The Reserve Bank of India (RBI) on Thursday announced various measures to strengthen the banking and non-banking financial systems, improve regulation of the payments space, encourage foreign borrowings and investment, and deepen financial inclusion in its Statement on Developmental and Regulatory Policies. The guidelines for these measures will be released by the RBI by the end of this month.
1) Allow IBC resolution applicants to borrow funds abroad
The RBI proposed to relax the External Commercial Borrowings (ECB) framework, allowing resolution applicants under the Insolvency and Bankruptcy Code (IBC) to borrow abroad for repayment of rupee term loans of the target company. Such ECBs could be availed of from all eligible lenders under the extant framework, except from overseas branches and subsidiaries of Indian banks.
2) Improving governance of financial benchmarks
RBI will introduce a regulatory framework for financial benchmarks to improve the governance of the benchmark processes relating to financial products and markets regulated by it. This move follows a number of other reforms undertaken by the central bank to improve the transmission of rate cuts and transparency.
3) Withdraw restriction on FPI investment
The RBI has proposed to withdraw the provision that stated that no foreign portfolio investor (FPI) shall have an exposure of more than 20 per cent of its corporate bond portfolio to a single corporate. While the provision was aimed at incentivising FPIs to maintain a portfolio of assets, further market feedback indicates that FPIs have been constrained by this stipulation, it said.
4) Revise bulk deposit definition to Rs 2 crore and above
The RBI has proposed to revise the definition of bulk deposits upwards to single rupee deposits of Rs 2 crore and above, from Rs 1 crore or above earlier. Henceforth, banks shall maintain their bulk deposit interest rate cards in the core banking system for supervisory review, it said, adding that these measures would enhance the operational freedom of banks in raising deposits.
5) Regulation of payment gateway service providers and payment aggregators
The Reserve Bank is examining the need and feasibility of regulating payment gateway service providers and payment aggregators. It will place a discussion paper on comprehensive guidelines for consultation with the stakeholders.
6) Umbrella organisation for urban cooperative banks (UCBs)
The RBI plans to set up an umbrella organisation (UO) to make the UCB sector financially resilient and enhance the depositors' confidence. The UO will provide liquidity and capital support, set up information and technology infrastructure for the shared use of members and also offer fund management and other consultancy services.
7) Working group to review agricultural credit
The central bank has constituted an internal working group to review agricultural credit. While agricultural credit growth has been significant over the years, issues such as regional disparity and extent of coverage, etc, remain, said the RBI. There is also the issue of deepening long-term agricultural credit for capital formation.
8) Enhancement of limit of collateral-free agriculture loan to Rs 1.6 lakh
RBI will raise the limit for collateralfree agriculture loans to Rs 1.6 lakh from Rs 1 lakh fixed in 2010, due to the overall inflation and rise in agriculture input costs since then. This will enhance coverage of small and marginal farmers in the formal credit system and the circular to this effect will be issued shortly.
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9) Relaxation of risk-weighted norms for non-banking financial companies (NBFCs)
The RBI has decided that rated exposures of banks to all NBFCs, excluding core investment companies, would be risk-weighted as per the ratings assigned by the accredited ratings agencies, in a manner similar to that for corporates. This would be a relaxation from the 100 per cent risk weight required before and should help in facilitating the flow of credit to well-rated NBFCs.
10) Harmonisation of NBFC categories
The RBI will harmonise major categories of NBFCs engaged in credit intermediation, viz, asset finance companies, loan companies, and investment companies, into a single category. This merger would reduce to a large extent the complexities arising from multiple categories and offer greater flexibility in operations. It will cover 99 per cent of the NBFCs by number.
11) Merge foreign exchange derivative facilities for residents and non-residents
RBI has proposed to merge the foreign exchange derivative facilities for residents and non-residents into a single unified facility for all users. It plans to allow users to hedge flexibly using any instrument of their choice and simplify the procedures for authorised dealers to offer foreign exchange derivatives.
12) Task force on offshore rupee markets
The RBI proposed to set up a task force on offshore rupee markets to support the gradual opening up of the foreign exchange market and also to benefit from a wider range of participants and views.
13) Rationalisation of interest rate derivative directions
RBI proposed to rationalise interest rate derivative regulations to achieve consistency and ease of access in order to foster a thriving environment for the management of interest rate risk in the Indian economy. The draft comprehensive guidelines will be issued for public feedback by the end of March 2019.