Reserve bank of India Archives - Lokmarg

RBI Governor: Digital Currency Will Make Cross Border Payments More Efficient

By LokMarg 19th January 2024

Reserve Bank of India (RBI) Governor Shaktikanta Das feels that digital currency or Central Bank Digital Currency (CBDC) will make cross-border payments more efficient and fast, in addition to being cost-effective.

The digital currency was launched in India on a pilot basis, both in the wholesale and retail categories, in November-December 2022.

“The greatest advantage of CBDC will be cross-border payments internationally. International cross-border payments will become far more efficient, faster, and very very cost-effective. As and when other countries adopt this digital currency, international payment systems will gain in efficiency, speed, and cost. And ultimately, it’s a new technology which is developing and I think it’s going to be the future of money,” said Das

The Governor of India’s central bank was addressing a session at the ongoing World Economic Forum in Davos, Switzerland.

The RBI Governor said that the countrywide launch will depend on the success, the learnings, and the fine-tuning of the pilot version.

“So that is the distance we have to cover,” Das said. “But we have no target date…We are not in any undue hurry or rush to implement it full scale because after it is a currency, its safety, integrity, and efficiency have to be ensured.”

In the retail segment, there are at present about 4 million users and 0.4 million merchants who have been onboarded.

He also apprised the Davos forum that the UPI payment mechanism and the CBDC have been made interoperable.

“The QR code which is used for the E-rupee is the same QR code that is used in UPI. In other words, CBDC and the UPI payment systems have been made interoperable,” he said.

“The advantage of CBDC vis-a-vis the UPI is that it’s not one versus the other. UPI is a payment system, and CBDC is a currency. CBDC can operate in completely dark zones (meaning where the internet is not available). Offline payments will become much easier because I can directly from my CBDC wallet to your wallet. In UPI also, we are trying to facilitate that by introducing certain new products,” he said.

The eRs-R is in the form of a digital token that represents legal tender.

It is being issued in the same denominations that paper currency and coins are currently issued. It is being distributed through financial intermediaries — banks. The eRs-R offers features of physical cash like trust, safety and settlement finality.

As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks. (ANI)

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Indian Banking System Well-Placed To Support Growth: RBI Governor

By LokMarg 11th January 2024

Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday that India’s banking sector as a whole has emerged stronger from the unprecedented challenges of the recent COVID-19 pandemic and the subsequent geopolitics.

Today, the Indian banking system is well-placed to support India’s growth story in the years ahead, Das said.

All key indicators of scheduled commercial banks (SCBs)–capital adequacy, asset quality, and profitability–have shown improvement in the last four years, noted the RBI Governor, addressing the Mint BFSI summit in Mumbai.

“The credit growth has now become broad-based and backed by the strong fundamentals of the financial institutions. The financial indicators of non-banking financial companies are also in line with that of the banking system as per the latest available data,” Das asserted.

Not very long ago, the Indian banking sector was beset with a host of issues, including high levels of non-performing assets (NPAs), while the returns on assets and equity were in a negative zone.

Eleven banks were under Prompt Corrective Action (PCA) as of the end of June 2018, Das said.

“Even as we were coping with the stress in the financial sector, the COVID-19 pandemic at the beginning of the year 2020 came as a shocker, which led to major disruptions across all sectors,” he contended.

Against that backdrop, during the last five years, the central bank took a series of initiatives on the regulatory and supervisory fronts, while banks themselves, to their credit, responded to the challenges by strengthening their internal defence mechanisms.

To provide immediate debt service relief to borrowers whose income-generating ability was impaired by the lockdowns, a moratorium on repayment of loans was provided to all eligible borrowers, initially for a period of three months, which was subsequently extended by another three months, taking the total to six months from March 2020 to August 2020.

Das said that as a result of these concerted efforts, there has been a gradual and consistent turnaround in the banking system, despite the multiple headwinds emanating from COVID-19, geo-political conflicts and sharp monetary policy tightening across the world.

