RBI’s Statement on Developmental and Regulatory Policies: October 2024 Update

The Reserve Bank of India (RBI) released its Statement on Developmental and Regulatory Policies on October 9, 2024, outlining several initiatives aimed at fostering transparency, enhancing customer protection, and supporting financial stability. The statement covers two critical areas: Regulations and Payment Systems. These measures are designed to strengthen the financial ecosystem, promote responsible lending practices, and embrace technological advancements to meet the evolving demands of consumers and businesses alike.

I. Regulatory Policies

1. Responsible Lending Conduct – Levy of Foreclosure Charges/Pre-payment Penalties

In a move to protect borrowers from hidden charges and to promote greater transparency, the RBI has expanded the scope of its guidelines concerning the levy of foreclosure charges and pre-payment penalties on floating-rate loans. Previously, banks and Non-Banking Financial Companies (NBFCs) were prohibited from charging these fees on loans provided to individual borrowers for purposes other than business.

In the latest update, the RBI extends this protection to Micro and Small Enterprises (MSEs). This extension will ensure that MSEs, which play a critical role in India’s economy, are not subject to excessive charges when repaying loans ahead of schedule. A draft circular will soon be issued for public consultation, marking a significant step towards borrower-centric regulations in India’s lending landscape.

2. Capital Raising Avenues for Primary (Urban) Co-operative Banks

Another key regulatory update relates to Primary (Urban) Co-operative Banks (UCBs). In 2022, the RBI introduced a set of guidelines governing the issue and regulation of share capital and securities for UCBs, aligned with the Banking Regulation (Amendment) Act, 2020. However, these guidelines did not address certain newly enabled provisions, such as the issuance of special shares and the issuance of shares at a premium—new concepts for the co-operative banking sector.

To operationalize these provisions, the RBI has formed a Working Group based on the recommendations of the Expert Committee on Primary (Urban) Co-operative Banks, chaired by Shri N.S. Vishwanathan, former Deputy Governor of the RBI. The group’s findings will culminate in a Discussion Paper on new capital-raising avenues, which will be released for feedback from stakeholders. This initiative is designed to modernize the capital structures of UCBs, enhancing their ability to raise funds and ensuring their long-term sustainability.

3. Reserve Bank Climate Risk Information System (RB-CRIS)

Recognizing the growing impact of climate change on the financial system, the RBI is launching the Reserve Bank – Climate Risk Information System (RB-CRIS). Climate change presents a significant risk to financial institutions, and it is critical for these institutions to assess and mitigate such risks to safeguard their balance sheets.

The RB-CRIS will address the current fragmentation in climate data by serving as a centralized data repository. It will consist of two parts:

- A web-based directory listing various publicly accessible data sources, including meteorological and geospatial data.

- A data portal containing processed datasets in standardized formats. Access to this portal will be restricted to RBI-regulated entities in a phased manner, allowing these entities to perform detailed climate risk assessments.

This system represents a forward-thinking approach to integrating environmental risks into financial stability assessments and ensuring resilience in the face of climate-related uncertainties.

II. Payment Systems

4. Enhanced Limits for UPI Transactions

The RBI continues to drive innovation in digital payments, with several important changes aimed at widening the use of the Unified Payments Interface (UPI). Two products, UPI123Pay and UPI Lite, are set to benefit from enhanced limits.

- UPI123Pay: Launched in March 2022 to cater to feature-phone users, UPI123Pay has expanded rapidly, now supporting transactions in 12 languages. To further promote its usage, the RBI has increased the per-transaction limit from ?5,000 to ?10,000. This enhancement will widen the range of transactions that feature-phone users can conduct, boosting financial inclusion in India.

- UPI Lite: Designed for small-value transactions and offline digital payments, UPI Lite currently has a limit of ?500 per transaction and an overall wallet limit of ?2,000. The RBI has now raised the overall wallet limit to ?5,000 and the per-transaction limit to ?1,000, making it more practical for daily transactions and expanding its scope in the market.

These updates are part of the RBI’s broader agenda to ensure that digital payments become more accessible, especially for low-value, high-frequency transactions, ultimately promoting the Digital India vision.

5. Beneficiary Account Name Look-up for RTGS and NEFT

In another effort to enhance customer confidence and reduce the risk of erroneous transactions, the RBI is introducing a beneficiary account name look-up facility for RTGS (Real-Time Gross Settlement) and NEFT (National Electronic Funds Transfer) transactions. Currently, UPI and IMPS provide a similar service, enabling remitters to verify the name of the receiver before finalizing a payment.

With this new facility, remitters will be able to input the beneficiary’s account number and IFSC code to verify the account holder’s name before initiating an RTGS or NEFT transfer. This feature will help mitigate the risk of fraud and misdirected payments, providing an additional layer of security in high-value transactions. Detailed guidelines for this feature will be issued separately.

Conclusion

The RBI’s October 2024 statement underscores its commitment to fostering an inclusive and resilient financial ecosystem. From supporting MSEs through enhanced lending regulations to advancing climate risk assessments and driving digital payment innovations, these policies reflect a future-focused vision for India’s financial sector. By expanding access to capital, improving customer protections, and leveraging technology, the RBI continues to build a robust regulatory framework that is well-equipped to meet the challenges of a rapidly evolving financial landscape.

#RBI #DigitalPayments #UPI #ClimateRisk #CooperativeBanks #MSEs #FinancialInclusion Reserve Bank of India (RBI) National Payments Corporation Of India (NPCI)