Skip to main content

RBI’s Monetary Policy (August 10, 2023): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) has been announced on August 10, 2023. Here are some of the highlights of the monetary policy announcement.

Rates and reserves

 

ChangeRate
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 projection CPI inflation projection
FY 2023-24 6.5% 5.4%
Q1 of FY 2023-24 8.0% 4.6%
Q2 of FY 2023-24 6.5% 6.2%
Q3 of FY 2023-24 6.0% 5.7%
Q4 of FY 2023-24 5.7% 5.2%
Q1 of FY 2024-25 6.6% 5.2%
  • Indian economy is exuding enhanced strength and stability. India’s strong macroeconomic fundamentals have laid the foundations for sustainable growth.
  • Indian economy has become the fifth largest economy in the world (in terms of GDP at market exchange rate), contributing around 15% to global growth. 
  • The global economy continues to face daunting challenges of elevated inflation, high levels of debt, tight and volatile financial conditions, continuing geopolitical tensions, fragmentations and extreme weather conditions. India is, however, expected to withstand the external headwinds far better than many other countries.
  • Headline inflation projection for Q2 of 2023-24 has been revised up substantially, primarily due to the price shock from vegetables.
  • RBI Governor reiterated that “bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4%”.
  • Indian financial sector has been stable and resilient, as reflected in sustained growth in bank credit, low levels of non-performing assets and adequate capital and liquidity buffers.
  • Corporate balance sheets are robust, with lower leverage, improving debt servicing capacity and strong profitability. 
  • India’s current account deficit (CAD) was contained at 2.0% of GDP in 2022-23 as compared with 1.2% in 2021-22. Merchandise trade deficit has narrowed in Q1 of 2023-24 with contraction in imports exceeding contraction in exports. Services exports and remittances are, however, expected to provide cushion to the current account deficit. RBI, therefore, expects CAD to remain eminently manageable during the current financial year also.
  • Latest available data suggest that India’s external debt to GDP ratio improved to 18.9% at end-March 2023 from 20% at end-March 2022.
  • Indian rupee has remained stable since January 2023. 
  • Foreign exchange reserves have crossed US$ 600 billion mark.
  • The level of surplus liquidity in the system has gone up in the recent months on the back of return of ₹2000 banknotes to the banking system, RBI’s surplus transfer to the government, pick up in government spending and capital inflows.
  • In recent years, RBI’s stated stance on liquidity is to maintain adequate liquidity in the system to meet the productive requirements of the economy. Excessive liquidity, on the other hand, can pose risks to price stability and also to financial stability. 
  • With effect from the fortnight beginning August 12, 2023, scheduled banks shall maintain an incremental cash reserve ratio (I-CRR) of 10% on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. This measure is intended to absorb the surplus liquidity generated by various factors including the return of ₹2000 notes to the banking system. This is purely a temporary measure for managing the liquidity overhang. Even after this temporary impounding, there will be adequate liquidity in the system to meet the credit needs of the economy. The I-CRR will be reviewed on September 8, 2023 or earlier with a view to returning the impounded funds to the banking system ahead of the festival season. 
  • The existing cash reserve ratio (CRR) remains unchanged at 4.5%.

Other measures

  • The extant regulations issued in June 2019 will be revised and a comprehensive, risk-based framework will be put in place for administration of financial benchmarks. This will cover all benchmarks related to foreign exchange, interest rates, money markets and government securities. 
  • At present, Infrastructure Debt Funds (IDFs) provide refinancing facilities for lenders in the infrastructure sector. The extant regulatory framework for IDFs has been revised. The key changes in the revised framework are –
    • Withdrawal of the requirement to have a sponsor for the IDFs
    • Allowing IDFs to finance toll-operate-transfer (ToT) projects as direct lenders
    • Permitting IDFs to raise funds through ECBs
    • Making tri-partite agreements optional for PPP projects
  • A transparent framework will be put in place for reset of interest rates on floating interest loans. The framework will require Regulated Entities to –
    • Clearly communicate with borrowers for resetting the tenor and / or EMI
    • Provide options for switching to fixed rate loans or foreclosure of loans
    • Disclose various charges incidental to the exercise of the options
    • Ensure proper communication of key information to borrowers 
  • The guidelines on submission of supervisory returns by supervised entities will be consolidated and harmonised into a single Master Direction. 
  • “Conversational Payments” will be introduced on UPI, which will enable users to engage in conversation with AI-powered systems to make payments. This channel will be made available in both smartphones and feature phones-based UPI channels. The facility will, initially, be available in Hindi and English and will subsequently be made available in more Indian languages. 
  • Offline payments will be introduced on UPI using Near Field Communication (NFC) technology through ‘UPI-Lite’ on-device wallet
  • The transaction limit for small value digital payments in off-line mode without two-factor authentication will be enhanced from ₹200 to ₹500 within the overall limit of ₹2000 per payment instrument.
  • RBI, in association with the Reserve Bank Innovation Hub (RBIH), started a pilot project in September 2022 for frictionless credit delivery through end-to-end digital processes, starting with Kisan Credit Card (KCC) loans of less than ₹1.60 lakh. The pilot for KCC loans is currently operational in select districts of Madhya Pradesh, Tamil Nadu, Karnataka, UP and Maharashtra. Recently, dairy loans have been included in the pilot project in select districts of Gujarat. Based on the learnings from the pilots and to expand the scope of end-to-end digital lending processes, a Public Tech Platform for Frictionless Credit delivery is being developed by the RBIH. The Platform is intended to be rolled out as a pilot project in a calibrated manner. It will have an open architecture and open Application Programming Interface (API) and Standards, to which all financial sector players can connect seamlessly in a ‘plug and play’ model. 


