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Highlights of RBI Annual Report 2022-23 – Chapter 4 and 5

Reserve Bank of India (RBI) had released its annual report for the financial year 2022-23. In a series of articles, we will go through the highlights of the report. This is the second article in the series. 

Chapter 4 – Credit Delivery and Financial Inclusion

  • Centre for Financial Literacy (CFL) project is RBI’s endeavour to bring together non-government organisations (NGOs) and banks to enable innovative and community-led participative approaches to strengthen financial literacy at the grassroot levels. CFL project was piloted in 2017 and based on the experience gained, it is being scaled up across the country in a phased manner. Funding support for the project is provided by Depositor Education Awareness Fund (DEAF), Financial Inclusion Fund (FIF) of National Bank for Agriculture and Rural Development (NABARD) and sponsor banks. One of the milestones of National Strategy for Financial Inclusion (NSFI) is to expand the reach of CFLs at every block in the country by March 2024. 
  • Financial Literacy Centres (FLCs) are established by banks and are manned by the financial literacy counsellors.
  • The following has been permitted as priority sector lending (PSL) on an on-going basis – (a) lending by Schedule Commercial Banks (SCBs) to Non-Banking Financial Companies (NBFCs) for the purpose of on-lending to ‘agriculture’ and ‘micro and small enterprises’; and (b) lending by small finance banks (SFBs) to NBFC-Microfinance Institutions (MFIs) and other MFIs, which have a ‘gross loan portfolio’ (GLP) of up to ₹500 crore as on March 31 of the previous financial year, for the purpose of on-lending to individuals.
  • Modified interest subvention scheme for short-term loans for agriculture and allied activities availed through Kisan Credit Card (KCC) was extended to farmers during the financial years 2022-23 and 2023-24, with the applicable lending rate of 7% and rate of interest subvention of 1.5%.
  • As at end-March 2023, 12 public sector banks and 1 private sector bank have been assigned lead bank responsibility, covering 760 districts across the country.
  • Providing banking access to every village within 5 kilometre radius / hamlet of 500 households in hilly areas is one of the key objectives of NSFI: 2019-2024. The milestone has been achieved fully in 26 states and 7 union territories (UTs) as on March 31, 2023, and 99.96% of the identified villages / hamlets across the country have been covered.
  • 182 districts have been identified for making them 100% digitally enabled, out of which 87 are 100% digitally enabled as on March 31, 2023.
  • A composite Financial Inclusion Index (FI-Index) captures the extent of financial inclusion across the country. It is based on 97 indicators comprising 3 broad sub-indices (weights indicated in brackets), viz., access (35%), usage (45%), and quality (20%). It improved from 53.9 in March 2021 to 56.4 in March 2022.
  • Financial Literacy Week (FLW) was observed between February 13 and 17, 2023 on the theme of ‘Good Financial Behaviour – Your Saviour’, with a focus on creating awareness about saving, planning and budgeting, and prudent use of digital financial services.

