25 Key Points on the Monetary Policy

Statements
Announced on June 8, 2022
1. MPC Meeting: The 36th Meeting of the MPC, constituted under Section
45ZB of the RBI Act, 1934, was held during June 6-8, 2022. The MPC
decided to remain focused on withdrawal of accommodation to ensure
that inflation remains within the target going forward, while supporting
growth. The MPC’s decisions are in consonance with the objective of
achieving the medium-term target for CPI inflation of 4% within a band of
+/- 2%, while supporting growth.

2. Policy Repo Rate: The Policy Repo Rate under LAF increased by 50 bps
to 4.90% with immediate effect. SDF, MSF & Bank Rate: Consequently,
the SDF rate stands adjusted to 4.65% and the MSF rate and the Bank Rate
to 5.15%.

3. Global economy: The global economy continues to grapple with multi-

decadal high inflation and slowing growth, persisting geopolitical tensions
and sanctions, elevated prices of crude oil and other commodities and
lingering COVID-19 related supply chain bottlenecks. Global financial
markets have been roiled by turbulence amidst growing stagflation
concerns, leading to a tightening of global financial conditions and risks to
the growth outlook and financial stability.

4.Domestic economy: India’s real GDP growth for 2021-22 stood at 8.7%
which is 1.5% above the pre-pandemic level (2019-20). In Q4:2021-22,
real GDP growth decelerated to 4.1% from 5.4% in Q3, dragged down
mainly by weakness in private consumption on the back of the Omicron
wave. Urban demand is recovering and rural demand is gradually
improving. Merchandise exports posted robust double-digit growth for
the 15th month in a row during May while non-oil non-gold imports
continued to expand at a healthy pace, pointing to recovery of domestic
demand. The overall system liquidity remains in large surplus. M3 and
bank credit from commercial banks rose (y-o-y) by 8.8% and 12.1%
respectively as on May 20, 2022. India’s forex reserves were placed at
US$ 601.4 billion as on May 27, 2022. CPI inflation rose further from 7.0%
in March 2022 to 7.8% in April 2022, reflecting broad-based increase in
all its major constituents. Food inflation pressures accentuated, led by
cereals, milk, fruits, vegetables, spices and prepared meals. Fuel inflation
was driven up by a rise in LPG and kerosene prices. Core inflation
hardened across almost all components, dominated by the transport and
communication sub-group.

5.Inflation outlook: The tense global geopolitical situation and the

consequent elevated commodity prices impart considerable uncertainty
to the domestic inflation outlook. The restrictions on wheat exports
should improve the domestic supplies but the shortfall in the rabi
 production due to the heat wave could be an offsetting risk. The forecast
of a normal south-west monsoon augurs well for the kharif agricultural
production and the food price outlook. Edible oil prices remain under
pressure on adverse global supply conditions, notwithstanding some
recent correction due to the lifting of export ban by a major
supplier. Consequent to the recent reduction in excise duties, domestic
retail prices of petroleum products have moderated. International crude
oil prices, however, remain elevated, with risks of further pass-through to
domestic pump prices. There are also upside risks from revisions in the
prices of electricity. Early results from manufacturing, services and
infrastructure sector firms polled in the Reserve Bank’s surveys expect
further input and output price pressures going forward.

6. Inflation Projection: Inflation is projected at 6.7% in 2022-23, with Q1 at

7.5%; Q2 at 7.4%, Q3 at 6.2% and Q4 at 5.8%, with risks evenly balanced.

7. Outlook for Growth: The recovery in domestic economic activity is gather

strength. Rural consumption should benefit from the likely normal south-
west monsoon and the expected improvement in agricultural prospects. A
rebound in contact-intensive services is likely to bolster urban
consumption, going forward. Investment activity is expected to be
supported by improving capacity utilisation, the government’s capex
push, and strengthening bank credit. Growth of merchandise and services
exports is set to sustain the recent buoyancy. Spillovers from prolonged
geopolitical tensions, elevated commodity prices, continued supply
bottlenecks and tightening global financial conditions nevertheless weigh
on the outlook.

8. GDP Projection: The real GDP growth projection for 2022-23 is retained at
7.2%, with Q1 at 16.2%, Q2 at 6.2%, Q3 at 4.1% and Q4 at 4.0%, with risks
broadly balanced.

9. MPC’s Note: Inflation risks flagged in the April and May resolutions of the
MPC have materialised. The projections indicate that inflation is likely to
remain above the upper tolerance level of 6% through the first 3 quarters
of 2022-23. Considerable uncertainty surrounds the inflation trajectory
due to global growth risks and geopolitical tensions. The supply side
measures taken by the government would help to alleviate some cost-
push pressures. At the same time, however, the MPC notes that
continuing shocks to food inflation could sustain pressures on headline
inflation. Persisting inflationary pressures could set in motion second
round effects on headline CPI. Hence, there is a need for calibrated
monetary policy action to keep inflation expectations anchored and
restrain the broadening of price pressures.

10. Enhancement of limits of individual housing loans by UCBs: The RBI,

by taking into account the increase in housing prices since the limits were
last revised and considering the customer needs, has decided to increase
the existing limits on individual housing loans being extended by
 cooperative banks and Rural Cooperative Banks (RCBs – State
Cooperative Banks and DCCBs) to their customers. Accordingly, the limits
for Tier I / Tier II UCBs shall stand revised from Rs.30 lakh / Rs70 lakh
to Rs.60 lakh / Rs.140 lakh respectively.

11. Enhancement of limits of individual housing loans by RCBs: The RBI

has also decided to increase the limits of individual housing loans being
extended by the Rural Cooperative Banks (RCBs). Accordingly, the limits
shall increase from Rs.20 lakh to Rs.50 lakh for RCBs with assessed net
worth less than Rs.100 crore and from Rs.30 lakh to Rs.75 lakh for other
RCBs.

12. Allowing StCBs and DCCBs to lend to CRE-RH Sector: Considering the
growing need for affordable housing and to realise their potential in
providing credit facilities to the housing sector, it has been decided to
allow State Co-operative Banks (StCBs) and District Central Co-
operative Banks (DCCBs) to extend finance to Commercial Real
Estate – Residential Housing (CRE-RH) within the existing aggregate
housing finance limit of 5% of their total assets.

13. Permitting UCBs to offer Door-Step banking: In order to attain

harmonisation of regulatory framework across REs and to provide
convenience of banking services to the customers at their door-step, it has
been decided to permit UCBs to extend doorstep banking services to
their customers on par with SCBs.

14. Draft Directions on Margin Requirements for NCCDs: Well-established

variation and initial margining (IM) for Over the Counter (OTC) Non-
centrally Cleared Derivatives (NCCD) transactions contribute to financial
stability and are a key component of the post-crisis G20 recommendations
for these markets. With the objective of strengthening the resilience of
OTC derivative market, the RBI had earlier issued a Discussion Paper (DP)
to implement global practices related to margin requirements for OTC
derivatives. The promulgation of the Act for Bilateral Netting of Qualified
Financial Contracts, 2020, ensuring legal recognition for bilateral netting
of an OTC derivative transaction, has put in place a significant enabler for
efficient margining. Against this backdrop, Draft Directions on
exchange of Initial Margin (IM) for NCCDs are being issued for public
feedback separately.

15. Enhancement of limit of e-Mandates on Cards for Recurring

Payments: To further augment customer convenience and leverage the
benefits available under the framework on processing of e-mandate based
recurring payments, it is proposed to enhance the limit from Rs.5000
to Rs.15000 per recurring payment.

16. Enhancements to UPI – linking of Rupay Credit Cards: In order to

further deepen the reach and usage of UPI, it is proposed to allow linking
of credit cards to UPI. To start with Rupay credit cards will be enabled
 with this facility. This arrangement is expected to provide more avenues
and convenience to the customers in making payments through UPI
platform.

17. Review of PIDF Scheme: To further accelerate and augment the

deployment of payment acceptance infrastructure in the targeted
geographies, it is proposed to make modifications to the Payments
Infrastructure Development Fund (PIDF) Scheme, by inter-alia,
enhancing the subsidy amount, simplifying the subsidy claim process, etc.

18. MPC Members: Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R
Varma, Dr. Rajiv Ranjan, Dr. Michael D Patra and Shri Shaktikanta Das.

19. Minutes of the MPC Meeting: According to Section 45L of the RBI Act,
1934, the RBI shall publish, on the 14 th day after every meeting of the
MPC, the minutes of the proceedings of the meeting which shall include
the resolution adopted at the meeting of the MPC, the vote of each
member of the MPC, ascribed to such member, on the resolution adopted
in the said meeting and the statement of each member of the MPC under
sub-section (11) of Section 45ZI on the resolution adopted in the said
meeting. Accordingly, the Minutes of the MPC Meeting held on June 08,
2022 was released on June 22, 2022. It states that the members of the
MPC indicated more interest rate hike in the coming months to tackle
rising inflation.

20. Dr. Shashanka Bhide said that the inflationary pressures that have
intensified since March 2022 are expected to remain a concern in FY
2022-23 unless the international supply conditions improve
quickly. Changing the course of inflation trajectory to reach targeted level
is a priority at this stage for monetary policy although the growth
momentum remains modest one. Monetary Policy tightening has begun in
a number of economies globally to rein in inflationary pressures. Fiscal
measures to contain the impact of international price spikes to the
domestic consumer and measures to improve supply expansion would
moderate prices pressures. The RBI moved to streamline the LAF
corridor in April 2022, with SDF as the floor and restoring the width of the
corridor to the pre-pandemic level. The MPC raised the policy Repo Rate
by 40 bps in its meeting held in May and the RBI also announced an
increase in CRR by 50 bps. In view of the elevated levels of inflation rates
which may persist given the disruptions international supply chains are
experiencing, there is a need to ensure that policy rates are consistent
with the requirements of moderating inflation expectations and liquidity
conditions are consistent with the requirements of economic growth in an
environment less constrained by the COVID pandemic. While the impact
of these measures is likely to have some adverse impact on aggregate
demand in the short term, moderating inflation pressures now is crucial
to ensure a stable macroeconomic environment.
21. Dr. Ashima Goyal said that under the external benchmark system, as it
works currently, banks may not need to raise deposit rates
commensurately until excess liquidity is sufficiently absorbed so that they
have to borrow at the repo. If excess liquidity persists, yet policy rates
rise, the ECB multi-tier excess reserve system is an option. Higher rates
paid on a part of reserves held at the central bank could be conditional on
banks passing on a share of this to depositors.

22. Shri Jayanth Varma said that many leading central banks currently
provide forecasts of the future path of the policy rate several quarters
ahead. The MPC has now accumulated several years of experience and the
RBI has evolved into a mature inflation targeting central bank. I believe
that the time is therefore ripe for MPC members to start moving towards
providing projections of the future path of the policy rate. This would
help stabilise long term bond markets and also anchor inflation
expectations. More needs to be done in future meetings to bring the real
policy rate to a modestly positive level consistent with the emerging
inflation and growth dynamics.

23. Dr. Rajiv Ranjan said that the ongoing war in Europe and the consequent
sanctions have taken a heavy toll on the global economy by aggravating
supply chain disruptions and heightening uncertainty about the post-
pandemic recovery. With inflation scaling multi-decadal peaks across
several countries and remaining stubborn, risks of long-term inflation
expectations getting unhinged have increased manifold leaving monetary
authorities with little room to manoeuvre. Several Asian economies, who
abstained from policy tightening last year despite mounting inflation
pressures, have joined the bandwagon of their advanced economy
counterparts in the battle against inflation. The pace and extent of
tightening, however, are tailored to country-specific macroeconomic
developments and requirements. While frontloading policy measures,
one needs to be aware that the pace of policy transmission has quickened
after the introduction of the external benchmark-based lending rates
(EBLR) in Oct 2019. The inherent framework of the EBLR regime which
enables quicker and larger transmission to lending rates coupled with
banks’ propensity to pass-through policy rate changes to lending rates
rather quickly, particularly during tightening cycles, may have to be
factored to achieve the desired outcome during the current tightening
phase. Of course, the trajectory of inflation going ahead will be an
important determining factor. More importantly, when the monetary-
fiscal coordination is at its best, fighting inflation becomes a joint
responsibility which is crucial for engineering a successful disinflation. In
this context, with monetary policy prioritising price stability and fiscal
policy emphasising on quality of expenditure through capex, the economy
becomes the net beneficiary. Thus, it may be important for the
government – both centre and states – to successfully complete their
budgeted capex plans and work through their counter-cyclical policy
levers to ensure a soft-landing for the economy amidst monetary
tightening to rein in inflation.
24. Dr. Michael Patra said that the objective should be to take the repo rate
to a height that is at least above the 4 quarters ahead forecast of inflation,
knowing that monetary policy works with lags. The MPC’s endeavour
should be to bring down inflation into the tolerance band by the last
quarter of 2022-23 or the first quarter of 2023-24 and progressively align
it to the target during the course of 2023-24.