References

Reserve Bank of India. (2023, August 10). 'Governor’s Statement: August 10, 2023'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56175

Reserve Bank of India. (2023, August 10). 'Statement on Developmental and Regulatory Policies'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56174


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Digital Payments – E-mandate Framework 2026

Reserve Bank of India (RBI) has issued e-mandate framework for digital payments. What is an e-mandate?  A mandate is a standard instruction that a customer provides to his / her issuing bank and other institutions allowing them to automatically debit the mentioned amount from his / her bank account. e-mandate is the electronic version of it. To whom shall the framework be applicable? The framework shall be applicable to Payment System Providers and Payment System Participants. To which transactions shall the framework be applicable? The framework shall be applicable to processing of recurring transactions, domestic or cross-border, using cards / Prepaid Payment Instrument (PPI) / Unified Payments Interface (UPI). What are the guidelines for registration and revocation of e-mandate? A customer desirous of opting for e-mandate facility shall undertake a one-time registration process. The mandate shall be registered only after successful validation of additional factor of authenticati...
Post a Comment
Read more

Credit Information Reporting

Reserve Bank of India (RBI) had issued directions on credit information reporting by the regulated entities. What are Credit Information Companies (CICs)? Credit Information Companies (CICs) mean companies that have been granted a certificate of registration by RBI under section 5 of the Credit Information Companies (Regulations) Act, 2005 (CICRA).  The following CICs are registered with RBI – CRIF High Mark Credit Information Services Private Limited Equifax Credit Information Services Private Limited Experian Credit Information Company of India Private Limited TransUnion CIBIL Limited What are Credit Institutions (CIs)? Credit Institutions (CIs) mean the following institutions – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export I...
Post a Comment
Read more

Utkarsh 2029

Reserve Bank of India (RBI) has published its medium-term strategy framework – Utkarsh 2029, for the period April 2026 to March 2029. Utkarsh RBI had first formulated its medium-term strategy framework, viz. ‘Utkarsh 2022’ for the period 2019-2022 in July 2019, replacing its annual action plans as the latter spanned over a short period, insufficient to pursue strategic objectives.  The strategic framework contained, inter alia, RBI’s Mission, Core Purpose, Values and Vision Statements, reiterating RBI’s commitment to the Nation. It became a medium-term strategy document guiding RBI’s progress towards realisation of the identified milestones. The subsequent strategy framework, i.e., ‘Utkarsh 2.0’, spanned the period 2023-25. Utkarsh 2029  Utkarsh 2029 is the medium-term strategy framework for the period April 2026 to March 2029. Utkarsh 2029 has a 3-layered structure consisting of strategy pillars guided by the vision and values of RBI. Vision of Utkarsh 2029 – Continue excelle...
Post a Comment
Read more

Treatment of Wilful Defaulters and Large Defaulters

Reserve Bank of India (RBI) had issued the directions on treatment of wilful defaulters and large defaulters. To whom shall the directions be applicable? The directions shall be applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export Import Bank of India (EXIM Bank) National Bank for Agriculture and Rural Development (NABARD) National Housing Bank (NHB) Small Industries Development Bank of India (SIDBI) National Bank for Financing Infrastructure and Development (NaBFID) Non-Banking Financial Companies (NBFCs) categorized as Middle Layer and above layers – Deposit taking NBFC (NBFC-D) NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro Finance Institutions (NBFC-MF...
Post a Comment
Read more

Guidelines to facilitate faster cross-border inward payments

Reserve Bank of India (RBI) has issued guidelines to facilitate faster cross-border inward payments. What is the rationale behind the guidelines? The RBI’s Payments Vision 2025 aims to bring efficiency in the cross-border payments aligning with the G20 roadmap for cross-border payments that has set targets for achieving cheaper, faster, more transparent, and more accessible cross-border payments. One of the challenges with speed of cross-border payments is experienced at the beneficiary leg i.e., the time taken from receipt of the payment at the beneficiary bank till credit to the beneficiary account. What are the guidelines to facilitate faster cross-border inward payments? Banks shall inform their customer of the receipt of cross-border inward transactions immediately on receipt of inward message. Messages received after close of operating hours of banks shall be informed to customer immediately at the start of the next business day. Banks shall undertake reconciliation and confirmat...
1 comment
Read more