In the US, notably, one of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which had been struggling, collapsed on March 10, 2023, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks.

Further, on questions often raised as to how this turnaround in the banking sector took place, Das responded by saying that it was the result of all the “good work” of various stakeholders in the system.

“Our ultimate objective is the mutual coexistence of price stability, sustained growth and financial stability that works best for the Indian economy.”

In conclusion, he said the remarkable turnaround in the Indian banking system has been a cornerstone of India’s success story in recent years. (ANI)

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India, UAE Sign MoUs To Promote Use Of Local Currencies For Cross-Border Transactions

By LokMarg 15th July 2023

Reserve Bank of India and Central Bank of the United Arab Emirates (UAE) on Saturday signed two MoUs for the use of local currencies for cross-border transactions and cooperation for interlinking their payment and messaging systems.

Two Memorandum of Understandings (MoUs) were exchanged in the presence of Prime Minister Narendra Modi and UAE President Mohammed bin Zayed al Nahyan in Abu Dhabi.
The agreements aimed at facilitating seamless cross border transactions and payments, and fostering greater economic cooperation between India and United Arab Emirates (UAE).

“The Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) signed two MoUs for establishing a framework to promote the use of local currencies- the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions; and cooperation for interlinking their payment and messaging systems,” RBI official release said.

Prime Minister Narendra Modi said, “This is a very important aspect of India-UAE cooperation. It paves the way for enhanced economic collaboration and will make international financial interactions simpler.”

The MoUs were signed by the Governor of the Reserve Bank of India, Shaktikanta Das and the Governor of the Central Bank of UAE, Khaled Mohamed Balama.

The MoUs were exchanged between the two Governors, in the august presence of the Prime Minister of India, Narendra Modi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE.

“The MoU on establishing a framework for the use of local currencies for transactions between India and UAE, aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally,” it said.

The MoU also covers all current account transactions and permitted capital account transactions. Creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.

“This arrangement would also promote investments and remittances between the two countries. Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE,” the release added.

Under the MOU on ‘Payments and Messaging Systems’, the two central banks agreed to cooperate on linking their Fast Payment Systems (FPSs) – Unified Payments Interface (UPI) of India with Instant Payment Platform (IPP) of UAE; linking the respective Card Switches (RuPay switch and UAESWITCH); and exploring the linking of payments messaging systems i.e., Structured Financial Messaging System (SFMS) of India with the messaging system in the UAE.

The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers. The linking of Card Switches will facilitate the mutual acceptance of domestic cards and processing of card transactions. The linkage of messaging systems is aimed to facilitate bilateral financial messaging between the two countries. (ANI)

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RBI: 76% Of Rs 2,000 Notes Returned To Banking System

By LokMarg 3rd July 2023

About 76 per cent of the Rs 2000 banknotes have returned to the banking system since the Reserve Bank of India (RBI) in May decided to withdraw the high-value note from circulation.

The total value of Rs 2000 banknotes in circulation was Rs 3.56 lakh crore at the close of business on May 19, 2023 – when the RBI decided to withdraw the note.
The total value of Rs 2000 banknotes returned to the system after the announcement on May 19 is to the tune of Rs 2.72 lakh crore, RBI said Monday, citing data received from banks.

Hence, banknotes in circulation now stand at Rs 0.84 lakh crore.

“Data collected from major banks indicates that out of the total banknotes in Rs 2000 denomination received back from circulation, about 87 per cent is in the form of deposits and the remaining around 13 per cent has been exchanged into other denomination banknotes,” RBI said on Monday in a statement.

People are requested to utilise the next three months to deposit or exchange their Rs 2000 banknotes to avoid any rush at the last moment.

People can exchange or deposit their Rs 2,000 notes in bank branches and regional branches of RBI. A non-account holder also can exchange Rs 2000 banknotes up to a limit of Rs 20,000 at a time at any bank branch.