25. Shri Shaktikanta Das pointed out that the repo rate was still lower than
pre-pandemic levels and that the liquidity surplus in the banking system
was higher than what it was prior to the COVID-19 crisis. He added that
as our policy in recent months has been unambiguously focussed on
withdrawal of accommodation, both in terms of liquidity and rates, the
change in wording of stance should be seen as a continuation and fine-
tuning of our recent approach. The withdrawal of accommodation, as I
see it, would be non-disruptive to the process of recovery and would
strengthen our ongoing efforts to combat inflation and anchor inflation
expectations.
 Key Points on
RBI’s Master Direction on Issuance and
Conduct of
Credit Card and Debit Card
The RBI on April 21, 2022 has issued Master Direction on Issuance and
Conduct of Credit Card and Debit Card which will be effective from July
01, 2022.

The Key points of the Circular are:

1. Guidelines on Credit Cards:
a. The provisions of these Directions relating to credit cards shall
apply to every Scheduled Bank (excluding PBs, StCBs and
DCCBs) and all NBFCs operating in India.

b. SCBs (Other than RRBs) with net worth of Rs.100 crore and above
are permitted to undertake credit card business either
independently or in tie up with other card issuing banks. If
banks propose to set up separate subsidiary for card business
should take prior approval of the RBI.

c. RRBs are permitted to issue credit cards in collaboration with

their sponsor bank or other banks.

d. UCBs and NBFCs with minimum net worth of Rs.100 crore and
above which are CBS enabled may issue credit cards after
obtaining RBI approval.

e. The total unsecured loans and advances (with surety or without

surety or cheque purchases) granted by a UCB to its members
together with cumulative approved credit card limits shall not
exceed 10% of its total assets as per audited balance sheet as on
March 31st of the preceding FY, as prescribed under exposure
norms.

f. Card-issuers shall seek One Time Password (OTP) based consent

from the cardholder for activating a credit card, if the same has
not been activated by the customer for more than 30 days from
the date of issuance. If no consent is received for activating the
card, card-issuers shall close the credit card account without any
cost to the customer within 7 working days from date of seeking
confirmation from the customer.

g. Card-issuer should not report any credit information related to a

new credit card account to Credit Information Companies (CICs)
prior to activation of the card.
 h. Any request for closure of a credit card shall be honoured within
7 working days by the credit card-issuer, subject to payment of
all dues by the cardholder. Card issuers should provide an
option to card holders for placing such request through internet
banking, email, website, IVR, etc. Failure on the part of the card-
issuers to complete the process of closure within 7 working days
shall result in a penalty of Rs.500 per day of delay payable to the
customer, till the closure of the account provided there is no
outstanding in the account.

i. If a credit card has not been used for a period of more than one
year, the process to close the card shall be initiated after
intimating the cardholder. If no reply is received from the
cardholder within a period of 30 days, the card account shall be
closed by the card-issuer, subject to payment of all dues by the
cardholder. The closure reporting should be made to Credit
Information Companies (CICs) within a period of 30 days.

j. Card-issuers shall report a credit card account as ‘past due’ to CICs

or levy penal charges namely late payment charges and other
related charges, if any, only when a credit card account remains
‘past due’ for more than 3 days.

k. Card-issuers shall ensure that customer has given sufficient

number of days (at least one fortnight) for making payment
before the interest starts getting charged.

l. Card-issuers shall put in place a mechanism for review of their

credit card operations on half-yearly basis by the Audit
Committee of the Board of Directors.

2. Guidelines on Debit Cards:

a. The provisions of these Directions relating to credit cards shall
apply to every bank operating in India.

b. Debit cards shall only be issued to customers having SB /

CAs. Banks should not issue debit cards to cash credit / loan
account holders. However, it will not preclude the banks from
linking the OD facility provided along with PMJDY accounts with
a debit card.

c. The banks shall undertake review of their operations / issue of

debit cards on half-yearly basis.

d. Card-issuers shall provide to the cardholder the detailed

procedure to report the loss, theft or unauthorised use of card or
PIN. Multiple channels to be provided to card holders 24x7 to
report such incidences.

3. Guidelines on Co-branding arrangements:

a. Prior approval of the RBI is not necessary for the issuance of co-
branded credit / debit / prepaid cards for banks. However,
UCBs shall not issue debit / credit cards in tie-up with other
non-bank entities.

b. UCBs are not allowed to issue co-branded credit cards.

c. Card-issuers shall be liable for the acts of the co-branding

partner. Card-issuers shall also be liable for any delay or non-
delivery of the cards to the cardholders.

d. The role of the co-branding partner entity under the tie-up

arrangement shall be limited to marketing / distribution of the
cards and providing access to the cardholder for the goods /
services that are offered. Co-branding partner shall not have
any access to information relating to transactions undertaken
through the co-branded card.
 Key Points on
Consolidated Circular on Opening of Current
Accounts
and CC/OD Accounts by banks
The RBI on April 19, 2022 has issued the guidelines on opening of Current
Accounts and CC/OD Accounts by all SCBs and PBs by consolidating all the
guidelines issued earlier.

The Key points of the Circular are:

1. Opening of Current Accounts for borrowers availing CC/OD
Facilities from the banking system:
a. For borrowers, where the aggregate exposure of the banking
system is less than Rs.5 crore, banks can open current
accounts without any restrictions subject to obtaining an
undertaking from such customers that they shall inform the
bank(s), if and when the credit facilities availed by them from
the banking system becomes Rs.5 crore or more.

b. Where the aggregate exposure of the banking system is Rs.5

crore or more, the borrowers can open current accounts with
any one of the banks with which it has CC/OD facility, provided
that the bank has at least 10% of the aggregate exposure of
the banking system to that borrower. In case none of the
lenders has at least 10% of the aggregate exposure, the bank
having the highest exposure among CC/OD providing banks may
open only collection accounts subject to the condition that funds
deposited in such collection accounts will be remitted within
two working days of receiving such funds, to the CC/OD
account maintained with the above-mentioned bank
maintaining current accounts for the borrower. Non-lending
banks are not permitted to open current / collection accounts.

2. Opening of Current Accounts for borrowers not availing CC/OD

facilities from the banking system:
a. In case of borrowers where aggregate exposure of the banking
system is Rs.50 crore or more, banks shall be required to put in
place an escrow mechanism. Borrowers shall be free to choose
any lending bank as their escrow managing bank. All lending
banks should be part of the escrow agreement. Current
accounts of such borrowers can only be opened / maintained by
the escrow managing bank. Other lending banks can open
‘collection accounts’ subject to the condition that funds will be
remitted from these accounts to the said escrow account at the
frequency agreed between the bank and the borrower.
 b. Further, balances in such collection accounts shall not be used for
repayment of any credit facilities provided by the bank or as
collateral / margin for availing any fund or non-fund based
credit facilities. While there is no prohibition on amount or
number of credits in ‘collection accounts’, debits in these
accounts shall be limited to the purpose of remitting the
proceeds to the said escrow accounts. However, banks
maintaining collection accounts are permitted to debit fees /
charges from such accounts before transferring funds to the
escrow account. Non-lending banks shall not open any current
account for such borrowers.
c. In case of borrowers where aggregate exposure of the banking
system is Rs.5 crore or more but less than Rs.50 crore, there is
no restriction on opening of current accounts by the lending
banks. However, non-lending banks may open only collection
accounts as detailed above.
d. In case of borrowers where aggregate exposure of the banking
system is less than Rs.5 crore, banks may open current account
subject to obtaining an undertaking from them that they (the
customers) shall inform the bank(s), if and when the credit
facilities availed by them from the banking system becomes Rs.5
crore or more.
e. Banks are free to open current accounts of prospective customers
who have not availed any credit facilities from the banking
system, subject to necessary due diligence as per their Board
approved policies.
f. Bank are free to open current accounts, without any of the
restrictions placed in this Circular, for borrowers having credit
facilities only from NBFCs / FIs / co-operative banks / non-bank
institutions, etc. However, if such borrowers avail aggregate
credit facilities of Rs.5 crore or above from the banks covered
under these guidelines, the provisions of the Circular shall be
applicable.

3. Opening of Cash Credit (CC) / Overdraft (OD) facilities:

a. When a borrower approaches a bank for availing CC / OD
facilities, the bank can provide such facilities without any
restrictions placed vide this circular if the aggregate exposure of
the banking system to that borrower is less than Rs.5
crore. However, the bank must obtain an undertaking from such
borrowers that they (the borrowers) shall inform the bank(s), if
and when the credit facilities availed by them from the banking
system becomes Rs.5 crore or more.
b. For borrowers, where the aggregate exposure of the banking
system is Rs.5 crore or more: banks having a share of 10% or
 more in the aggregate exposure of the banking system to such
borrower can provide CC / OD facility without any restrictions.
c. For borrowers, where the aggregate exposure of the banking
system is Rs.5 crore or more: banks having a share of 10% or
more in the aggregate exposure of the banking system to such
borrower can provide CC / OD facility without any restrictions.
d. Where a bank’s exposure to a borrower is less than 10% of the
aggregate exposure of the banking system to that borrower,
while credits are freely permitted, debits to the CC/OD account
can only be for credit to the CC/OD account of that borrower
with a bank that has 10% or more of aggregate exposure of the
banking system to that borrower.
e. However, banks are permitted to debit interest / charges
pertaining to the said CC/OD account and other fees / charges
before transferring the funds to the CC/OD account of the
borrower with bank(s) having 10% or more of the aggregate
exposure. It may be noted that banks with exposure to the
borrower of less than 10% of the aggregate exposure of the
banking system can offer Working Capital Demand Loan
(WCDL) / Working Capital Term Loan (WCTL) facility to the
borrower. In case there is more than one bank having 10% or
more of the aggregate exposure, the bank to which the funds are
to be remitted may be decided mutually between the borrower
and the banks.

4. Exemptions regarding specific accounts:

Banks are permitted to open and operate the following accounts
without any of the above restrictions:
i. Specific accounts which are stipulated under various statutes
and specific instructions of other regulators / regulatory
departments / Central and State Governments such as
RERA Accounts for Real Estate projects for the purpose of
maintaining 70% of advance payments collected from the
home buyers, escrow accounts of payment aggregators /
PPI issuers, Accounts for the purpose of IPO / NFO / FPO /
share buyback / dividend payment, etc.
ii. Accounts opened as per the provisions of FEMA for ensuring
compliance under the FEMA framework.
iii. Accounts for payment of taxes, duties, statutory dues, etc., opened
with banks authorised to collect the same, for borrowers of
such banks which are not authorised to collect such taxes,
duties, statutory dues, etc.

iv. Accounts for settlement of dues related to debit card / ATM

card / credit card issuers / acquirers.
 v. Accounts of WLA operators and their agents for sourcing of
currency.

vi. Accounts of Cash-in-Transit (CIT) Companies / Cash

Replenishment Agencies (CRAs) for providing cash
management services.

vii. Accounts opened by a bank funding a specific project for

receiving / monitoring cash flows of that specific project,
provided the borrower has not availed any CC/OD facility
for that project.
viii. Inter-bank accounts.

ix. Accounts of AIFIs.

x. Accounts attached by order of Central or SGs / regulatory
body / Courts / investigating agencies, etc., wherein the
customer cannot undertake any discretionary debits.

5. Other Instructions:
a. All banks, whether lending banks or otherwise, shall monitor all
accounts regularly, at least on a half-yearly basis, specifically
with respect to the aggregate exposure of the banking system to
the borrower and the bank’s share in that exposure. If there is a
change in exposure of a particular bank or aggregate exposure
of the banking system to the borrower, such changes shall be
implemented within a period of 3 months from the date of
such monitoring.

b. Banks should not route drawal from term loans through CC /

OD / Current Accounts of the borrower. Since term loans are
meant for specific purposes, the funds should be remitted
directly to the supplier of goods and services. In cases where
term loans are meant for purposes other than for supply of
goods and services and where the payment destination is
identifiable, banks shall ensure that payment is made directly,
without routing it through an account of the
borrower. However, where the payment destination is
unidentifiable, banks may route such term loans through an
account of the borrower opened as per the provisions of the
circular.
 Regulations Review Authority (RRA) 2.0 –
Latest Updates
The RBI on May 13, 2022, said that the Regulations Review Authority (RRA
2.0) has recommended withdrawal of an additional 239 circulars in its third
tranche of recommendations. With this, the total number of circulars which stand
withdrawn would be 714.

