Inquisitive Mind

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on December 06, 2024. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Unchanged 6.50% Standing deposit facility (SDF) rate 6.25% Marginal standing facility (MSF) rate 6.75% Bank rate 6.75% Monetary policy stance ‘Neutral’ and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth. Domestic Economy    GDP growth projection CPI inflation projection FY 2024-25 6.6% 4.8% Q3 of FY  2024-25 6.8% 5.7% Q4 of FY  2024-25 7.2% 4.5% Q1 of FY 2025-26 6.9% 4.6% Q2 of FY  2025-26 7.3% 4.0% Growth in real GDP in Q2 at 5.4% turned out to be much lower than anticipated. This decline in growth was led mainly by a substantial deceleration in industrial growth due to subdued performance of manufacturing companies (petroleum products, iron and steel and cement), contraction in mining activity ...

Reserve Bank of India (RBI) has released operational framework for reclassification of Foreign Portfolio Investment to Foreign Direct Investment (FDI). What is Foreign Portfolio Investment? Foreign portfolio investment means any investment made by a person resident outside India through equity instruments where such investment is less than 10% of the post issue paid-up share capital on a fully diluted basis of a listed Indian company or less than 10% of the paid-up value of each series of equity instrument of a listed Indian company.  Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised. Foreign Portfolio Investor (FPI) means a person registered in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014. What is Foreign Direct Investment (FDI)? Foreign Direct Investment (FDI) means investment through equity instruments by a person reside...

Reserve Bank of India (RBI) has issued directions on access criteria for NDS-OM. What is NDS-OM? Negotiated Dealing System-Order Matching (NDS-OM) is the Electronic Trading Platform (ETP) authorised by RBI for transactions in Government securities. It is an anonymous screen-based order matching module, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants.  It is operated by Clearing Corporation of India Limited (CCIL) on behalf of RBI.  Who can access NDS-OM? Any person / entity eligible to invest in Government securities shall be eligible to access NDS-OM either through direct access or through indirect access. Direct Access – means access to NDS-OM wherein an entity that is party to a transaction directly executes / reports the transaction on / to the platform and such transactions are settled in its own Subsidiary General Ledger (SGL) account. Indirect Access – means access to N...

Reserve Bank of India (RBI) has issued directions on compounding of contraventions under FEMA, 1999. What is contravention and compounding of contravention under FEMA, 1999? Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules, regulations, etc. issued thereunder. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.  What is be the penalty for contravention under FEMA, 1999? In terms of Section 13(1) of the FEMA, 1999, if any person contravenes any provision of FEMA, 1999, or any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by RBI, he shall, upon adjudication, be liable to – Penalty up to thrice the sum involved in such contravention where the amount is quantifiable, or  Penalty up to ₹2 lakhs where the amount is not directly quantifiab...

Reserve Bank of India (RBI) had released a guidance note on operational risk management and operational resilience. What is Operational Risk? Operational Risk means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.  It includes legal risk but excludes strategic and reputational risk. It is inherent in all banking / financial products, activities, processes and systems. Basel Committee on Banking Supervision (BCBS) recognized Operational Risk as a distinct class of risk in 2001, outside of credit and market risks. What is Operational Risk Management and Operational Resilience? Operational Risk Management refers to entire gamut of activities right from risk identification, measurement and assessment, monitoring and control, mitigation, reporting to senior management and the Board of Directors on the RE’s risk exposures, Business Continuity Management, and learning through feedback for improvement. Operational Resilien...

Reserve Bank of India (RBI) has released the framework for recognition of Self-Regulatory Organisations (SROs) in Financial Markets regulated by RBI. What is the need of Self-Regulatory Organisations in Financial Markets regulated by RBI? RBI is tasked with the regulation, development and oversight of (i) Interest rate markets, including the Government securities market; (ii) Money markets, including the market for repo in Government securities and corporate bonds; (iii) Foreign exchange markets; (iv) Derivatives on interest rates / prices, foreign exchange rates and credit. RBI is also responsible for the regulation of financial market infrastructure, including financial market benchmarks, for these markets.  With the growth of the Regulated Entities (REs), in terms of number as well as scale of operations, increase in adoption of innovative technologies and enhanced customer outreach, a need is felt to develop better industry standards for self-regulation. Self-Regulatory Organis...

Reserve Bank of India (RBI) has published the scheme for trading and settlement of Sovereign Green Bonds (SGrBs) in the International Financial Services Centre (IFSC) in India. Which are eligible securities under the Scheme? Sovereign Green Bonds (SGrBs) issued by the Government of India shall be eligible for investment under the Scheme. Who are eligible investors under the Scheme? The following persons will be eligible investors under the Scheme – Persons resident outside India as defined in Section 2(w) of the FEMA, 1999, that are eligible to invest in the IFSC, and are not incorporated in High-Risk Jurisdictions subject to a Call for Action as identified by FATF. An IFSC Banking Unit (IBU) of a foreign bank which does not have a branch or subsidiary licensed to undertake banking business in India. Persons resident outside India as treated under Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, that are eligible to invest in the IFSC, and are no...

Reserve Bank of India (RBI) has reviewed the regulatory framework for Housing Finance Companies (HFCs) and harmonised the regulations applicable to HFCs and Non-Banking Financial Companies (NBFCs). What are the revised regulations on maintenance of minimum percentage of liquid assets by HFCs? In terms of Section 29B of the National Housing Bank (NHB) Act, 1987, all deposit taking HFCs shall maintain, on an ongoing basis, liquid assets as a percent of the public deposits held by them, as specified below – Timeline Unencumbered approved securities, to be held as a percent of public deposits Total liquid assets along with unencumbered approved securities to be held as a percent of public deposits Currently 6.5% 13% January 01, 2025 8% 14% July 01, 2025 10% 15% What are the revised regulations on deposits accepted by HFCs? Extant regulations Revised regulations ...