank PSOs (authorised to operate any Payment System) require prior approval of RBI in the following cases – Takeover / Acquisition of control, which may / may not result in change of management. Sale / Transfer of payment activity to an entity not authorised for undertaking similar activity. RBI endeavours to respond within 45 calendar days after receipt of complete details from both the seller / transferor non-bank PSO and the buyer / transferee entity. The timeline is not applicable in case of overseas principal in Money Transfer Service Scheme. The non-bank PSOs shall inform RBI within 15 calendar days in the following cases – Change in management / directors. Sale / Transfer of payment activity to an entity authorised for undertaking similar activity. What are the requirements of prior public notice? Sal...

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the sixth article in the series. Section 45K – Power of Bank to collect information from non-banking institutions as to deposits and to give directions RBI may direct non-banking institution, to furnish to RBI, statements of deposits received by the non-banking institution. The statements furnished by non-banking institution may relate to the amount of the deposits, the purposes and periods for which, and the rates of interest and other terms and conditions on which, they are received. RBI may give directions to non-banking institutions in respect of the receipt of deposits, the rate of interest payable on such deposits and the periods for which deposits may be received. If any non-banking institution fails to comply with the directions, RBI may prohibit the acceptance of depo...

Reserve Bank of India (RBI) has released the “Payments Vision 2025”.  Payments Vision Reserve Bank of India (RBI) has been providing strategic direction and implementation plan for structured development of the payment and settlement systems in India through periodic Payments Vision documents right from the year 2001. Payments Vision 2019-21 Core theme – Empowering Exceptional (E)Payment Experience Vision Statement – Empower every Indian with access to a bouquet of e-payment options that is safe, secure, convenient, quick and affordable Four goal-posts (4 Cs) – Competition, Cost, Convenience and Confidence Specific action points – 36  Expected outcomes – 12 Payments Vision 2025 Payments Vision 2025 builds on the Payments Vision 2019-21 and outlines the thought process for the period up to December 2025. Core theme – E-Payments for Everyone, Everywhere, Everytime (4 Es) Vision – Provide every user with Safe, Secure, Fast, Convenient, Accessible, and Affordable e-payment options...

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fifth article in the series.  Chapter IIIA - Collection and Furnishing of Credit Information Section 45B – Power of Bank to collect credit information RBI may collect credit information from banking companies and furnish it to any banking company in accordance with section 45D. Section 45C – Power to call for returns containing credit information RBI may direct any banking company to submit statements relating to credit information. Section 45D – Procedure for furnishing credit information to banking companies A banking company may apply to RBI to provide credit information. RBI shall furnish the requested credit information without disclosing the names of the banking companies which have submitted the information. RBI may levy fees of up to Rs.25 for furnishing credit...

Reserve Bank of India (RBI) and the Bank Indonesia (BI) signed a Memorandum of Understanding (MoU). When and where was the MoU signed? Reserve Bank of India (RBI) and the Bank Indonesia (BI) signed a Memorandum of Understanding (MoU) on July 16, 2022 in Bali, Indonesia, on the sidelines of the G20 Finance Ministers and Central Bank Governors Meeting to improve mutual cooperation between the two central banks.  Who were the signatories to the MoU? The MoU was signed by RBI Deputy Governor Michael Debabrata Patra and BI Deputy Governor Dody Budi Waluyo in the presence of RBI Governor Shaktikanta Das and BI Governor Perry Warjiyo. What is the commitment under the MoU? With this MoU, RBI and BI committed to deepen relations between both central banks and strengthen the exchange of information and cooperation in the area of central banking, including payment systems, digital innovation in payments services, and regulatory and supervisory framework for Anti Money Laundering and Combating...

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fourth article in the series.  Section 42 – Cash reserves of scheduled banks to be kept with the Bank 42(1) – Every bank included in the Second Schedule shall maintain with RBI an average daily balance at a percent (notified by RBI) of its total demand and time liabilities in India. 42(1A) – RBI may direct every scheduled bank to maintain with RBI, in addition to the balance prescribed under Section 42(1), an additional average daily balance at a rate (specified by RBI). 42(1C) – RBI may specify any transaction or class of transactions to be regarded as liability in India of a scheduled bank. If any question arises as to whether any transaction or class of transactions shall be regarded as liability in India of a schedule bank, the decision of RBI thereon shall be fina...

Reserve Bank of India (RBI) has put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in Indian Rupee (INR).  What does new arrangement entail? The broad framework for cross border trade transactions in Indian Rupee (INR) under Foreign Exchange Management Act, 1999 (FEMA) is as below – All exports and imports under this arrangement may be denominated and invoiced in INR. Exchange rate between the currencies of the two trading partner countries may be market determined. The settlement of trade transactions under this arrangement shall take place in INR. How are the transactions processed under new arrangement? For settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.  To allow settlement of international trade transactions through this arrangement, it has been decided that – Indian importers undertaking imports through this mec...

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the third article in the series.  Chapter III - Central Banking Functions Section 20 – Obligation of the Bank to transact Government business RBI shall undertake – To accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations. Management of the public debt of the Union. Section 21 – Bank to have the right to transact Government business in India The Central Government shall entrust RBI with – All its money, remittance, exchange and banking transactions in India, and shall deposit free of interest all its cash balances with RBI. The Central Government may carry on money transactions at places where RBI has no branches or agencies and m...

Reserve Bank of India (RBI) has signed its renewed Statement of Commitment (SoC) to the FX Global Code.  What is FX Global Code? FX Global Code is a compilation of best market practices, formulated by Central Banks and market participants, developed under the auspices of Bank for International Settlements (BIS), Basel. The Code, which was initially launched on May 25, 2017, was subsequently reviewed holistically and the updated Code was published by Global FX Committee on July 15, 2021. When is FX Global Code applicable? FX Global Code is applicable to the Wholesale FX market participants covering sell-side, buy-side and financial intermediaries, and is voluntary in nature.  The Code does not impose any legal or regulatory obligation and is intended to be a supplement to the local laws, rules and regulations.  Where is FX Global Code implemented? FX Global Code is currently being implemented globally by the Global FX Committee (GFXC) in co-ordination with the Local FX Com...