The RRA 2.0 was set up by the RBI in May 2021 to review the regulatory
instructions, remove redundant or duplicate instructions and reduce the
compliance burden on Regulated Entities (REs). The RRA had recommended
withdrawal of 150 circulars in the first tranche of recommendations in
November 2021, 100 circulars in the second tranche of recommendations in
February 2022 and 225 circulars in the third tranche of recommendations in
May 2022. It is expected to ease regulatory compliance for the REs while
improving the accuracy, speed and quality of data submission.

Further, on the suggestions of an Internal Group (Chairman: Dr. O. P. Mall,

ED), the RRA has recommended elimination of paper-based returns and
has identified 65 regulatory returns which would either be discontinued /
merged with other returns or would be converted into online returns. The RRA
has also recommended creation of a separate web page “Regulatory Reporting”
in the RBI website to consolidate information relating to regulatory reporting and
return submission by the REs at a single source.

The RBI, in May 2021, said that by considering the developments in regulatory
functions of the Reserve Bank over the past two decades and evolution of the
regulatory perimeter, and accordingly to streamline / rationalise the Bank’s
regulations and compliance procedures and making them more effective, it has
set up a Regulations Review Authority (RRA 2.0) for a period of one year
with effect from May 01, 2021 to review the regulatory prescriptions internally
as well as by seeking suggestions from the RBI Regulated Entities (REs) and other
stakeholders on their simplification and ease of implementation. Shri M
Rajeshwar Rao, DG has been appointed as the RRA. The RRA 2.0 has
been engaging in extensive consultations with both – internal as well as external
stakeholders, on review of the regulatory and supervisory instructions for their
simplification and ease of implementation.

The RRA 2.0 will focus on streamlining regulatory instructions, reduce

compliance burden of the regulated entities by simplifying procedures and
reduce reporting requirements, wherever possible. The terms of reference of
RRA 2.0 would be as under: (a) to make regulatory and supervisory instructions
more effective by removing redundancies and duplications, if any; (b) to reduce
compliance burden on REs by streamlining the reporting mechanism, revoking
obsolete instructions if necessary and obviating paper-based submission of
returns wherever possible; (c) to obtain feedback from REs on simplification of
procedures and enhancement of ease of compliance; (d) examine and suggest the
 changes required in dissemination process of RBI circulars / instructions (this
would entail suggestions on the areas where the manner of issuing circulars, their
updation and website linkages) and (e) identify any other issues germane to the
subject matter.

The RRA has constituted an Advisory Group, under the head of Shri S
Janakiraman, MD, SBI. The other Members of the Group include Shri T T
Srinivasaraghavan, Former MD and Non-Executive Director, Sundaram Finance,
Shri Gautam Thakur, Chairman, Saraswat Co-operative Bank Ltd, Shri Subir Saha,
Group CCO, ICICI Bank Ltd., Shri Ravi Duvvuru, President & CCO, Jana SFB and
Shri Abadaan Viccaji, CCO, HSBC India. The Group will assist the RRA by
identifying areas / regulations / guidelines / returns which can be rationalised
and submit reports periodically to RRA containing the recommendations /
suggestions.
It is to be noted here that the RBI in 1999 had set up a RRA for reviewing the
regulations, circulars, reporting systems, based on the feedback from public,
banks and FIs. The recommendations of the RRA enabled streamlining and
increasing the effectiveness of several procedures, simplifying regulatory
prescriptions, paved the way for issuance of master circular and reduce reporting
burden on REs.

Key Points on
Establishment of Digital Banking Units
(DBUs)
The RBI, on April 07, 2022 issued the Circular on establishment of Digital
Banking Units (DBUs). In recent times, digital banking has emerged as the
preferred banking service delivery channel in the country along with
‘brick and mortar’ banking outlets. The RBI has been taking progressive
measures to improve availability of digital infrastructure for banking
services. In furtherance of this objective and as a part of efforts to
accelerate and widen the reach of digital banking services, the concept of
“Digital Banking Units” (DBUs) is being introduced by the RBI. In
pursuance of announcements made in the Union Budget 2022-23,
guidelines have been prepared for setting up of DBUs by commercial
banks on the basis of recommendations of a Working Group formed by
RBI which included representatives of banks and IBA.
The 15 Key points of the Circular are:
1. Union Budget 2022-23: As per the announcement made in the
Union Budget 2022-23, SCBs to set up 75 Digital Banking Units
(DBUs) in 75 Districts.

2.Meaning: Digital Banking refers to present and future electronic

banking services provided by a licensed bank for the execution of
financial, banking and other transactions and / or orders /
instruments through electronic devices / equipment over web sites
(i.e. online banking), mobile phones (i.e., mobile banking) or other
digital channels as determined by the bank, which involve significant
level of process automation and cross-institutional service
capabilities running under enhanced technical architecture and
differentiated business model / strategy.

3.Digital Banking segment is a sub-segment of the existing ‘Retail

Banking’ segment which will now be sub-divided into (i) Digital
Banking and (ii) Other Retail Banking. The business involving
digital banking products acquired by DBUs or existing digital
banking products would qualify to be clubbed under this segment.

4.Digital banking products and services would generally mean those

financial products / services whose designs and fulfilments have
nearly end-to-end digital life cycle with the initial customer
acquisition / product delivery necessarily taking place digitally
through self-service or assisted self-service.

5.A Digital Banking Unit (DBU) is a specialised fixed point business

unit / hub housing certain minimum digital infrastructure for
delivering digital banking products and services as well as servicing
existing financial products and services digitally, in both self-service
and assisted mode, to enable customers to have cost effective /
convenient access and enhanced digital experience to / of such
product and services in an efficient, paperless, secured and
connected environment with most services being available in self-
service mode at any time, all year round.

6.Opening of DBUs: SCBs (other than RRBs, PBs and LABs) with
past digital banking experience are permitted to open DBUs in Tier
1 to Tier 6 centres, without any RBI approval.

7.DBUs - Banking Outlets: The DBUs of the banks will be treated

as Banking Outlets (BOs) i.e., a fixed-point service delivery unit,
manned by either bank’s staff or its BC where services of acceptance
of deposits, encashment of cheques / cash withdrawal or lending of
money are provided for a minimum of 4 hours per day for at
least five days a week.
 8. Infrastructure: Each DBU shall be housed distinctly, with the
separate entry and exit provisions. They will be separate from an
existing Banking Outlet with formats and designs most
appropriate for digital banking users. For front-
end or distribution layer of DBU, each bank would choose suitable
smart equipment such as ATMs, IVR Service terminals,
etc. The back-end should include the CBS and other back office
related information systems. Alternatively, banks can adopt more
core-independent digital-native technologies offering better
scalability, flexibility in creating new/ reusable digital environments
through continuous development / software deployment and
interconnectivity specifically for this business segment, based on
their digital strategy.

9.Resources: Each DBU should be headed by a sufficiently senior and

experienced executive of the bank, preferably Scale III or above for
PSBs or equivalent grades for other banks who can be designated as
the Chief Operating Officer (COO) of the DBU. In addition to
ensuring physical security of the infrastructure of the DBU, banks
also should ensure adequate ‘Cyber Security’ measures for DBUs.

10.Products and Services offered by DBUs: Each DBU must offer

certain minimum digital banking products and services. Such
products should be on both liabilities and assets side of the
balance sheet of the digital banking segment. Digitally value-added
services to conventional products would also qualify as such.

11.Digital Banking Customer Education: In addition to on-boarding of

customers in a fully digital environment, various tools and methods
shall be used by DBUs to offer hands-on customer education on safe
digital banking products and practices for inducting customers to
self-service digital banking services. This effort has to be clearly
translated to incremental digital penetration of the financial services
a DBU is catering to and will have to be monitored. The district
where the DBU is located will be the catchment area for the
purposes.

12.Digital Business Facilitator / BC: The banks will have the option to
engage digital business facilitator / business correspondents (BCs)
in conformance with relevant regulations to expand the virtual
footprint of DBUs.

13.Customer Grievances: Banks should also place adequate digital

mechanism to offer real time assistance and redress customer
grievances arising from business and services officered by the DBUs
directly or through Business Facilitators / BCs.

14.Reporting: Banks shall report the Digital Banking Segment as a sub-

segment within the existing ‘Retail Banking Segment’ during their
 financial disclosures. It is clarified that the digital banking
products / services applicable to segments other than ‘Retail
Banking’ need not be reported at this stage. Performance update
with respect to DBU shall be furnished in a pre-defined reporting
format to DoS RBI on monthly -basis and in a consolidated form
in Annual Report of the bank. Banks shall also furnish information
relating to opening, closure, merger or shifting of DBUs online
through Central Information System for Banking Infrastructure
(CISBI) portal of DSIM, RBI.

15.Role of Board of Directors: Expansion of digital financial services

and financial inclusion being overarching objectives of DBUs and in
view of the operational flexibility given to banks in this domain, the
board should ensure provision of regular on-site and off-site
monitoring system covering all aspects of the guidelines. The Board
or a Committee of the Board shall review the progress and key
performance indicators of digital banking services including that of
DBU separately at suitable periodicity. The review should cover
both business and risk aspects of the segment.

How will DBUs be beneficial? DBUs will help in improving flow of credit
through hassle free digital and quick processes. DBUs will support banks
and Government for better reach in financial inclusion process. The
establishment of these units will be cheaper than the conventional brick
and mortar units. DBUs will provide better technical support to
customers in terms of getting expected quality services. DBUs will
decrease the manpower requirement in banking and also reduce costs
and make the banking business more profitable. DBUs will help the
government enhance digital literacy. Also, they help in Government’s aim
of cashless economy. DBUs will improve the quality of customer services
offered by the banks by meeting the expectations and preferences of
younger generation. Establishment of DBUs is the key requirement for
developing paperless banking in India.

List of Essay Topics

for exam point of view

Sl. No. List of Essay Topics

1 Why do we need CBDC?
2 Pros and cons of SDF.
3 Are the FinTechs banking killers?
4 Why still Cash is the King?
5 Role of the RBI in climate change and global warming.
6 Pros and cons of Buy Now Pay Later (BNPL).
7 How does the RBI manage the liquidity in the system?
8 Whether we can achieve the idea of ‘Make in India’ as proposed by the Govt.?
9 Your views on Old Pension Scheme vs New Pension Scheme.
10 Lessons from Sri Lanka economic crisis.
11 Bad Bank – A remedy for the NPA illness?
12 Why do we need Digital Banking Units even though we have mobile banking?
13 Is the high inflation new normal?
14 Do we have alternative solutions for coal shortages?
15 How to improve the MSME sector?
16 Crypto – Beginning of the End or End of the beginning
17 Do you agree with bank mergers?
18 WFH or Work at Office – which is better and more suitable?
19 How to achieve $5 trillion economy?
20 Whether the idea of offline digital payment would be successful or not?
21 Is the Russia Ukraine war required?
22 What after LIBOR in India?
23 Role of deposit insurance in the banking world.
24 Features of Neo banking and how it differs from digital banking?
25 Is CAD good or bad for the economy?
26 Pros and cons of online classes for children.
27 Views on government’s asset monetisation plans.
28 Metaverse – The new reality in the banking world
29 How to manage forex reserves during the present geopolitical tensions?
30 Lessons from the NSE scam.
31 Is Decentralised Finance (DeFi) a game changer?
32 Role of the RBI supporting growth during COVID-19 pandemic period.
33 Pros and cons of EV model vehicles in India.
34 How to control frauds in the banking sector?
35 Why the central banks worry about the cryptocurrencies?
36 Qualities of a leader in an organisation.
37 How to address the issue on farmers’ distress?
38 Pros and cons of online training at office.
39 Features of Reserve Bank – Integrated Ombudsman Scheme (RB-IOS).
40 What are the challenges ahead of the banking sector?
41 Have we achieved desired Financial Inclusion?
42 Role of FinTechs in Digital Lending.
43 Whether India’s external sector vulnerable or not?
44 Digital data is the new Gold / Oil.
45 Features of IFSC
How does the RBI manage the government’s borrowing program for FY 2022-
46
23?
47 Banking on social media.
48 Account Aggregator Network – A step towards bringing Open Banking in
 India.
49 IBC – A big game changer in the banking.
50 Is Cash Reserve Ratio (CRR) a burden or blessing for banking industry?
51 Phygital Banking or Digital Banking – which is good for rural India?
52 Lessons from IPL 2022
53 Communication Policy of the RBI – Good or need better?
54 How to improve the infrastructures for the growth of the country?
55 Online food delivery culture – good or bad?
56 How to address the issues on cybercrimes?
Whether monetary policy transmission happens as per the expectations of the
57
RBI?
58 Differences between Bitcoin, Stablecoin and CBDC,
59 Features of Sexual Harassment Policy at Office.
60 What are the issues in legalising the transactions of cryptocurrencies?
61 Women empowerment: Challenges and prospects.
Efforts from the RBI and Govt towards achieving Digital Economy in the
62
country.
63 Biased media is a real threat to Indian democracy.
How to reduce the impact of natural disasters which cannot be totally
64
prevented.
65 Corruption is the part of our life – Do you agree?