September 30 has been decided as the last date for the purpose of completing the exercise in a time-bound manner and to provide adequate time to the public. RBI may later revisit the September deadline based on the situation going ahead.

On May 19, the RBI decided to withdraw the Rs 2000 denomination banknotes from circulation but said it will continue to remain as legal tender. However, RBI has advised banks to stop issuing such banknotes with immediate effect.

The Rs 2000 denomination banknote was introduced in November 2016 under Section 24(1) of the RBI Act, 1934, primarily to meet the currency requirement of the economy in an expeditious manner after the withdrawal of the legal tender status of all Rs 500 and Rs 1000 banknotes in circulation at that time.

The objective of introducing Rs 2000 banknotes was met once banknotes in other denominations became available in adequate quantities. Therefore, the printing of Rs 2000 banknotes was stopped in 2018-19. (ANI)

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RBI Keeps Policy Repo Rate Unchanged

By LokMarg 8th June 2023

The Reserve Bank of India’s (RBI) monetary policy committee unanimously decided to keep the repo rate unchanged at 6.5 per cent.

The repo rate is the rate of interest at which RBI lends to other banks.
A consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again.

Most analysts had expected the RBI to continue to keep the repo rate unchanged.

Inflation has been a concern for many countries, including advanced economies, but India has managed to steer its inflation trajectory quite well.

The RBI in its April meeting, the first in 2023-24, had paused the repo rate.

Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

Coming to the GDP outlook, the RBI expects India’s 2023-24 GDP growth at 6.5 per cent, with quarter Q1 at 8.0 per cent, Q2 at 6.5 per cent, Q3 at 6.0 per cent, and 5.7 per cent. The RBI governor Shaktikanta Das, while reading the monetary policy statement on Thursday, said the central bank sees risks to these GDP figures as evenly balanced.

As per the provisional estimates released by the National Statistical Office (NSO) recently, real GDP growth for 2022-23 stood at 7.2 per cent, higher than the 7 per cent projected. The government expects an upward revision in the 2022-23 GDP numbers going ahead.

Despite global headwinds and tighter domestic monetary policy tightening, various international agencies have forecasted India to be one of the fastest-growing economies in 2023-24, supported by robust growth in private consumption and sustained pick-up in private investment. (ANI)

RBI Likely To Announce Another Repo Rate Hike Tomorrow

By LokMarg 5th April 2023

The Reserve Bank of India is likely to announce the hike in benchmark interest rate — repo rate — on Thursday after a three-day meeting of its Monetary Policy Committee.

Governor Shaktikanta Das will announce the outcome of the meetings at 10 in the morning tomorrow, followed by a press conference at noon.
RBI started its first bi-monthly review of the new financial year with its Monetary Policy Committee meeting on April 3, April 5 and April 6. The central bank has six bi-monthly reviews of its monetary policy in a year. And, there are out-of-cycle reviews in which the central bank conducts additional meetings in times of emergency.

At the latest Monetary Policy Committee (MPC) of the RBI in early February, it decided to raise the repo rate by 25 basis points to 6.5 per cent to manage inflation. So far, RBI raised the repo rate, the rate at which it lends to banks, by 250 basis points cumulatively since May 2022.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

These meetings are being watched carefully by stakeholders as almost every central bank tries to take stock of the rising inflation, with a fear of a looming mild recession.

According to SBI Research’s latest Ecowrap report, the RBI is expected to pause its interest rate hike and the current 6.5 per cent repo rate could be the terminal rate for now.

The report asserted that the RBI has enough reasons to pause the repo rate hike in the April meeting.

At the latest Monetary Policy Committee (MPC) of the RBI in early February, it decided to raise the repo rate by 25 basis points to 6.5 per cent to manage inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

According to advisory firm Emkay Global Financial Services, RBI is likely to hike the repo rate by 25 basis points (100 basis points is equivalent to 1 percentage point).

