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RBI’s Monetary Policy (June 08, 2023): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on June 08, 2023. Here are some of the highlights of the monetary policy announcement.

Rates and reserves

 

ChangeRevised rate
Policy repo rateUnchanged6.50%
Standing deposit facility (SDF) rate6.25%
Marginal standing facility (MSF) rate6.75%
Bank rate6.75%

Monetary policy stance

  • Withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Economy 

 

GDP growth projectionCPI inflation projection
FY 2023-246.5%5.1%
Q1 of FY 2023-248.0%4.6%
Q2 of FY 2023-246.5%5.2%
Q3 of FY 2023-246.0%5.4%
Q4 of FY 2023-245.7%5.2%
  • Domestic macroeconomic fundamentals are strengthening – economic activity is exhibiting resilience; inflation has moderated; the current account deficit has narrowed; and foreign exchange reserves are comfortable.
  • The Indian banking system remains stable and resilient, credit growth is robust and domestic financial markets have evolved in an orderly manner.
  • India’s real gross domestic product (GDP) recorded a growth of 7.2% in 2022-23, stronger than the earlier estimate of 7% and is holding up well. 
  • Headline Consumer Price Index (CPI) inflation has come down during March-April 2023 to 4.7% in April, the lowest reading since November 2021. The headline inflation, though within the tolerance band, still remains above the target and the goal is to achieve the target of 4% going forward. 
  • The average system liquidity is still in surplus mode and could increase as ₹2,000 banknotes get deposited in the banks.
  • The Indian rupee has remained stable since January 2023. 
  • Foreign exchange reserves stood at a comfortable level of US$ 595.1 billion (as on June 02, 2023). Inclusive of net forward assets, foreign exchange reserves are well above US$ 600 billion.

Other measures

  • The extant regulatory guidelines prescribe prudential limits for outstanding borrowing in Call and Notice Money Markets for Scheduled Commercial Banks (SCBs). With a view to providing greater flexibility for managing their liquidity, SCBs (excluding Small Finance Banks) will be permitted to set their own limits for borrowing in Call and Notice Money Markets within the prescribed prudential limits for inter-bank liabilities.
  • Compromise settlement is recognized as a resolution mechanism in respect of non-performing assets (NPA) under the Prudential Framework, which is currently applicable to SCBs and select NBFCs. Comprehensive guidelines will be issued on compromise settlements and technical write-offs which will now be applicable to all regulated entities including co-operative banks. The extant prudential norms on restructuring of borrower accounts affected by natural calamities will be rationalized.
  • RBI had issued the regulatory framework for Digital Lending in August / September 2022. With a view to further promoting responsible innovation and prudent risk management, the guidelines will be issued on Default Loss Guarantee arrangements in Digital Lending. 
  • While revising the priority sector lending targets for Urban Co-operative Banks (UCBs) in 2020, a glide path up to March 2024 was provided for a non-disruptive transition to achieve the revised targets. While a number of UCBs have met the required milestones as of March 2023, a need has arisen to ease the implementation challenges faced by other UCBs. Therefore, the timelines for achieving the targets has been extended by two more years up to March 2026. Further, UCBs which have met the targets as on March 31, 2023 will be suitably incentivised.
  • The licensing framework for Authorised Persons (APs) will be rationalized and simplified.
  • The e-RUPI, a digital voucher launched in August 2021, rides on the Unified Payments Interface (UPI) system of National Payments Corporation of India (NPCI). At present, purpose-specific vouchers are issued by banks on behalf of Central and State Governments and to a limited extent on behalf of corporates. The scope and reach of e-RUPI vouchers will be expanded by –
    • Permitting non-bank prepaid payment instruments (PPI) issuers to issue e-RUPI vouchers
    • Enabling issuance of e-RUPI vouchers on behalf of individuals
    • Simplifying the process of issuance, redemption, etc. 
  • Bharat Bill Payment System (BBPS) is an ‘anytime anywhere’ bill payments platform which is operational since August 2017. The scope of BBPS was further expanded in December 2022 to include all categories of payments and collections, both recurring and non-recurring in nature, as well as facilitating in-bound cross-border bill payments. To enhance efficiency of the system and to encourage greater participation, the process flow of transactions and membership criteria for onboarding operating units in BBPS will be streamlined.
  • RuPay Debit and Credit cards issued by banks in India are gaining increased acceptance abroad. To expand the payment options for Indians travelling abroad, banks will be permitted to issue RuPay Prepaid Forex cards. Further, RuPay cards will be enabled for issuance in foreign jurisdictions. 


References

Reserve Bank of India. (2023, June 08). 'Governor’s Statement: June 8, 2023'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=55816

Reserve Bank of India. (2023, June 08). 'Statement on Developmental and Regulatory Policies'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=55815


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