List of Important Committees of

the RBI (for exam point of view)

Sl.
No. List of Committees of the RBI Chairperson
Committee to examine and review the
current state of customer service in the RBI
1 REs, adequacy of customer service Shri B P Kanungo
regulations and suggest measures to improve
the same, April 2022
Internal Working Group (IWG) to review the
extant guidelines on ownership and Dr. Prasanna Kumar
2
corporate structure for Indian Private Sector Mohanty
Banks, 2021
3 Working Group (WG) on digital lending Shri Jayant Kumar
 including lending through online platforms
Dash
and mobile apps, 2021
Regulations Review Authority (RRA 2.0), Shri M Rajeshwar
4
2021 Rao
Committee on functioning of ARCs and
5 review of regulatory guidelines applicable to Shri Sudarshan Sen
them, 2021
Shri N S
6 Expert Committee on UCBs, 2021
Vishwanathan
Standing External Advisory Committee for
Smt. Shyamala
7 evaluating Applications for Universal Banks
Gopinath
and SFBs, 2021
Advisory Committee on WMA to State Shri Sudhir
8
Governments, 2021 Shrivastava
Expert Committee on Resolution Framework
9 Shri K V Kamath
for COVID-19 related stress, 2020
10 Committee for Analysis of QR Code, 2020 Prof. D B Phatak
High-Level Strategy Sub-Committee of the
Dr. Prasanna Kumar
11 Central Board Directors towards
Mohanty
implementation of Utkarsh 2022
12 Task Force on Offshore Rupee Markets, 2019 Smt. Usha Thorat
Working Group (WG) to Review Regulatory
13 and Supervisory Framework for Core Shri Tapan Ray
Investment Companies (CICs), 2019
Internal Working Group (IWG) to Review
14 Shri M K Jain
Agricultural Credit, 2019
Committee on the Development of Housing
15 Dr. Harsh Vardhan
Finance Securitisation Market, 2019
Task Force on the Development of Secondary
16 Shri T N Manoharan
Market for Corporate Loans, 2019
Expert Committee to Review the Extant
17 Economic Capital Framework of the RBI, Dr. Bimal Jalan
2019
18 Expert Committee on MSMEs, 2019 Shri U K Sinha
Committee to Review the ATM Interchange
19 Shri V G Kannan
Fee Structure, 2019
High-Level Committee on Deepening of
20 Shri Nandan Nilekani
Digital Payments, 2019
21 Expert Committee on high divergence Shri Y H Malegam
observed in asset classification and
provisioning by banks and prevention of
 frauds, 2018
Inter-Regulatory Working Group on FinTech
22 Shri Sudarshan Sen
and Digital Banking, 2018
Internal Study Group to Review the Working
23 of the Marginal Cost of Funds Based Lending Shri Janak Raj
Rate (MCLR) System, 2017
Inter-disciplinary Standing Committee on Smt. Meena
24
Cyber Security, 2017 Hemachandra
Committee on WMA scheme for State
25 Shri Sumit Bose
Governments, 2016
Shri Deepak
26 Committee on Currency Movement, 2016
Mohanty
Committee on Medium-term Path to Shri Deepak
27
Financial Inclusion, 2015 Mohanty
28 High-Powered Committee on UCBs, 2015 Shri R Gandhi
Expert Committee to Revise and Strengthen
29 Dr. Urjit R Patel
the Monetary Policy Framework, 2014
Committee on Capacity Building and Skill
30 Requirements at various levels of banking Shri G Gopalakrishna
and financial service operations, 2014
Committee on Comprehensive Financial
31 Services for Small Businesses and Low- Dr. Nachiket Mor
Income Households, 2013
Technical Committee on Mobile Banking,
32 Shri B Sambamurthy
2013
Committee to Re-examine the existing
classifications and Suggest Revised
33 Guidelines with regard to Priority Sector Shri M V Nair
Lending Classifications and Related Issues,
2012
Working Group to Review the existing
34 Regulatory and Supervisory Framework for Smt. Usha Thorat
NBFCs, 2011
Committee on Customer Services in banks,
35 Shri Damodaran
2011
High Level Committee on Lead Bank Scheme,
36 Smt. Usha Thorat
2009
37 Committee on Financial Inclusion, 2008 Dr. C Rangarajan
Committee on Financial Sector Reforms,
38 Dr. Raghuram Rajan
2007
39 Committee on Procedures and Performance Shri Tarapore
 Audit of Public Services (CPPAPS), 2005
Committee on Customer Services in banks,
40 Shri Goiporia
1990

Learning and Development

Centre (LDC)
of BRBNMPL
1.The RBI on March 28, 2022 laid foundation stone for the
establishment of a Learning and Development Centre
(LDC) of the Bharatiya Reserve Bank Note Mudran
Private Ltd (BRBNMPL), a wholly owned subsidiary of
RBI in Mysuru.

2. LDC is being established with active collaboration from

Security Printing and Minting Corporation of India
Ltd. (SPMCIL), a wholly owned Schedule ‘A’ Miniratna
Category-I company of GoI and Bank Note Paper Mill
India Private Ltd (BNPMIPL), a Joint Venture of
BRBNMPL and SPMCIL.

3. LDC will act as a forum for robust knowledge

dissemination, thus ensuring that the best practices,
experiences and innovations are shared efficiently in a
congenial environment to ensure uniformity in
banknote production, quality and supply. This centre
will be governed by BRBNMPL.

4. In his address, Governor highlighted the importance of

setting up such a centre which will facilitate human
resource capacity building in the currency production
ecosystem of the country and emerge as a global centre
of excellence.
 5.The BRBNMPL was established by the RBI as its wholly
owned subsidiary in 1995 with a view to augmenting
the production of bank notes in India to enable the
RBI to bridge the gap between the supply and demand
for bank notes in the country. It has been registered as a
Private Limited Company under the Companies Act
1956 with its Registered and Corporate Office situated
at Bengaluru. The company manages two Presses one
at Mysore in Karnataka and the other at Salboni in
West Bengal. The present capacity for both the presses
is 16 billion note pieces per year on a 2-shift basis.

Varnika
1. The RBI on March 28, 2022 dedicated Varnika, the Ink
Manufacturing Unit of Bharatiya Reserve bank Note Mudran
Private Ltd. (BRBNMPL), a wholly owned subsidiary of RBI, to
the Nation.

2.BRBNMPL has set up Varnika with an annual ink

manufacturing capacity of 1,500 MT to enhance the security of
banknotes. It is a boost to ‘Make in India’ initiative. It ensures
that the entire requirement of banknote printing inks is
produced in-house. This unit also manufactures Colour Shift
Intaglio Ink (CSII) and meets the entire requirements of
banknote printing presses in India, which has resulted in cost
efficiency and self-sufficiency in banknote ink production.

3.Further, commissioning of varnish plant for manufacturing

different types of varnishes and production of medium and
special additives indigenously in-house has helped the
currency ecosystem in achieving twofold goals of cost
efficiency and reduced import dependency. This is in line
with India’s march towards achieving complete self-reliance to
 commence manufacturing of all critical and key raw materials
used in printing banknotes.

4.In his address, Governor recognised the substantial progress

made towards achieving self-reliance in banknote production
ecosystem in India. He emphasised the importance of
continuously building capacity (in terms of people, process and
technology), research and development and innovation to
achieve 100% self-sufficiency in banknote manufacturing in the
near future.

5.The BRBNMPL was established by the RBI as its wholly owned

subsidiary in 1995 with a view to augmenting the production of
bank notes in India to enable the RBI to bridge the
gap between the supply and demand for bank notes in the
country. It has been registered as a Private Limited Company
under the Companies Act 1956 with its Registered and
Corporate Office situated at Bengaluru. The company manages
two Presses one at Mysore in Karnataka and the other
at Salboni in West Bengal. The present capacity for both the
presses is 16 billion note pieces per year on a 2-shift basis.

Reserve Bank Innovation Hub (RBIH)

1. The RBI on March 24, 2022 inaugurated the Reserve Bank
Innovation Hub (RBIH) in Bengaluru. The RBI has set up the
RBIH as a Section 8 company under Companies Act, 2013, with
an initial capital contribution of Rs.100 crore to encourage
and nurture financial innovation in a sustainable manner
through an institutional set-up. The RBIH has an independent
Board with Shri Senapathy (Kris) Gopalakrishnan as the
Chairman and other eminent persons from industry and
academia as members.
2. The RBIH aims to create an ecosystem that focuses on
promoting access to financial services and products for the
low-income population in the country. This is in line with
the objective behind establishment of RBIH i.e., to bring world
class innovation to financial sector in India, coupled with the
underlying theme of financial inclusion.

3. The Hub aims to foster and evangelize innovation across the

financial sector to enable access to suitable, sustainable
financial products to a billion Indians in a secure friction-less
manner. Besides, it would also create internal capabilities by
building applied research and expertise in the latest
technology. It is expected to build an ecosystem for
development of prototypes, patents and proofs of concept and
promote cross-thinking, spanning regulatory domains and
national boundaries. Further, the RBIH is expected to
collaborate with financial sector institutions, policy bodies, the
technology industry and academic institutions and coordinate
efforts for exchange of ideas and development of prototypes
related to financial innovations.

4.To begin with, the Hub will identify and mentor start-ups
showing the maximum potential. The RBIH has recently
hosted Swanari TechSprint 2022 to create sustainable
solutions for women-owned enterprises. The TechSprint or
‘Hackathon’ brought together FinTechs, financial service
providers, innovators and subject matter experts to
collaborate, ideate and solve specific problems and develop
prototype solutions. It is aimed at advancing digital financial
inclusion for women in India.

5.The RBI Governor Shri Shaktikanta Das said that the RBIH
initiative puts the RBI in an exclusive group of select global
central banks that are enterprising enough to change the mode
of engagement while dealing with innovation. He added that
the RBIH should aim to establish itself as a respected
innovation and incubation centre and showcase India’s
commitment to openness to ideas, resolve to innovate, with
underlying concern for inclusive growth.
 RBI’s Framework for
Geo-tagging of Payment System
Touch Points
1. The RBI on March 25, 2022 had issued the framework
for Geo-tagging of Payment System Touch Points with
the objective of facilitating nuanced spread of acceptance
infrastructure and inclusive access to digital payments.

2. The framework for capturing geo-tagging information of

payment system touch points deployed by banks / non-
bank PSOs is issued under Section 10(2) read
with Section 18 of the PSS Act, 2007.

3.Geo-tagging refers to capturing the geographical

coordinates (latitude and longitude) of payment touch
points deployed by merchants to receive payments from
their customers.

4.Geo-tagging has various benefits including providing

insights on regional penetration of digital payments,
monitoring infrastructure density across different
locations, identifying scope for deploying additional
payment touch points, facilitating focused digital literacy
programs. Policy interventions for realising the said
benefits will be facilitated by the information thus
collected.

5.Under the Framework, the RBI has advised banks and

Payment System Operators (PSOs) to capture the
location data of payment acceptance infrastructure (POS
terminals, QR codes, UPI QR, etc) and submit the details to
RBI.
6. All banks / non-bank PSOs shall maintain a registry with
accurate location of all payment touch points across the
country, which includes Merchant-related information –
general merchant details, merchant location details,
payment acceptance infrastructure details – general
payment touch point details, etc and report information to
RBI under Centralised Information Management
System (CIMS) of RBI.

7. The RBI has also advised banks and PSOs to identify

a nodal officer within their organisation who is
responsible for such reporting and provide such details
before March 31, 2022.

10 Key Points on
RBI’s Master Direction on
RBI (Regulatory Framework for Microfinance
Loans) Directions, 2022
The RBI, on March 14, 2022 issued the Master Direction on Regulatory
Framework for Microfinance Loans, 2022 which shall come into force on
April 1, 2022. The RBI in exercising of the powers conferred by Section
21, Section 35A and Section 56 of the BR Act, 1949; Chapter IIIB of the RBI
Act, 1934 and Section 30A and Section 32 of the NHB Act, 1987 has issued
this Master Direction on Microfinance Loans. Based on a consultative
document on regulation of microfinance loans issued for public comments
on June 14, 2021 and also based on the feedback received, the RBI has
now placed this MD for microfinance loans. The provisions of these
directions shall apply to (i) all commercial banks (including SFBs, LABs
and RRBs) excluding Payments Banks (ii) all UCBs, State Co-op Banks and
DCCBs and (iii) All NBFCs (including MFIs and HFCs).

The 10 Key points of the Circular are:

1. A microfinance loan is defined as a collateral-free loan given to a
household having annual household (meaning individual family unit
including husband, wife and their unmarried children) income up
to Rs.3,00,000.
2. All collateral-free loans, irrespective of end use and mode of
application / processing / disbursal, provided to low-income
households, i.e., households having annual income up to Rs.3 lakh,
shall be considered as microfinance loans.