“In addition (to the rate hike), the neutral stance will give the MPC flexibility to be non-committal on forward guidance, yet subtly give direction on a ‘pause’,” Emkay said in a report. (ANI)

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RBI Slaps ₹3 Crore Penalty On AmazonPay

By LokMarg 3rd March 2023

The Reserve Bank of India (RBI) on Friday said it imposed a monetary penalty of over Rs 3 crore (3,06,66,000) on Amazon Pay (India) for non-compliance with certain provisions related to Prepaid Payment Instruments (PPIs) and Know Your Customer (KYC) requirements.

According to a statement from the central bank, the action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the entity with its customers.

Amazon Pay is the digital payment arm of e-commerce giant Amazon.

The statement said, “It was observed that the entity was non-compliant with the directions issued by RBI on KYC requirements.” It added, “Accordingly, notice was issued to the entity advising it to show cause as to why penalty should not be imposed for non-compliance with the directions.”

The RBI statement said the penalty has been imposed in the exercise of powers vested in RBI under Section 30 of the Payment and Settlement Systems Act, 2007. (ANI)

RBI Projects India’s GDP Growth At 6.4% For 2023-24

By LokMarg 8th February 2023

The Reserve Bank of India (RBI) has projected India’s real GDP growth to be at 6.4 per cent for the next financial year 2023-24.

“Broad-based credit growth, improving capacity utilisation, government’s thrust on capital spending and infrastructure should bolster investment activity,” RBI governor Shaktikanta Das said on Wednesday while announcing the monetary policy meeting outcome.
“According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. On the other hand, protracted geopolitical tensions, tightening global financial conditions and slowing external demand may continue as downside risks to domestic output.”

The GDP projections for Q1, Q2, Q3, and Q4 2023-24 are estimated at 7.8 per cent, 6.2 per cent, 6.0 per cent, and 5.8 per cent, respectively, with risks, evenly balanced.

Meanwhile, the Monetary Policy Committee (MPC) of the RBI decided to raise the repo rate, at which the RBI lends money to all commercial banks, by 25 basis points to 6.5 per cent.

Four out of six members of MPC have decided to go ahead with this hike in the repo rate, RBI Governor Shaktikanta Das said.

The Shaktikanta Das-headed Monetary Policy Committee (MPC) started its three-day meeting on February 6 amid the rate hiking spree that started in May last year to check inflation.

India’s retail inflation during the month of December was at 5.72 per cent, versus 5.88 per cent in November and 6.77 per cent during October.

India’s retail inflation was above RBI’s six per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone in November 2022.

Since May last year, the RBI has increased the short-term lending rate (repo rate) by 250 basis points, including today’s, to contain inflation, driven mainly by external factors, especially global supply chain disruptions following the Russia-Ukraine war outbreak. (ANI)

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Overseas Assets Of Indian Residents Declined By $ 43.9BN During Jul-Sep 2022: RBI

By LokMarg 30th December 2022

Overseas financial assets of Indian residents declined by USD 43.9 billion during July-September 2022 due to a reduction in reserves assets, even as trade credit, currency and deposits, and overseas direct investment recorded an increase, said Reserve Bank of India (RBI) in its India’s International Investment Position (IIP), September 2022 report released on Friday. The reduction in non-residents’ financial assets in India was relatively lower at USD 9.6 billion.

According to the report, net claims of non-residents in India increased by USD 34.3 billion during the second quarter (Q2) of 2022-23 and stood at USD 389.6 billion in September 2022.
The reserve assets remained the dominant component at 62.9 percent share in India’s international financial assets. It had declined by USD 56.5 billion during July-September 2022, where valuation losses accounted for a major part.