Chapter 5 – Financial Markets and Foreign Exchange Management

  • Authorised dealer category-I (AD Cat-I) banks and standalone primary dealers (SPDs), authorised under Section 10(1) of Foreign Exchange Management Act (FEMA), 1999 have been permitted to offer foreign currency settled – overnight indexed swap (FCS-OIS) contracts to non-residents and other eligible market-makers.
  • In terms of the G20 over the counter (OTC) derivatives market reforms, OTC derivatives which are not centrally cleared should be subject to requirements for variation margin (collateral collected or paid to reflect the current mark-to-market exposure, between counterparties) and initial margin (collateral collected to cover the potential future exposure).
  • “Alert List" of entities which are neither authorised to deal in forex under FEMA, 1999 nor authorised to operate electronic trading platforms for forex transactions was published. It also includes names of entities / platforms / websites which appear to be promoting unauthorised entities / electronic trading platforms (ETPs), including through advertisements of such unauthorised entities or claiming to be providing training / advisory services. 
  • All new issuances of central government securities of 7-year and 14-year tenors (including the current issuances) were designated as ‘specified securities’ under fully accessible route (FAR).
  • All Sovereign Green Bonds issued by the government in the fiscal year 2022-23 were designated as ‘specified securities’ under FAR.
  • Investments by Foreign Portfolio Investors (FPIs) in government securities and corporate debt under the Medium-Term Framework (MTF) were exempted from the requirements of short-term investment limit and minimum residual maturity till October 31, 2022.
  • Authorised dealer category-I banks were permitted to utilise overseas foreign currency borrowing (OFCB) for lending in foreign currency to entities for a wider set of end-use purposes, subject to the negative list set out for external commercial borrowings (ECBs). The dispensation for raising such borrowings was available till October 31, 2022.
  • Mumbai Interbank Forward Offer Rate (MIFOR) is a financial benchmark comprising: (a) USD London interbank offered rate (LIBOR) and (b) USD/INR forward premia as components. In the backdrop of cessation of LIBOR, MIFOR has been replaced with modified MIFOR (MMIFOR) for new financial transactions from January 1, 2022. MMIFOR comprises the adjusted secured overnight financing rate (SOFR) and Financial Benchmarks India Private Limited (FBIL) forward premia rate. MMIFOR has been notified as a ‘significant benchmark’.
  • Resident entities were permitted to hedge their gold price risk on recognised exchanges in International Financial Services Centre (IFSC) recognised by International Financial Services Centres Authority (IFSCA).
  • The draft Foreign Exchange Management (Compounding Proceedings) Rules, 2022 propose the following major amendments: (a) Enhancing the compounding powers of RBI officers designated as Compounding Authorities; (b) Enabling electronic / online modes of payment for compounding application fees and compounding amount; and (c) Enabling the powers to RBI to lay down the procedure for compounding.
  • In view of the difficulties being experienced by exporters in receipt of export proceeds from Sri Lanka and based on the State Bank of India’s credit facility agreement dated March 17, 2022, with the Government of Sri Lanka for sanction of Government of India guaranteed USD 1,000 million term loan to the latter for financing purchase of essential goods by Sri Lanka from India, it was decided that such trade transactions with Sri Lanka, falling under the said arrangement, may be settled in Indian Rupee (INR) outside the Asian Clearing Union (ACU) mechanism.
  • AD category-I banks were advised that all eligible current account transactions including trade transactions with Sri Lanka shall be settled in any permitted currency outside the ACU mechanism until further notice.
  • Qualified jewellers [as notified by International Financial Services Centres Authority (IFSCA)] were permitted to import gold under specific ITC (HS) codes through India International Bullion Exchange IFSC Limited (IIBX), in addition to the nominated agencies [as notified by Directorate General of Foreign Trade (DGFT)] and nominated banks (as notified by RBI for import of gold). Consequently, Authorised Dealer (AD) banks were permitted to allow qualified jewellers (as notified by IFSCA) to remit advance payment to enable them to import gold through IIBX in IFSC.
  • An additional arrangement for invoicing, payment, and settlement of exports / imports in INR was provided. Under this arrangement, settlement of trade transactions with any country can be done in INR through Special Rupee Vostro Accounts of correspondent banks of the partner trading country maintained with AD banks. 
  • There was temporary increase of External Commercial Borrowing (ECB) limit under the automatic route from USD 750 million or its equivalent per financial year to USD 1.5 billion and the all-in-cost ceiling by 100 bps for borrowers of investment-grade rating. These temporary measures were available for the ECBs raised up to December 31, 2022.
  • Foreign Investment Reporting and Management System (FIRMS) portal was revamped to introduce the system of auto-acknowledgment of reporting of forms and online calculation of Late Submission Fee (LSF).
  • Master Direction - Reserve Bank of India (Variation Margin) Directions, 2022 were issued, mandating covered entities to exchange variation margin for non-centrally cleared derivative (foreign exchange, interest rate and credit) transactions.


References

Reserve Bank of India. (2023, May 30). 'RBI Annual Report 2022-23'. Retrieved from https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?year=2023


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