3. The Monthly Repayment obligation (both existing and proposed

loans) out of total income of household which is provided with
microfinance loan should not exceed 50% of its monthly income.

4. Pricing of Microfinance loans: The financing institutes shall put in

place a board-approved policy regarding pricing of microfinance
loans. The rates should not be usurious and subjected to
supervisory scrutiny of RBI. There is no maximum cap specified by
the Bank. Banks should not charge any pre-payment penalty on
microfinance loans.

5. Qualifying Assets Criteria: As per the previous guidelines, a NBFC-

MFI is required to have minimum 85% of its net assets as ‘qualifying
assets’. The same has now been reduced to 75%. Definition of
qualifying assets is same as definition of Microfinance loans
provided above. As per the previous guidelines, a NBFC that does
not qualify as an NBFC-MFI, cannot extend microfinance loans
exceeding 10% of its total assets. The maximum limit on
microfinance loans for such NBFCs (i.e., NBFCs other than NBFC-
MFIs) now stands revised to 25% of the total assets.

6. Exemption for ‘Not for Profit’ Companies: The definition of

microfinance loans for ‘not for profit’ companies now aligned with
the revised definition of microfinance loans namely collateral-free
loans to households with annual household income up to Rs.3 lakh
provided the monthly loan obligations of a household does not
exceed 50% of the monthly household income. Further,
exemptions from Section 45-IA, 45-IB and 45-IC of the RBI Act, 1934
have been withdrawn for those ‘not for profit’ companies engaged in
microfinance activities that have asset size of Rs.100 crore and
above.

7. NOF Requirement: The Net Owned Fund (NOF) requirement of

NBFC-MFIs is revised to:
NOF by
NOF by
NBFCs Current NOF March 31,
March 31, 2025
2027
Rs.5 crore Rs.7 crore
NBFC-MFI (Rs.2 crore in NE (Rs.5 crore in NE Rs.10 crore
Region) Region)
 8. Recovery of Loans: Each RE should put in place a mechanism for
identification of the borrowers facing repayment related difficulties,
engagement with such borrowers and providing them necessary
guidance about the recourse available. RE or its agents shall not
engage in any harsh methods towards recovery including use of
threatening or abusive language, persistently calling the borrower
and / or calling the borrower before 9am and after 6 pm, etc.

9. Other guidelines: All loan documents, loan card and other formats
should be printed in vernacular language understood by the
borrower. Training, if any, offered to the borrowers shall be free of
cost. The FI should regularly train their employees on fair practice
codes, conduct towards customers and recovery practices.

10. Conclusion: As per the data available, the outstanding micro loan
portfolio was a little over Rs.2.56 trillion in December 2021. There
were 257 million customers under NBFC-MFIs fold. The average
size of a micro loan in the industry was Rs.34,035. The revised
guidelines will further deepen the penetration of micro-credit in the
country and also help scale the industry further, ensure better risk
mitigation and financial inclusion.

Cassette – Swaps in ATMs

1.The RBI on March 31, 2022 said that it has extended the
timeline for banks for implementation of cassette swap in
all ATMs till March 31, 2023.

2.Currently, most of the ATMs are replenished by way of

open cash top-up or by loading cash in the machines on
the spot. To do away with the current system and also to
mitigate the risks involved in open cash replenishment /
top-up, the RBI had asked banks to ensure that lockable
cassettes are swapped at the time of cash replenishment
in the ATMs.
3.Based on the recommendations of the RBI’s Committee on
Currency Movement (CCM) Chaired by Shri D K
Mohanty, to review the entire gamut of security of
treasure in transit, the Bank in April 2018, had advised
that banks to consider using lockable cassettes in their
ATMs, which shall be swapped at the time of cash
replenishment. It was to be implemented in a phased
manner, covering at least one-third ATMs operated by the
banks every year, such that all ATMs achieve cassette swap
by March 31, 2021. Considering the request from the IBA
and various banks, the RBI has extended the timeline for
implementation of cassette swap in all ATMs till March 31,
2022. However, many banks could not meet the time
stipulations and requested for further extension in the
time period for implementation and hence the RBI has
now extended the timeline up to March 31, 2023.

4. In this regard, banks are advised to set a Board approved

internal timeline to adhere to the extended deadline and
submit quarterly status reports. Boards of the banks
shall monitor the progress to ensure compliance. The RBI
in its July 2021 Circular also instructed that the banks
should monitor the progress and make the required
course correction at the end of every quarter, at the level
of Board / ACB and report status to the RBI within 7
days of the end of the quarter, starting from the quarter
ended September 2021.

5. As per the Finance Minister’s statement in Parliament on

December 5, 2021, the number of ATMs across the country
stood at 2,13,145 by the end-September 2021 and over
47% of these are in rural and semi-urban
areas. Besides, 27,837 White Label ATMs (WLA Scheme
was introduced as an extended delivery channel for
banking services, especially in Tier III and VI centres) were
also installed by WLA operators up to September 2021.
 Interest Equalisation Scheme
on Pre and Post Shipment
Rupee Export Credit - Extension
1.The RBI in its Notification dated March 8, 2022 said that, GoI has
approved the extension of Interest Equalisation Scheme for Pre
and Post Shipment Rupee Export Credit up to March 31,
2024. The extension takes effect from October 1, 2021 and ends
up to March 31, 2024.

2.Interest Equalisation Scheme was introduced with effect from

April 1, 2015 to offer rebate of interest on pre and post shipment
export credit availed in Rupees by the exporters.

3.Along with extension of availability of period, the GoI has also

made following modifications to the Scheme:
a.‘Telecom Instruments’ sector having six HS (Harmonised
System) lines shall be out of the purview of the Scheme
(except MSME manufacturers).

b.Revised interest equalisation rates will now be 3% for

MSME manufacturer exporters exporting under any HS lines
and 2% for manufacturer exporters and merchant
exporters exporting under 410 HS lines.

c.Banks, while issuing approval to the exporter, will necessary

furnish (i) the prevailing interest rate, (ii) the interest
subvention being provided and (iii) the net rate being
charged to each exporter, so as to ensure transparency
and greater accountability in the operation of the Scheme.

d.The extended Scheme will not be available to those

beneficiaries who are availing the benefit under
any Production Linked Incentive (PLI) Scheme of the
government.

4. Banks, shall identify the eligible exporters for the period

from October 1, 2021 to March 31, 2022, as per the Scheme,
credit their accounts with the eligible amount of interest
equalisation and submit sector-wise consolidated reimbursement
claim for the said period to the RBI by April 30, 2022.

5.With effect from April 1, 2022, the banks shall reduce the interest
rate charged to the eligible exporters upfront as per the
guidelines and submit the claims in original within 15 days from
the end of the respective month.
 Key Points on RBI’s Circular on
Issue and regulation of share capital and
securities of Primary (Urban) Co-operative
Banks
The RBI, on March 08, 2022 issued the Circular on issue and regulation of
share capital and securities of UCBs. It has been reviewed the extant
instructions for UCBs on issue and regulation of capital funds, keeping in view,
inter alia, the provisions of Section 12 read with Section 56 of the amended
Banking Regulation Act, 1949. UCBs are permitted to raise share capital, as
hitherto, by way of three broad methods namely (i) issue of equity shares (ii)
Preference Shares and (iii) Debt Instruments.

The 8 Key points of the Circular are:

1. UCBs can raise funds by issue of equity to enrolled members within the
area of operation or through additional equity shares to existing
members. UCBs can augment Tier-I and Tier-II capital by issuing
Perpetual Cumulative & Non-Cumulative Preference Shares and
Redeemable Cumulative & Non-Cumulative Preference Shares. UCBs
can issue Perpetual Debt Instruments (PDIs) for Tier-I Capital and Long-
Term Subordinated Bonds (LTSBs) as Tier-II Capital. It can be issued to
institutional investors also, with the consent of the depositors. The UCBs
can issue such fundraising capital instruments with the prior approval of
the RBI.

2.The UCBs are permitted to refund the share capital to their members or
nominees / heirs of deceased members, on demand, if their CRAR is 9%
or above and such refund does not result in fall in the CRAR from 9%.

3.Borrowings from UCBs are linked to shareholdings of the borrowing

members including (i) 5% of the borrowings, if the borrowings are on
unsecured basis, (ii) 2.5% of the borrowings, in case of secured
borrowings and (iii) in case of secured borrowings by MSEs, 2.5% of the
borrowings; of which 1% is to be collected initially and the balance of
1.5% is to be collected in the course of next 2 years. The above share
linking norm may be applicable for member’s shareholdings up to the
limit of 5% of the total paid up share capital of the bank. The UCBs which
maintain CRAR of 12% on a continuous basis, are exempted from the
said mandatory share linking norms. The share-linking to borrowing
 norms shall be discretionary for UCBs which meet the minimum
regulatory CRAR criteria of 9% and a Tier 1 CRAR of 5.5%.

4. UCBs are permitted to issue Perpetual Cumulative Preference Shares

(PCPS) / Redeemable Non-Cumulative Preference Shares (RNCPS) /
Redeemable Cumulative Preference Shares (RCPS), at face value, to
their members or any other person residing within their area of
operation, with the prior approval of the RBI. The outstanding amount of
these instruments along with other components of Tier-II capital shall
not exceed 100% of Tier-I capital at any point of time. The amount to be
raised may be decided by the Board of Directors of banks. The Tier-II
preference shares could be either PCPS or dated (RNCPS and RCPS)
instruments with a minimum maturity of 10 years. These instruments
may be issued with a call option but not with a ‘put option’ or ‘step up
option’. Perpetual Non-Cumulative Preference Shares (PNCPS) held by
members / subscribers may be treated as shares for the purpose of
compliance with the extant share linking to borrowing norms.

5.UCBs may issue Perpetual Debt Instruments (PDI) as bonds or

debentures to their members or any other person residing within their
area of operation. The amount of PDI reckoned for Tier-I capital shall
not exceed 15% of total Tier-I capital. The outstanding IPDI shall also be
covered in the aforementioned ceiling of 15% and reckoned for capital
purposes as hitherto. The aforesaid ceiling of 15% for PDI can be exceed
with prior RBI approval, if PDI are issued as part of revival plan /
financial reconstruction of UCBs. They shall not grant any loan or
advance to any person for purchasing their PDI or PDI of other
banks. The outstanding amount of PNCPS and PDI along with
outstanding Innovative PDI (IPDI) shall not exceed 35% of total Tier-I
capital at any point of time. The said limit will be based on the amount
of Tier-I capital after deduction of goodwill and other intangible assets,
but before deduction of equity investment in subsidiaries, if any. PNCPS
issued in excess of the overall ceiling of 35% shall be eligible for
inclusion under Upper Tier-II capital, subject to limits prescribed for
Tier-II capital.

6. UCBs are permitted to issued Long Term Subordinated Bonds

(LTSB) eligible for inclusion in Lower Tier-II capital. Banks can issue
LTSB without seeking specific permission of RBI if they fulfil the
following criteria: (i) having CRAR not less than 10%, (ii) GNPA less than
7% and NNPA not more than 3%, (iii) net profit for at least three out of
the preceding 4 years subject to the bank not having incurred net loss in
the immediate preceding year, (iv) no default in maintenance of
CRR/SLR during the preceding year, (v) having at least two professional
directors on its Board, (vi) CBS fully implemented and (vii) no monetary
penalty has been imposed on the bank for violation of RBI directives /
guidelines during the two financial years preceding the year in which the
LTSB are being issued. The amount of LTSB eligible to be reckoned as
 Tier-II capital shall be limited to 50% of total Tier-I capital. LTSB shall
be issued with a minimum maturity of 10 years.

7.For the purpose of enhancing investor education on the risk

characteristics of regulatory capital requirements, UCBs, which issue
regulatory capital instruments shall adhere to the following conditions:
a. For floating rate instruments, banks should not use its Fixed Deposit
rate as benchmark.

b. A specific sign-off clause for having understood the features and

risks of the instruments by the investors may be incorporated in
the common application form of the proposed issue.

c. UCBs shall ensure that all the publicity material / offer document,
application form and other communication with the investor
should clearly state in bold letters how a PNCPS / PCPS / RNCPS /
RCPS / PDI / LTSB, as the case may be, is different from a fixed
deposit, and that these instruments are not covered by deposit
insurance.

d. The procedure for transfer to legal heirs in the event of the death of
the subscriber of the instrument should also be specified.

8.The notification, further lays down the terms of issue specifying the
eligibility, limits, amount, maturity, options, dividend / coupons,
classification on the balance sheet, payment of dividend / coupons,
seniority of claim, voting right, discount, disclosures, due diligence, rate
of interest, investment, advances for purchase of certain instruments
and lock-in clause.

