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Highlights of RBI Annual Report 2023-24 – Chapter 4 & 5

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. 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

  • As per revised guidelines, General Credit Card (GCC) may be issued to individuals / entities who are sanctioned working capital facilities for non-farm entrepreneurial activities which are eligible for classification under the priority sector guidelines.
  • The revolving fund support provided to women self-help groups (SHGs) under Deendayal Antyodaya Yojana - National Rural Livelihoods Mission (DAY-NRLM) has been revised to ₹20,000 - ₹30,000 per SHG from the earlier sum of ₹10,000 - ₹15,000 per SHG.
  • In terms of extant regulatory guidelines, lenders are required to obtain ‘Udyam Registration Certificate (URC)’ for classification of entities as Micro, Small and Medium Enterprises (MSMEs). To facilitate formalisation of informal micro enterprises (IMEs), which were not able to register on the ‘Udyam Registration Portal’ due to lack of mandatory documents such as permanent account number (PAN) or goods and services tax identification number (GSTIN), the Ministry of MSME, Government of India, had launched an ‘Udyam Assist Platform’ (UAP). RBI had advised its regulated entities that the certificate issued on the UAP shall be treated on par with the URC. Accordingly, IMEs with Udyam assist certificate shall be treated as micro enterprises under MSMEs for the purposes of priority sector lending (PSL) classification.
  • A composite Financial Inclusion Index (FI-Index) was constructed and published by RBI in August 2021 as a comprehensive indicator of financial inclusion across the country. The FI-Index comprises of 3 broad sub-indices (weights), viz., Access (35%), Usage (45%), and Quality (20%) with each of 3 consisting of various dimensions, in turn, based on a number of indicators. The FI-Index for March 2023 rose to 60.1 from 56.4 in March 2022, with growth witnessed across all the sub-indices. (FI-index for March 2024 stands at 64.2, improvement is mainly contributed by Usage dimension, reflecting deepening of financial inclusion.)
  • A Financial Inclusion Dashboard - ANTARDRISHTI - was launched in June 2023 to assess and monitor the progress of financial inclusion and to gauge the extent of financial exclusion. Some of the parameters captured by the dashboard include credit to deposit (CD) ratio, credit linkage of farmers and self-help groups (SHGs), credit disbursement to priority sectors and progress in financial literacy programmes. 
  • As a part of the National Strategy for Financial Inclusion (NSFI), it was envisaged to expand the reach of Centres for Financial Literacy (CFLs) to cover the entire country by March 31, 2024. Funding support for the project is provided by the Depositor Education Awareness Fund (DEAF), the Financial Inclusion Fund (FIF) of the National Bank for Agriculture and Rural Development (NABARD) and the sponsor banks.
  • As on March 31, 2024, 12 public sector banks and 2 private sector banks (Jammu & Kashmir Bank and ICICI Bank) have been assigned lead bank responsibility, covering 779 districts across the country.
  • Financial Literacy Week (FLW) was observed from February 26 - March 01, 2024 on the theme ‘Make a Right Start: Become Financially Smart’ targeting students and young adults. The sub-themes on which awareness campaigns focused were ‘Saving and Power of Compounding’, ‘Banking Essentials for Students’ and ‘Digital and Cyber Hygiene’.

