RBI sets out various policy measures: Governor quotes Socrates

In the statement of developmental and regulatory policy measures dated December 4, 2020, RBI Governor Shaktikanta Das quotes Socrates about life. “I am reminded here of a quote attributed to Socrates, “In the face of adversity, we have a choice. We can be bitter, or we can be better”. Obviously we will strive to be better,” he said.

The Statement sets out various developmental and regulatory policy measures to i) enhance liquidity support to targeted sectors of the economy with linkages to other sectors; (ii) deepen financial markets; (iii) conserve capital among banks and NBFCs through regulatory initiatives; (iv) strengthen supervision through the audit function; (v) facilitate external trade by improving ease of doing business for exporters; and (vi) upgrade payment system services so as to expand financial inclusion and improve customer service.

In today’s (4.12.2020) bi-monthly MPC meeting, the Reserve Bank of India decided to maintain the policy repo rate under the liquidity adjustment facility (LAF) on hold at 4.0 percent. Today’s was the third meeting on the run that the central bank chose to keep the rates unchanged. Consequently, all the key policy rates with effect from May 22, 2020, continue to remain the same from August 6, 2020.

RTGS system will soon be made 24×7. RBI proposed to reduce settlement and default risk in the system by facilitating settlement of AePS, IMPS, NETC, NFS, RuPay, UPI transactions on all days of the week. Read the full article: RTGS will soon be 24×7.

“CPI inflation rose sharply to 7.3 per cent in September and further to 7.6 per cent in October 2020. Outlook for inflation has turned adverse relative to expectations in the last two months. CPI inflation is projected at 6.8 per cent for Q3 2020-21, 5.8 per cent for Q4:2020-21 and 5.2 to 4.6 per cent in H1 2021-22”, the statement said. With regards to the impact of COVID-19 on the economy, the statement said that the recovery in rural demand is expected to strengthen further, while urban demand is also gaining momentum. However, private investment is still slack and capacity utilisation has not fully recovered, it said. Exports are on an uneven recovery, the prospects have brightened with the progress on the vaccines, it added.

Real GDP growth is projected at (-) 7.5 per cent in 2020-21; (+) 0.1 per cent in Q3 of 2020- 21 and (+) 0.7 per cent in Q4 of 2020-21; and 21.9 per cent to 6.5 per cent in H1 of 2021- 22.

With a view to increasing the focus of liquidity measures on a revival of activity in specific sectors ‘On-tap targeted long term repo operations’ to be expanded to cover other stressed sectors in synergy with the credit guarantee available under the Emergency Credit Line Guarantee Scheme (ECLGS 2.0) of the Government, it said. This will encourage banks to extend credit support to stressed sectors at a lower cost, it added.

The Regional Rural Banks (RRBs) are currently not permitted to access the liquidity windows of the Reserve Bank as well as the call/notice money market. Two new measures are now proposed to address these issues. (i) In order to facilitate more efficient liquidity management by the RRBs at competitive rates, it has been decided to extend the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) to RRBs. (ii) It has also been decided to permit the RRBs to participate in the Call/Notice money market, both as borrowers and lenders. Detailed instructions in this regard will be issued shortly, the statement said.

In view of the COVID-19 related economic shock, the statement said it was announced in April 2020 that scheduled commercial banks (SCBs) and cooperative banks shall not make any dividend payouts from profits pertaining to the financial year ended March 31, 2020, to enable the banks to continue to conserve capital to support the economy and absorb losses, if any.

 On Digital payments, the statement said RBI gives the highest importance to the security controls around it and proposed to issue Reserve Bank of India (Digital Payment Security Controls) Directions, 2020 for regulated entities to set up a robust governance structure for such systems and implement common minimum standards of security controls for channels like internet, mobile banking, card payments, among others. While the guidelines will be technology and platform agnostic, it will create an enhanced and enabling environment for customers to use digital payment products, it added.