DigiSaathi
1.The RBI on March 08, 2022 launched DigiSaathi – a
24x7 Helpline to address the queries of digital
payment users across products. The Platform is set
up, controlled and maintained by NPCI on behalf of a
 group of payment system operators and participants
(banks and non-banks) in order to help the Indian
payments industry flourish. The initiative will help
customers address queries in the digital payments
umbrella including cards.

2. The helpline christened ‘DigiSaathi’ will assist the

callers / users with all their queries on digital payments
via website and chatbot. Users can
visit www.digisaathi.info or call on 14431 and 1800
891 3333 from their phones for their queries on digital
payments and grievances. Automated responses on
information related to digital payment products and
services are available in Hindi and English through
these multiple options. The information on various
products and services including Cards (Debit / Credit /
Prepaid) – POS / eCOM, UPI, NEFT, RTGS, IMPS, AePS,
NETC, BBPS, USSD, PPI Wallets, ATM, QR (UPI / Bharat),
CTS, MTSS, TReDS, NACH, Mobile and Net banking.

3. In this regard, the NPCI has constituted a Working

Committee will act as an advisory committee which
constitutes of representatives of payment system
operators and participants (banks and non-banks) and
industry associations. The Committee would provide
guidance and support on the overall functioning and on
content / information to be made available on the
DigiSaathi Platform. It shall discuss, deliberate and
provide guidance on the implementation, enhancement,
maintenance and operations of the DigiSaathi
Platform. The Committee shall meet at least once in a
quarter and on a need basis as and when required.

4. As the DigiSaathi provides a channel to obtain help on

the entire gamut of digital payments, this initiative is
envisioned to accelerate the process of digital
adoption in India, by creating a richer and inclusive
ecosystem that can accommodate larger sections of
population.
 UPI123Pay
1.The RBI on March 08, 2022 launched UPI123Pay – the option to
make Unified Payments Interface (UPI) payments for feature
phone users without the internet connection. This initiative is
expected to further deepen the digital ecosystem to a higher level,
paving the way for a cashless economy and also financial
inclusion. This initiative will also enhance the diversity, utility and
transformational power of digital innovations in the country.

2. At present, efficient access to UPI is available on smart phones.

UPI
can be accessed through NUUP (National Unified USSD Platform)
using the short code of *99#. But this option is cumbersome and not
popular. Considering that there are more than 40 crore feature
phone mobile subscribers in the country, UPI123pay will materially
improve the options for such users to access UPI. It is about
empowering more people to get onboarded digital experience
through feature phones.

3. In UPI123Pay, there are broadly three steps which will take a user to
take to complete transactions. The name UPI123pay denotes that
the UPI payment can be done in 3 (123) easy steps i.e., 1. Call 2.
Choose and 3. Pay. Feature phone users will now able to
undertake a host of transactions based on four technology
alternatives including four distinct options as mentioned below:
a. App-based Functionality: An app would be installed on the
feature phone through which several UPI functions, available
on smartphones, will also be available on feature phones.
b. Missed Call: This will allow feature phone users to access their
bank account and perform routine transactions such as
receiving, transferring funds, regular purchases, bill payments,
etc., by giving a missed call on the number displayed at the
merchant outlet. The customer will receive an incoming call to
authenticate the transaction by entering UPI PIN.
c. Interactive Voice Response (IVR): UPI payment through pre-
defined IVR numbers would require users to initiate a secured
call from their feature phones to a predetermined number and
 complete UPI on-boarding formalities to be able to start
making financial transactions without internet connection.
d. Proximity Sound-based Payments: This uses sound waves to
enable contactless, offline and proximity data communication
on any device.

4. With the help of UPI123Pay, feature phone users can make direct
payments to others without smartphones and internet. They can
also initiate payments to friends and family, pay utility bills,
recharge the FAST Tags of their vehicles, pay mobile bills and also
allow users to check account balances. It will allow customers to use
feature phones for almost all transactions except scan and pay.

5. UPI has become one of the most popular modes of payment,

comprising more than half the retail payments in the
country. Making the service available on feature phones without an
internet connection could help it penetrate rural areas of the
country, enhancing financial inclusion and digital adoption,
while also driving the volume of payments on the platform.

NaBFID
1. The RBI on March 09, 2022 said that the National Bank for
Financing Infrastructure and Development (NaBFID) shall be
regulated and supervised as an All-India Financial Institution
(AIFI) by the RBI under Section 45L and 45N of the RBI Act,
1934. It shall be the 5th AIFI after EXIM Bank, NABARD, NHB and
SIDBI.

2. The infrastructure financing requires long-term and non-recourse

financing, which is inherently risky in nature due to higher credit
costs, high risk of delay and failure of
projects. The Development Financial Institutions (DFIs) are set
up for providing long-term finance for such segments of the
economy where the risks involved are beyond the acceptable limits
 of commercial banks and other ordinary FIs. Unlike banks, DFIs do
not accept deposits from people. They source funds from the
market, government, as well as multi-lateral institutions, and often
supported through government guarantees.

3.NaBFID will have both financial as well as developmental

objectives. Financial objectives will be to directly or indirectly
lend, invest or attract investments for infrastructure projects located
entirely or partly in India. Central government will prescribe the
sectors to be covered under the infrastructure
domain. Developmental objectives include facilitating the
development of the market for bonds, loans and derivatives for
infrastructure financing. Functions of NaBFID include: (i)
extending loans and advances for infrastructure projects (ii) taking
over or refinancing such existing loans (iii) attracting investment
from private sector investors and institutional investors for
infrastructure projects, (iv) organising and facilitating foreign
participation in infrastructure projects, (v) facilitating negotiations
with various government authorities for dispute resolution in the
field of infrastructure financing and (vi) providing consultancy
services in infrastructure financing.

4. The NaBFID has been set up by the government under NaBFID Act,
2021 with an authorised share capital of Rs.1 lakh crore. The
institution will be 100% government owned and act as the
principal development financial institution (DFI) and development
bank for infrastructure financing. The government has
committed Rs.5,000 crore grant over and above Rs.20,000 crore
equity capital. It will also provide guarantee at a concessional rate
of up to 0.1% for borrowing from multilateral institutions,
sovereign wealth funds and other foreign funds. The NaBFID may
raise money in the form of loans or otherwise both in INR and
foreign currencies or secure money by the issue and sale of various
financial instruments including bonds and debentures. It may
borrow money from central government, RBI, SCBs, MFs and
multilateral institutions such as World Bank and ADB.

5. The NaBFID headed by Shri K V Kamath is set to commence

operations from April 2022 onwards. It will help fund about 7,000
infra projects under the National Infrastructure Pipeline
(NIP) which envisages an investment of Rs.111 lakh crore by
2024-25. The NaBFID has been established as a statutory body to
address market failures that stem from the long-term, low margin
and risky nature of infrastructure financing.
 Prudential Norms on Income Recognition,
Asset Classification and Provisioning
pertaining to Advances - Clarifications
The RBI in its Notification dated February 15, 2022 issued the
following clarifications pertaining to few aspects of its Master Circular
on Prudential Norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances dated October 1, 2021:

(a)The definition of ‘out of order’, shall be applicable to all loan

products being offered as an overdraft facility, including those
not meant for business purposes and / or which entail interest
repayments as the only credits.
(b)The ‘previous 90 days period’ for determination of ‘out of
order’ status of a CC/OD account shall be inclusive of the day
for which the day-end process is being run.

(c) In case of borrowers having more than one credit facility from
a lending institution, loan accounts shall be upgraded from
NPA to standard asset category ONLY upon repayment of
entire arrears of interest and principal pertaining to all
the credit facilities.

(d)CRILC (Central Repository of Information on Large

Credits) reporting procedures and guidelines are not altered
under the MC issued in October 2021. The previous guidelines
will continue to be applicable.

(e)The Circular also does not, in any way, interfere with the extant
guidelines on implementation of Ind-AS by NBFCs.

(f) Para 10 of the Circular stipulates that loan accounts classified

as NPAs may be upgraded as ‘standard’ asset only if entire
arrears of interest and principal are paid by the
borrower. NBFCs shall have the time till September 30,
2022 to put in place the necessary systems to implement this
provision.

The RBI, with a view to ensuring uniformity in the implementation of

IRACP norms (MC dated October 1, 2021) across all lending
 institutions, had clarified and / or harmonised certain aspects of the
extant regulatory guidelines including on specification of due date /
payment date, classification as SMA and NPA accounts, clarification
regarding ‘Out of Order’, NPA classification in case of interest
payments, upgradation of accounts classified as NPAs, Income
recognition policy for loans with moratorium on payment of interest
and consumer education.

The Nov 2021 circular was an improvement on its Oct 2021 circular on
the prudential norms on IRACP pertaining to advances, wherein the
RBI had prevented all types of lenders from upgrading an NPA account
after getting only interest dues cleared. The Feb 2022 circular makes
it very clear about the ‘out of order’ accounts, previous 90 days period,
clearing all dues to convert to standard assets, etc. It also allows
extending the time till Sep 2022 for NBFCs to implement the guidelines
regarding upgrading an NPA account as standard but upon clearing all
dues.

25 Key Points on RBI’s Master Direction on

RBI (Credit Derivatives) Directions, 2022
The RBI, on February 10, 2022 issued the Master Direction on Credit
Derivatives, 2022 which shall come into force on May 09, 2022. The RBI
in exercising of the powers conferred by Section 45W of the RBI Act, 1934
has issued this Master Direction on Credit Derivatives. The Master
Direction consolidates all operational instructions on Credit
Derivatives. These Directions shall apply to credit derivative transactions
undertaken in Over-the-Counter (OTC) markets and on recognised stock
exchanges in India.

The 25 Key points of the Circular are:

1. Credit derivative means a derivative contract whose value is
derived from the credit risk of an underlying debt instrument.

2. Credit Default Swap (CDS) means a credit derivative contract in

which one counterparty (protection seller) commits to pay to the
other counterparty (protection buyer) in the case of a credit event
with respect to a reference entity and in return, the protection buyer
 makes periodic payments (premium) to the protection seller until
the maturity of the contract or the credit event, whichever is earlier.

3. Residents and Non-residents who are eligible to invest in

corporate bonds and debentures under FEMA regulations, are
eligible to participate in Credit Derivatives transactions.

4. Market-makers (means an entity which provides prices to users

and other market-makers) and users (means a person that
undertakes derivative transactions other than as a market-
maker) may undertake transactions in single-name CDS contracts.

5. Market-makers include SCBs (except SFBs, PBs, LABs and RRBs),

NBFCs (including SPDs and HFCs) with minimum NOF of Rs.500
crore and above and also AIFIs (including EXIM Bank, NABARD,
NHB and SIDBI).

6. At least one of the parties to a credit derivative transaction shall be a

market-maker or a central counterparty authorised by the RBI for
the purpose.

7. Users shall be classified by market-makers either as retail or non-

retail for offering credit derivative contracts.

8. Retail users shall be allowed to buy protection only for the purpose
of hedging.

9. Non-retail users are classified as NBFCs (including SPDs and HFCs

other than market-makers), Insurance Companies regulated by
IRDAI, Pension Funds regulated by PFRDA, MFs regulated by SEBI,
Alternative Investment Funds regulated by SEBI, Resident
companies with a minimum net worth of Rs.500 crore and FPIs
registered with SEBI. Non-retail users shall be allowed to buy
protection for hedging or otherwise.

10. Non-retail users including insurance companies regulated by

IRDAI, Pension Funds regulated by PFRDA, MFs regulated by SEBI,
Alternative Investment Funds regulated by SEBI and FPIs registered
with SEBI shall also be eligible to act as protection sellers, subject to
the approval of their respective regulator.

11. The reference entity (an entity, against whose credit risk, a credit
derivative contract is entered into) in a CDS contract shall be a
resident entity who is eligible to issue debt instruments including
money market debt instruments, rated INR corporate bonds and
debentures and unrated INR corporate bonds and debentures issued
by the SPVs set up by infrastructure companies.
12. Bonds with call / put options shall be eligible to be reference
obligations (means a debt instrument issued by the reference entity
and specified in a CDS contract for the purpose of valuation of the
contract and for determining the cash settlement value or the
deliverable obligation in case of occurrence of a credit event). Asset-
backed securities / mortgage-backed securities and structured
obligations such as credit enhanced / guaranteed bonds, convertible
bonds, etc. shall not be permitted as reference obligations. The
reference obligation / deliverable obligation shall be dematerialised
form.

13. Market participants shall not enter into CDS transactions if

the reference entity is a related party to either the protection
buyer or the protection seller.

14. Market participants shall not buy/sell protection on reference

entities if there are regulatory restrictions on such participants
assuming similar exposures in the cash market or in violation of any
other regulatory restrictions, as may be applicable.