Chapter 5 – Financial Markets and Foreign Exchange Management

  • With the cessation of publication of all London Interbank Offered Rate (LIBOR) settings after June 30, 2023, RBI advised regulated entities to ensure that new transactions are not undertaken by them or by their customers through the LIBOR or the domestic benchmark - Mumbai Interbank Forward Outright Rate (MIFOR).
  • The modified MIFOR (MMIFOR), developed as an alternative to the MIFOR, was notified as a ‘significant benchmark’.
  • Authorised Dealer (AD) Category-I banks operating International Financial Services Centre (IFSC) Banking Units (IBUs) were permitted to offer Indian Rupee (INR) non-deliverable derivative contracts (NDDCs) to resident non-retail users for the purpose of hedging.
  • Scheduled commercial banks (excluding small finance banks and payment banks) were permitted to set their own limits for borrowing in the call and notice money markets, within the prescribed prudential limits for interbank liabilities.
  • Non-residents are permitted to invest in specified categories of government securities (G-secs) without any restrictions under the Fully Accessible Route (FAR). The list of specified securities under the FAR was expanded to include all sovereign green bonds (SGrBs) issued by the Government of India in 2023-24.
  • Securities lending and borrowing in G-secs was permitted to provide investors an avenue to deploy their idle securities to enhance portfolio returns and deepen the G-sec market.
  • A new software application called ‘APConnect’ was developed to facilitate the processing of application for licensing of Full-Fledged Money Changers (FFMCs) and non-bank AD Category-II entities, authorisation as Money Transfer Service Scheme (MTSS) agent, renewal of existing licence / authorisation and for submission of various statements / returns by these Authorised Persons (APs).
  • AD Category-II entities were permitted to accept online submission of ‘Form A2’ from their customers while undertaking remittances other than imports and intermediary trade transactions of up to US$ 25,000 (or its equivalent) for individuals and US$ 100,000 (or its equivalent) for corporates [From July, 2024, there shall not be any limit on the amount being remitted through Authorised Dealers (AD Category-I banks and AD Category-II entities) on the basis of ‘online’ Form A2].
  • Authorised Dealers were permitted to release foreign exchange for any current account transaction, on the basis of a simple letter containing basic information (and need not obtain any other documents, including Form A2), subject to an upper limit of US$ 25,000 or its equivalent. From July 2024, Authorised Dealers shall obtain Form A2 in physical / digital form for all cross-border remittances irrespective of the value of transaction.
  • To align the liberalised remittance scheme (LRS) for IFSCs vis-à-vis other foreign jurisdictions, the condition of repatriating any funds lying idle in the Foreign Currency Account (FCA) of resident individuals in IFSCs for LRS beyond 15 days from the date of its receipt was withdrawn and was aligned with the period applicable for such remittances to other foreign jurisdictions, i.e., 180 days.
  • LRS remittances to IFSCs were permitted only for making investments in securities. Government of India had notified select courses offered by foreign universities / institutions in IFSC, as financial services. Accordingly, remittances by resident individuals for payment of course fees to foreign universities / institutions in IFSCs was enabled under LRS for the defined purpose ‘studies abroad’.
  • Authorised Persons (APs) were advised that fees / changes payable in India on forex prepaid cards, store value cards, etc. must be denominated and settled in INR only.
  • AD banks have been permitted to allow qualified jewellers (as notified by IFSC Authority) to remit advance payment for 11 days for import of silver through India International Bullion Exchange (IIBX) in IFSC.
  • AD banks have been permitted to allow valid tariff rate quota (TRQ) holders under the India-UAE Comprehensive Economic Partnership Agreement (CEPA) to remit advance payment for 11 days for import of gold through IIBX against the TRQ.
  • AD Category-I banks maintaining Special Rupee Vostro Account (SRVA) were permitted to open an additional special current account for its exporter constituent exclusively for settlement of their export transactions. (In June 2024, the facility was extended for settlement of import transactions as well.)
  • 2023 EM Index Governance Results indicated that all Indian Government Bonds (IGBs) under FAR with a notional outstanding above US$ 1 billion (equivalent) and at least 2.5 years of residual maturity shall be eligible for inclusion in the index. Further, India’s local currency debt rating of BBB- / BBB- / Baa3 (Fitch / S&P / Moody’s), makes it eligible for inclusion in the ‘GBI-EM Global Diversified IG 15% Cap’ index. The inclusion is expected to take place in a staggered manner over 10 months (starting June 28, 2024 through March 31, 2025) with 1% incremental weight being added each month, thus, giving India an overall weight of 10% in the index. 
  • IGBs covered under the FAR, having a minimum amount outstanding of INR 10 billion and following the general rules of the Emerging Market Local Currency Index such as having a minimum maturity of 1 year, would be included in Emerging Market (EM) Local Currency Government Index and related indices. The bonds will initially be incorporated with a weight equivalent to 10% of their full market value as of January 31, 2025, and will be increased in monthly increments of 10%, progressively increasing to full market value by October 2025. 


References

Reserve Bank of India. (2024, July 09). 'Financial Inclusion Index for March 2024'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58259

Reserve Bank of India. (2024, June 11). 'International Trade Settlement in Indian Rupees (INR) – Opening of additional Current Account for settlement of trade transactions'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12693&Mode=0

Reserve Bank of India. (2024, July 03). 'Online submission of Form A2: Removal of limits on amount of remittance'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12697&Mode=0

Reserve Bank of India. (2024, May 30). 'RBI Annual Report 2023-24'. Retrieved from https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?year=2024

Reserve Bank of India. (2024, July 03). 'Release of foreign exchange for Miscellaneous Remittances'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12696&Mode=0


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