The fall in India’s foreign liabilities during Q2 of 2022-23 was attributed primarily to direct investment (net) outflows, portfolio, and other investments also recorded a marginal decline on a net basis, barring trade credit which increased by USD 5.1 billion. Variations in the exchange rate of the rupee vis-a-vis other currencies also impacted the change in liabilities, when valued in US dollar terms, it said further.

Debt and non-debt liabilities continued to have an equal share in total external liabilities. The ratio of international assets to international liabilities moderated to 68.5 percent in September 2022 from 71.5 percent a quarter ago. (ANI)

We Will Be Lucky To Get 5% Growth Next Year: Rahugram Rajan

By LokMarg 15th December 2022

Former Governor of Reserve Bank of India Raghuram Rajan has said he believes the country will be lucky if it achieves 5 percent growth next year.

The former governor also said next year is going to be more difficult than this one. “Of course, this one had a lot of difficulties with the war and all that. Growth is going to slow in the world. People are raising interest rates that bring down growth,” he said.

While talking with Congress leader Rahul Gandhi, the former governor of the Reserve Bank of India said, “India is also going to be hit. India’s interest rates have also gone up but Indian exports have been slowing quite a bit.”

“India’s inflation problem is more about commodities inflation problem, vegetables’ inflation problem. That is also going to be negative for the growth,” he said on Wednesday in a candid talk with the Gandhi scion.

The economist said, “I think we will be lucky if we do 5 percent next year.”

The problem with the growth numbers is that you have to understand what you are measuring with respect to, he said. “We had a terrible quarter last year. And, you measure with respect to that you look very good. So ideally what you do is look before the pandemic in 2019 and look at now.”

He said, “If you look at 2022 vis-a-vis 2019, it’s about 2 percent a year. It’s too low for us.”

While being asked what he attributes this to, Rahul Gandhi, he said, “Pandemic was part of the problem but we were slowing before the pandemic. We had gone from 9 to 5. And, we haven’t really generated reforms that will generate growth.”

Rahul Gandhi had asked him in the candid talk: “There is one thing happening, 4-5 persons are getting rich and they could go into any businesses and the rest of the people have remained backward. Farmers and the poor have formed a new Bharat. These 4-5 persons’ dreams are fulfilled while those of the rest are dashed. What should we do with this inequality?

“This is a big problem. This is not about industries,” the economist said, adding, “The upper middle class has gained because they could work during the pandemic whereas the poor would have to go to factories and the factories were closed during the pandemic,” he said. “This divide has grown during the pandemic,” he said further.

Economist Raghuram Rajan said, “The poorest could get ration. They get everything. These rich didn’t suffer any difficulties. Those in between — the lower middle class — had to lose a lot. They lost their jobs. Joblessness went up. Debts went up. We should look at them. Because they have suffered a lot.”

On the subject of the concentration of wealth among the industrialists, he said we should also look at them. He said, “We couldn’t be against capitalism. But we should be fighting for competition. We could be up against monopoly. Monopoly is not good for the country.”

He said India’s issue was that our exports will also go down and growth would also decrease. “Technological support is needed, credit loans, there should be certainty about policies.”

He said there could be change. “If banks know that sales of small businesses are good and the steady revenue stream, they can lend but we need that information to be collected and made available. That is happening now. They are starting to think about all these in the fintech revolution right now. But in India, it needs to be 10 times,” he added.

Too many of our small companies don’t grow big. They need a path to grow, he said.

“Here is the problem, they get used to some of the benefits of staying small. If you don’t pay taxes, officers won’t come to them. They stay under the radar scan of the government instead of being helped by the government.”

He said, “You (company) stay under the radar until you get a revenue stream. Once your business grows, it should be like I’m going to look at you, I’m going to help you. I’m not going to tax you or make your life miserable. We need that situation.”

He added as soon as these businesses get better, the government takes away those benefits. “There is no incentive to grow bigger. Why not say, if you grow bigger, you will get these incentives for five years? By the time they are big, they don’t care,” the economist added. (ANI)