15. Market participants can exit their CDS contract by unwinding the
contract with the original counterparty or assigning the contract to
any other eligible market participant through novation (It is the
replacement of a contract between two counterparties to an OTC
derivative transaction (the transferor, who steps out of the existing
contract and the remaining party) with a new contract between the
remaining party and a third party (the transferee) and the
transferee becomes the new counterparty to the remaining party).

16. Market participants shall settle CDS contracts bilaterally or

through any clearing and settlement arrangement approved by the
RBI.

17. CDS contracts can be cash settled, physically settled or settled

through an auction.

18. FIMMDA (Fixed Income Money Market and Derivatives

Association of India) shall, publish the required trading
conventions (including standard maturity and premium payment
dates, standard premiums, upfront fee calculation methodology,
accrual payment for full first premium, quoting conventions and
lookback period for credit events) for CDS contracts.

19. The CDS contracts shall, mention all the details of transactions and
shall represent a direct claim on the protection seller.

20. Market-makers shall report all OTC CDS transactions within 30

minutes of the transaction, to the trade repository of Clearing
Corporation of India Ltd. (CCIL). They shall report all unwinding,
 novation, settlement transactions, and any credit, substitution or
succession event to the trade repository of CCIL.

21. FIMMDA shall set up a Credit Derivatives Determinations

Committee, consisting of market-makers and users in credit
derivatives as voting members. FIMMDA shall ensure that users are
adequately represented in the Committee.

22. The Credit Derivative Determinations Committee, when approached

by market participants, shall make factual determinations regarding
key provisions of credit derivative contracts including, but not
limited to, the occurrence of a credit event, substitution event,
succession event, determining the identity of successor reference
entity, etc. The Committee shall, in consultation with market
participants, develop a standard procedure for cash settlement of
CDS contracts. It, when approached by market participants, may
conduct an auction to determine the reference price for settlement
of CDS contracts. In case an auction is conducted, the Committee
shall put in place procedures / safeguards to ensure that the
reference price is determined in a fair and transparent manner. The
decisions of the Committee shall be binding on the market
participants.

23. Market-makers shall put in place appropriate and robust

methodologies for marking to market credit derivative
contracts. Market participants shall follow the applicable
prudential norms and capital adequacy requirements for credit
derivatives issued by their respective regulators.

24. The RBI may call for any information or statement or seek any
clarification, which in the opinion of the RBI is relevant, from
persons or agencies dealing in credit derivative contracts, including
eligible participants and such persons, agencies and participants
shall furnish such information, statement or clarification in the
manner and format and within the time frame as may be specified
by the RBI.

25. In the event of any person or agency violating any provision of these
Directions, the RBI in addition to taking any penal or regulatory
action in accordance with law, disallow that person or agency from
dealing in the credit derivatives market for a period not exceeding
one month at a time, after providing reasonable opportunity to the
person or agency to defend its actions.
 Key Points on RBI’s Master Circular on
Housing Finance
The RBI, on February 18, 2022 issued the Master Circular on Housing
Finance. It consolidates the instructions issued from MC dated July 01,
2015 up to February 17, 2022. The Master Circular on Housing Finance is
applicable to all SCBs (excluding RRBs). The RBI in exercising of the
powers conferred by Section 21 and 35A of the BR Act, 1949 has issued
the Master Circular. Banks, with their vast branch network throughout
the length and breadth of the country, occupy a very strategic position in
the financial system and have an important role to play in providing credit
to the housing sector. While formulating their policies, banks have to take
into account the following RBI guidelines and ensure that bank credit is
used for production, constructions activities and not for activities
connected with speculation in real estate.

The 15 Key points of the Circular are:

1.Financing Acquisition of Land: The bank finance can be granted
only for purchase of a plot, provided a declaration is obtained from
the borrower that he intends to construct a house on the said plot,
with the help of bank finance or otherwise, within such period as
may be laid down by the banks themselves.

2.Finance for construction of building / purchase ready-built

house: Banks may grant loans to individuals for purchase /
construction of dwelling unit per family and loans for repairs to the
damaged dwelling units of families. Loan can also be sanctioned to
purchase second house for self-occupation or offer it on rental basis
(provided employer has provided accommodation). Banks can also
extend credit facility for slum improvement schemes.

3.Preventing unauthorised constructions: While considering home

loans for construction, copy of sanctioned plan in the name of
applicant shall be obtained. An affidavit-cum-undertaking must be
obtained that borrower shall not violate the sanctioned plan and
construction shall be strictly as per the sanctioned plan and it shall
be the sole responsibility of the executants to obtain completion
certificate within 3 months of completion of construction, failing
which the bank shall have the power and the authority to recall the
entire loan. An affidavit is also required while funding purchase of
ready built house. Bank cannot sanction any loan to purchase a
residential property which is intended to be used for commercial
purposes.
4. Supplementary Finance: Banks may consider requests for
additional finance within the overall ceiling for carrying out
alterations / additions / repairs to the house / flat already financed
by them. Also, can sanction facilities for repair / alteration of houses
which are funded by other banks by obtaining paripassu or second
mortgage charge over the property mortgaged.

5.Restrictions on bank finance: Banks should not grant finance for

construction of buildings meant purely for Government / Semi-
Government offices, including Municipal and Panchayat
offices. However, banks may grant loans for activities, which will be
refinanced by institutions like NABARD. Banks should not grant
finance for projects undertaken by PSUs which are not corporate
bodies and Corporations set up by the Government, for example
State Police Housing Corporation.

6.Financing for Land acquisition: Banks may extend only term

finance to public agencies for acquisition and development of land,
provided it is a part of the complete project cost. The entire project
should be completed within a maximum period of 3 years. Such
finance cannot be extended to private builders.

7.Lending to Housing Finance Institutions: Banks may grant term

loans to HFIs by strictly examining their financial positions. Bank
loans to HFCs (approved by NHB for their refinance) for on-lending,
up to Rs.20 lakh for individual borrowers, for purchase /
construction / reconstruction of individual dwelling units or for
slum clearance and rehabilitation of slum dwellers will be eligible
for classification under PSL.

8.Credit facility to private builders: Commercial banks may extend

Term Loans to private builders on commercial terms by way of loans
linked to each specific project. Banks however, are not permitted to
extend fund based or non-fund-based facilities to private builders
for acquisition of land even as part of a housing project.

9.Quantum of Loan: While decided the quantum of loan to be granted

as housing finance, banks should abide by the following Loan to
Value (LTV) and Risk Weights (RWs). The applicable norms are

Risk
Category of Loan Quantum of Loan LTV Ratio
Weight
≤ 80% 35%
Individual Housing Up to Rs.30 lakh >80% and ≤
Loans 50%
90%
Above Rs.30 lakh ≤ 80% 35%
and
up to Rs.75 lakh
 Above Rs.75 lakh ≤ 75% 50%
Commercial Real Estate (CRE) – RH NA 75%

As a counter cyclical measure, for Individual Housing Loans

sanctioned on or after October 16, 2020 and up to March 31, 2022
following risk weights are applicable:

Category of Risk
Quantum of Loan LTV Ratio
Loan Weight
Individual Housing Loans sanctioned on ≤ 80% 35%
or after Oct 16, 2020 and up to March 31, >80% and ≤
50%
2022 90%

While sanctioning housing loans, banks should not include stamp

duty, registration and other documentation charges in the cost of the
housing property. However, in cases where the cost of the housing /
dwelling units does not exceed Rs.10 lakh, bank may add stamp
duty, registration and other documentation charges to the cost of the
house / dwelling unit for the purpose of calculating LTV ratio.

10.Rate of Interest: Banks should charge interest on housing finance

granted by them in accordance with the provisions in the Master
Direction – Reserve Bank of India (Interest Rate on Advances)
Directions, 2016, as amended from time to time.

11.Innovative Housing Loan Products – Upfront disbursal of

housing loans: The disbursal of housing loans sanctioned to
individuals should be closely linked to the stages of construction of
the housing project / houses and upfront disbursal should not be
made in cases of incomplete / under-construction / green field
housing projects. However, in cases of projects sponsored by Govt. /
Statutory Authorities, banks may disburse the loans as per the
payment stages prescribed by such authorities which may not be
linked to stages of construction. Banks while introducing any kind
of innovative products (popularly known as 80:20, 75:25 schemes)
should take into account the customer suitability and
appropriateness issues and also ensure that the borrowers /
customers are made fully aware of the risks and liabilities under
such products.

12.Exposure to Real Estate: Banks are well advised to frame

comprehensive prudential norms relating to the ceiling on the total
amount of real estate loans, single / group exposure limit for such
loans, margins, security, repayment schedule and availability of
supplementary finance and the policy should be approved by the
banks’ board.
13.Financing of affordable housing – issue of long-term Bonds by
banks: Banks can issue long-term bonds with a minimum maturity
of 7 years to raise resources for lending to affordable housing
segment.

14.Disclosure Requirements: Banks while granting finance to specific

housing / development projects, are advised to stipulate as a part of
the T&Cs that the builder / developer / company would (a) disclose
in the Pamphlets / Brochures etc., the name(s) of the bank(s) to
which the property is mortgaged (b) append the information
relating to mortgage while publishing advertisement of a particular
scheme in newspapers / magazines, etc., (c) indicate in their
pamphlets / brochures, that they would provide NOC / permission
of the mortgagee bank for sale of flats / property, if required. Banks
are advised to ensure compliance of the above T&Cs and funds
should not be released unless the builder / developer / company
fulfils the above requirements. These provisions are also applicable
to CRE.

15.Adherence to National Building Code (NBC): Banks should adhere

to the NBC formulated by the Bureau of Indian Standards (BIS) in
view of the importance of safety of buildings especially against
natural disasters. Banks may consider this aspect for incorporation
in their loan policies. Bank should also adopt the National Disaster
Management Authority (NDMA) guidelines and suitably incorporate
them as part of their loan policies, procedures and documentation.

UCBs investing in Umbrella Organisation

(UO)
The RBI in its Notification dated March 3, 2022 said that it
has exempted Urban Cooperative Banks (UCBs) for
subscribing to the capital of the Umbrella Organisation (UO)
from the limits imposed on holding of non-SLR securities.
According to the norms (RBI Circular dated January 30, 2009),
investments in non-SLR securities (including debentures / bonds,
preference shares, equity shares, MF units, CPs and investment in
securities issued by a securitisation / reconstruction company) by
Primary (Urban) Cooperative Banks is to be limited to 10% of a
bank’s total deposits as on March 31 of the previous year.
Furthermore, the norms mandate that investments in unlisted
securities should not exceed 10% of the total non-SLR
investments at any time. The banking regulator has exempted
the UCBs from both these norms.

Co-operative banks have limited ability to raise capital given their

business model, wherein they can raise resources only from
member shares and retained earnings. Also, Financial Co-
operative (FC) institutions find themselves unable to adopt
latest banking technology due to their limited size. To some
extent, these limitations faced by the FCs are overcome by the
presence of an Umbrella Organisation (UO), which can exist either
in the form of an apex level entity or as a distinct entity where the
credit unions are its members. Based on this important role and
also from the recommendations of various committees, the RBI,
in June 2019, had therefore approved for setting up of National
Federation of UCBs and Credit Societies Ltd. (NAFCUB) as an
Umbrella Organisation (UO) for UCBs in the form of a non-deposit
taking NBFC. The approval allowed UCBs to subscribe to the
capital of the UO on a voluntary basis. Some of the major
functions of the UO including providing cross-liquidity and
capital support to the UCBs when needed, establishing a common
IT infrastructure including providing cloud services to facilitate
IT-enabled operations by member banks, including payment
gateways and data centres that could be shared by all banks and
facilitating mergers in the sector.

The RBI’s latest Expert Committee on UCBs (Chairman: Shri N S

Vishwanathan), 2021, has recommended that the UO should be
financially strong with adequate capital, a minimum capital of
Rs.300 crore may be maintained, while the organisation may
have a regulatory framework similar to the regime for the largest
segment of NBFCs. With regard to the membership of UO by the
UCBs, the Committee has also recommended that the minimum
CRAR of 9% for UCBs in Tier-1 category under scale-based
differential regulation, with additional CRAR of 2.5% each for not
having the prescribed minimum net worth (Rs.2 crore for banks
operating in a single district and Rs.5 crore for others) and also
not being the member of the UO. Further, for UCBs under Tier-
2 category in scale-based differential regulation, a minimum
CRAR of 15% (on credit risk), which may be reduced by 1% upon
the bank becoming a member of the UO.

Co-operative institutions provide an alternative approach to

financial inclusion in India through their geographic and
demographic outreach to the urban and rural populace. The
relaxing of norms as mentioned above by the regulator
 is expected to encourage UCBs to subscribe to the capital of
UO and acquire its membership. As at end-March 2021, there
were 1,534 UCBs (Scheduled UCBs 53 and Non-Scheduled UCBs
1,481) functioning in the country.

