Skip to main content

RBI’s Monetary Policy (October 06, 2023): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on October 06, 2023. Here are some of the highlights of the monetary policy announcement.

Rates

 

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.

Global economy

  • The global economy is slowing under the impact of tight financial conditions, protracted geopolitical tensions and increasing geoeconomic fragmentation. 
  • Global trade is contracting. 
  • Headline inflation is easing but rules above the target in major economies. 
  • While major central banks are signalling a peaking of their rate hike cycle, there are indications that the tight monetary policy stance could persist for longer than anticipated earlier. 
  • Sovereign bond yields have firmed up, the US dollar has appreciated, and global equity markets have corrected.

Domestic Economy 

 

GDP growth projectionCPI inflation projection
FY 2023-246.5%5.4%
Q2 of FY 2023-246.5%6.4%
Q3 of FY 2023-246.0%5.6%
Q4 of FY 2023-245.7%5.2%
Q1 of FY 2024-256.6%5.2%
  • Growth –
    • Domestic economic activity exhibits resilience on the back of strong domestic demand.
    • Domestic demand conditions are likely to benefit from sustained buoyancy in services, consumer and business optimism, government’s continued thrust on capex, healthy balance sheets of banks and corporates, and supply chain normalisation. 
    • Real gross domestic product (GDP) posted a growth of 7.8% year-on-year (y-o-y) in Q1:2023-24.
  • Inflation –
    • The heightened inflation levels in July and August at 7.4% and 6.8% respectively, were largely driven by food price pressures.
    • Core inflation softened to 4.9% during July-August 2023.
    • Near-term inflation is expected to soften on the back of vegetable price correction, especially in tomatoes, and the reduction in LPG prices.
    • Inflation target is 4% and not 2-6%. Aim is to align inflation to the target on a durable basis, while supporting growth.
  • Headwinds from geopolitical tensions and geoeconomic fragmentation, volatility in global financial markets, global economic slowdown, uneven monsoon, global food and energy prices, pose risks to the outlook.
  • Financial market –
    • The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete.
    • Excessive liquidity can pose risks to both price and financial stability. To ensure that liquidity conditions evolve in sync with the monetary policy stance, as a temporary measure, an incremental cash reserve ratio (I-CRR) of 10% was imposed, which impounded about ₹1.1 lakh crore from the banking system. The I-CRR was reviewed on September 08, 2023 and is being discontinued in a phased manner, ending October 07, 2023.
    • The Indian banking system continues to be resilient, backed by improved asset quality, stable credit growth and robust earnings growth.
  • External Sector –
    • The current account deficit (CAD) for Q1:2023-24 declined to 1.1% of GDP.
    • India’s foreign exchange reserves stood at US$ 586.9 billion as on September 29, 2023.
    • External debt to GDP ratio was placed at 18.6% at end-June 2023 and reserves to external debt ratio was 94.6%. 
    • The reserve cover of imports is over 10 months.

Other measures

  • The extant prudential norms for projects under implementation have been reviewed and a comprehensive regulatory framework applicable for all regulated entities will be released for public comments. 
  • Under the Large Exposures Framework, Non-Banking Financial Companies (NBFCs) in the Upper Layer are permitted to use Credit Risk Mitigation (CRM) instruments for reducing their exposures to a counterparty. NBFCs in the Middle and Base Layers will also be permitted to use CRM instruments for reducing their counterparty exposure under the credit concentration norms.
  • To incentivize the Urban Co-operative Banks (UCBs) that have met the prescribed Priority Sector Lending (PSL) targets as on March 31, 2023, the existing limit for Gold Loans under the Bullet Repayment scheme has been increased from ₹2 lakh to ₹4 lakh. 
  • A draft omnibus framework for recognising Self-Regulatory Organisations (SROs) for various categories of Regulated Entities (REs) of RBI will be issued for stakeholder comments.
  • Payments Infrastructure Development Fund (PIDF) Scheme was operationalised RBI in January 2021 for a period of 3 years to incentivise the deployment of payment acceptance infrastructure such as physical Point of Sale (PoS), Quick Response (QR) codes in tier-3 to tier-6 centres, north eastern states and Union Territories of Jammu & Kashmir and Ladakh. Beneficiaries of PM SVANidhi Scheme in Tier-1 and 2 centres were later included in August 2021. 
    • As at end-August 2023, over 2.66 crore new touch points have been deployed under the Scheme. 
    • The scheme has been extended by 2 years, i.e., up to December 31, 2025. 
    • The coverage of PIDF scheme is also being expanded (i) to include the beneficiaries of PM Vishwakarma Scheme and (ii) to deploy emerging modes of payment acceptance, such as soundbox and Aadhaar-enabled biometric payment acceptance devices. 
  • At present, Card-on-File (CoF) token can only be created through merchant’s application or webpage. CoF token creation facilities will now be introduced directly at the issuer bank level. 
  • At present, the Internal Ombudsman (IO) framework in regulated entities comprises of separate guidelines for select Scheduled Commercial Banks (SCBs), Non-Bank issuers of Prepaid Payment Instruments (PPIs), NBFCs; and all Credit Information Companies (CICs). These guidelines have similar design features but vary in certain operational aspects. The IO guidelines will be consolidated and harmonised into a single master direction. 


References

Reserve Bank of India. (2023, October 06). 'Governor’s Statement: October 6, 2023'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56501

Reserve Bank of India. (2023, October 06). 'Statement on Developmental and Regulatory Policies'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56503


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Report of the Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector

Reserve Bank of India (RBI) has released the report of the committee to develop a framework for responsible and ethical enablement of artificial intelligence (FREE-AI) in the financial sector. Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector In the financial sector, Artificial Intelligence (AI) has the potential to unlock new forms of customer engagement, enable alternate approaches to credit assessment, risk monitoring, fraud detection, and offer new supervisory tools. At the same time, increased adoption of AI could lead to new risks like bias and lack of explainability, as well as amplifying existing challenges to data protection, cybersecurity, among others. To encourage the responsible and ethical adoption of AI in the financial sector, the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector (Chairperson: Dr. Pushpak B...
Post a Comment
Read more

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...
Post a Comment
Read more

Non-Fund Based Credit Facilities

Reserve Bank of India (RBI) has issued directions on non-fund based credit facilities. To whom shall the directions be applicable? The directions shall apply to the following Regulated Entities (REs) for all their Non-Fund Based (NFB) exposures such as guarantee, letter of credit, co-acceptance etc. Commercial Banks (including Regional Rural Banks and Local Area Banks) Primary (Urban) Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) / Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs) in Middle Layer and above, only for the issuance of Partial Credit Enhancement. The directions shall not apply to the derivative exposures of a RE. Which NFB facilities are permitted to be issued by RE? RE shall issue a NFB facility only on behalf of a customer having funded credit facility from the RE. However, this shall not be applicable in respect of – Derivative contracts entered int...
Post a Comment
Read more

RBI’s Monetary Policy (August 06, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on August 06, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Unchanged 5.50% Standing deposit facility (SDF) rate 5.25% Marginal standing facility (MSF) rate 5.75% Bank rate 5.75% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy  Real GDP growth for 2025-26 is projected at 6.5%. CPI headline inflation declined for the eighth consecutive month to a 77-month low (since January 2019) of 2.1% in June, driven primarily by a sharp decline in food inflation. Food inflation recorded its first negative print since February 2019 at (-) 0.2% in June. CPI inflation for 2025-26 is projected at 3.1%. India’s current account deficit (CAD) moderated to 0.6% of GDP in 2024-25 from 0.7% of GDP in 2023-24 due to robust services exports and strong remittances receipts despite higher merchandise trade deficit. As on Augus...
Post a Comment
Read more

Committees to be constituted by NBFC-BL

Non-Banking Financial Companies (NBFCs) are required to constitute various committees for effective corporate governance. This article lists out some of the important committees to be constituted by the Base Layer NBFCs (NBFC-BL). Board of Directors Applicability Companies Act, 2013 Section 149(1) – Every company shall have a Board of Directors. Composition of the Board Companies Act, 2013 Section 149(1) – The Board of Directors shall consist of individuals as directors – Public company – minimum 3 directors Private company – minimum 2 directors One Person Company – minimum 1 director  Maximum 15 directors (more than 15 directors may be appointed after passing a special resolution) Section 149(4) – Every listed public company shall have at least 1/3rd of the total number of directors as independent directors. Companies (Appointment and Qualifications of Directors) Rules, 2014 Rule 3 – The following companies shall appoint at least 1 woman director – Every listed company Every other...
Post a Comment
Read more