25 Key Points on RBI’s Master Circular on

ARCs
The RBI, on February 10, 2022 issued the Master Circular on Asset
Reconstruction Companies (ARCs). The provisions of these guidelines /
instructions shall apply to ARCs registered with the RBI under Section 3 of
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act (SARFAESI Act), 2002. The Asset
Reconstruction Companies (ARCs) are the specialised financial
institutions which buy the NPAs from banks and FIs and reconstruct
them. ARCs mainly help in cleaning up banks’ balance sheets.

The 25 Key points of the Circular are:

1.Every ARC should obtain Certificate of Registration (CoR) from RBI
under Section 3 of the SARFAESI Act, 2002 to carry out
securitisation and asset reconstruction business.

2.An ARC shall commence business within 6 months from the date of
grant of CoR. The RBI may extend this period by additional 6
months but not exceeding 12 months from the date of grant of CoR.

3.Provisions of Section 45-IA, 45-IB and 45-IC of the RBI Act,

1934 shall not apply to NBFC which is an ARC registered with the
Bank under Section 3 of the SARFAESI Act, 2002.

4.Net Owned Fund (NOF) for ARCs shall be minimum Rs.100

crore on an ongoing basis. No ARC shall commence or carry on the
business of securitisation or asset reconstruction without having
NOF of Rs.100 crore.

5. An ARC shall not raise monies by way of deposit.

 6.Every ARC shall frame with the approval of its Board, a ‘Financial
Asset Acquisition Policy’, within 90 days of grant of CoR, which
shall clearly lay down the policies and guidelines for its business.

7.Before bidding for the stressed assets, ARCs may seek from the
auctioning banks adequate time, not less than 2 weeks, to conduct
a meaningful due diligence of the account by verifying the
underlying assets.

8.ARCs will acquire financial assets from other ARCs on the

following conditions:
a. The transaction is settled on cash basis
b.Price discovery for such transaction shall not be
prejudicial to the interest of Security Receipt
(SR) holders
c. The selling ARC will utilise the proceeds so received for
the redemption of underlying SRs and
d.The date of redemption of underlying SRs and total period
of realisation shall not extend beyond 8 years from
the date of acquisition of the financial asset by the first
ARC.
9.ARCs shall not acquire financial assets from a bank/FI which is
the sponsor of the ARC or a bank/FI which is either a lender to the
ARC or a subscriber to the fund, if any, raised by the ARC for its
operations or an entity in the group to which the ARC
belongs. However, they may participate in auctions of the financial
assets provided such auctions are conducted in a transparent
manner, on arm’s length basis and the prices are determined by
market forces.

10.Expenses incurred at pre-acquisition stage for performing due

diligence etc. for acquiring financial assets from banks / FIs should
be expensed immediately by recognising the same in the statement
of profit and loss for the period in which such costs are
incurred. Expenses incurred after acquisition of assets on the
formation of the trusts, stamp duty, registration, etc., which are
recoverable from the trusts, should be reversed, if these expenses
are not realised within 180 days form the planning period or
downgrading of SRs (i.e., NAV is less than 50% of the face value of
SRs) whichever is earlier.

11.An ARC may effect change in or takeover of the management of

the business of the borrower, where the amount due to it from the
borrower is not less than 25% of the total assets owned by the
borrower and where the borrower is financed by more than one
secured creditor (including ARC), secured creditors (including ARC)
holding not less than 60% of the outstanding Security Receipts (SRs)
should agree to such action.
12.An ARC shall give a notice of 60 days to the borrower indicating its
intention to effect change in or takeover of the management of the
business of the borrower and calling for objections.

13.ARCs are required to obtain, for the purpose of enforcement of

security interest, the consent of secured creditors holding not less
than 60% of the amount outstanding to a borrower as against 75%
previously.

14.ARCs that meet the conditions such as NOF of Rs.100 crore, at least
half of the Board of Directors comprises of independent directors,
are exempted from the limit of shareholding at 26% of post
converted equity of the borrower company.

15.An ARC shall by transferring funds, invest a minimum of 15% of

the SRs of each class issued by them under each scheme on an
ongoing basis till the redemption of all the SRs issued under the
scheme. Yield on SRs should be recognised only after the full
redemption of the entire principal amount of SRs.

16.Every ARC shall maintain, on an ongoing basis, a capital adequacy

ratio (CRAR), which shall not be less than 15% of its total risk
weighted assets (RWAs).

17.No ARC shall invest in land or building provided that the

restriction shall not apply to investment by ARC in land and
buildings for its own use up to 10% of its owned fund.

18.Every ARC shall, after taking into account the degree of well-defined
credit weaknesses and extent of dependence on collateral security
for realisation, classify the assets (held in its own books) into the
following categories, namely Standard Assets and NPAs. NPAs are
further classified into Sub-standard Assets for a period not
exceeding 12 months from the date it was classified as NPA;
‘Doubtful Asset’ if the asset remains a sub-standard assets for a
period exceeding 12 months and ‘Loss Asset’ if an asset is non-
performing for a period exceeding 36 months.

19.The asset may be upgraded as a standard asset only

after satisfactory performance for a period of 12 months as per
the renegotiated / rescheduled terms.

20. Provisioning requirements: Every ARC shall make provision

against NPAs, as under:

Category of
Provision Required
Loan
Sub-standard A general provision of 10% of the outstanding
 100% provision to the extent the asset is not covered
Doubtful by the realisable value of security
Assets
In addition to item (i) above, 50% of the remaining
outstanding
The entire assets shall be written off
Loss Assets (if, for any reason, the asset is retained in the books,
100% thereof shall be provided for).

21.Every ARC shall prepare its balance sheet and P&L account as on
March 31 every year. ARCs are advised in their balance sheet to
classify all the liabilities due within one year as “current liabilities”
and assets maturing within one year along with cash and bank
balances as “current assets”. Capital and Reserves will be treated as
liabilities on liability side while investment in SRs and long-term
deposits with banks will be treated as fixed assets on the assets
side.

22.ARCs covered by Rule 4 of the Companies (Indian Accounting

Standards) Rules, 2015 are required to comply with the Indian
Accounting Standards (Ind AS) for the preparation of their
financial statements. In order to promote a high quality and
consistent implementation as well as facilitate comparison and
better supervision, the RBI has issued regulatory guidance on Ind AS
on March 13, 2022 which along with subsequent instructions on the
subject is applicable on such ARCs for preparation of their financial
statements from FY 2019-20 onwards.

23.Every ARC shall become a member of at least one Credit

Information Company (CIC) which has obtained CoR from the RBI.

24.ARCs shall file and register the records of all transactions related to
securitisation, reconstruction of financial assets and creation of
security interest, if any, with Central Registry.

25.In order to achieve the highest standards of transparency and

fairness in dealing with stakeholders, ARCs are advised to put in
place Fair Practices Code (FPC) duly approve by their Board.
 Regulations Review Authority (RRA) 2.0 – Latest
Updates
The RBI in its Press Release dated February 18, 2022 said that the Regulations
Review Authority (RRA 2.0) has recommended withdrawal of 100
circulars in the second tranche of recommendations. The RRA 2.0 in Nov 2021
with an objective to reduce the compliance burden on Regulated Entities (REs)
had already recommended withdrawal of 150 circulars in the first tranche of
recommendations. Further, on the suggestions of an Internal Group
(Chairman: Dr. O. P. Mall, ED), the RRA has recommended elimination of
paper-based returns and has identified 65 regulatory returns which would
either be discontinued / merged with other returns or would be converted into
online returns. The RRA has also recommended creation of a separate web
page “Regulatory Reporting” in the RBI website to consolidate information
relating to regulatory reporting and return submission by the REs at a single
source. These recommendations are expected to ease regulatory compliance
for the REs while improving the accuracy, speed and quality of data
submission. REs would be notified of the discontinuation / merger and online
filing of returns, separately. The notification containing the list of specific
instructions recommended for withdrawal is also being issued separately.

The RBI, in May 2021, said that by considering the developments in regulatory
functions of the Reserve Bank over the past two decades and evolution of the
regulatory perimeter, and accordingly to streamline / rationalise the Bank’s
regulations and compliance procedures and making them more effective, it has
set up a Regulations Review Authority (RRA 2.0) for a period of one year
with effect from May 01, 2021 to review the regulatory prescriptions
internally as well as by seeking suggestions from the RBI Regulated Entities
(REs) and other stakeholders on their simplification and ease of
implementation. Shri M Rajeshwar Rao, DG has been appointed as the
RRA. The RRA 2.0 has been engaging in extensive consultations with both –
internal as well as external stakeholders, on review of the regulatory and
supervisory instructions for their simplification and ease of implementation.

The RRA 2.0 will focus on streamlining regulatory instructions, reduce

compliance burden of the regulated entities by simplifying procedures and
reduce reporting requirements, wherever possible. The terms of reference of
RRA 2.0 would be as under: (a) to make regulatory and supervisory
instructions more effective by removing redundancies and duplications, if any;
(b) to reduce compliance burden on REs by streamlining the reporting
mechanism, revoking obsolete instructions if necessary and obviating paper-
based submission of returns wherever possible; (c) to obtain feedback from
REs on simplification of procedures and enhancement of ease of compliance;
(d) examine and suggest the changes required in dissemination process of RBI
circulars / instructions (this would entail suggestions on the areas where the
manner of issuing circulars, their updation and website linkages) and (e)
identify any other issues germane to the subject matter.

The RRA has constituted an Advisory Group, under the head of Shri S
Janakiraman, MD, SBI. The other Members of the Group include Shri T T
Srinivasaraghavan, Former MD and Non-Executive Director, Sundaram Finance,
Shri Gautam Thakur, Chairman, Saraswat Co-operative Bank Ltd, Shri Subir
Saha, Group CCO, ICICI Bank Ltd., Shri Ravi Duvvuru, President & CCO, Jana SFB
and Shri Abadaan Viccaji, CCO, HSBC India. The Group will assist the RRA by
identifying areas / regulations / guidelines / returns which can be rationalised
and submit reports periodically to RRA containing the recommendations /
suggestions.

It is to be noted here that the RBI in 1999 had set up a RRA for reviewing the
regulations, circulars, reporting systems, based on the feedback from public,
banks and FIs. The recommendations of the RRA enabled streamlining and
increasing the effectiveness of several procedures, simplifying regulatory
prescriptions, paved the way for issuance of master circular and reduce
reporting burden on REs.

CFSS for NBFCs

1. The RBI on February 23, 2022 issued a Circular under Section 45L
and 45M of the RBI Act, 1934 stating that the NBFCs in Upper and
Middle Layer which have 10 or more fixed point services delivery
units as on October 1, 2022 should implement Core Financial
Services Solution (CFSS) akin to Core Banking Solution (CBS)
adopted by banks, by September 2025. In this regard, the RBI said
that NBFC-UL should ensure that the CFSS is implemented in at
least 70% of ‘Fixed point service delivery units’ on or
before September 30, 2024. CFSS deployment is voluntary for
NBFC-BL and Middle and Upper Layer of NBFCs with fewer than 10
 fixed point service delivery units. The NBFC shall furnish a quarter
progress report to the Senior Supervisory Manager (SSM) Office of
the RBI on implementation of the CFSS, along with various
milestones as approved by the Board / Committee of the Board,
starting from the quarter ending March 31, 2023.

2.The CFSS will enable seamless customer interface in digital offerings

and transactions relating to products and services with anywhere /
anytime facility, enable integration of NBFC functions, provide
centralised database and accounting records, and be able to
generate suitable MIS, both for internal purposes and regulatory
reporting. A fixed-point service delivery unit is a place of
operation from where the business activity of non-banking financial
intermediation is carried out by the NBFC and which is manned
either by its own staff or outsourced agents. It carries uniform
signage with the name of the NBFC and functions under
administrative control of the NBFC.

3.The RBI in October 2021 introduced the Scale-Based Regulation

(SBR) Framework for NBFCs to regulated the NBFCs based on their
size, activities, complexities and interconnectedness within the
financial sector and mandated NBFCs with 10 and more branches to
adopt CBS with effect from October 1, 2022. As per the SBR
Framework for NBFCs, the Middle Layer consists of all deposit
taking NBFCs, irrespective of asset size, non-deposit taking NBFCs
with asset size of Rs.1,000 crore and above. Besides, the NBFC-ML
also includes NBFCs undertaking activities like Standalone PDs
(SPDs), Infrastructure Debt Fund (IDF), Core Investment Companies
(CICs), Housing Finance Companies (HFCs) and Infrastructure
Finance Companies (IFCs). Similarly, the Upper Layer
NBFCs consist of finance companies which are specifically identified
by the RBI as warranting enhanced regulatory requirements.