RBI Statement Outlines Developmental and Regulatory Policy Adjustments

The Reserve Bank of India (RBI) issued a statement detailing various developmental and regulatory policy measures across four key areas: Regulations, Supervision, Payment Systems, and Financial Markets. The policy review focuses on enhancing operational efficiency and easing compliance burdens for various financial entities.

Regulatory Policy Review​

The RBI proposed several dispensations and reviews concerning banking regulations. For commercial banks (excluding Regional Rural Banks and Local Area Banks), the condition requiring that incremental provisions made for Non-Performing Assets (NPAs) at the end of any quarter not deviate more than 25 per cent of the average of the four quarters, when including quarterly net profits in the calculation of the Capital to Riskweighted Assets Ratio (CRAR), is proposed to be dispensed with. Draft amendment directions for this will be issued for public comment shortly.

Furthermore, it was proposed to dispense with the Investment Fluctuation Reserve (IFR) requirement for commercial banks (including Local Area Banks, but excluding Small Finance Banks, Payment Banks and Regional Rural Banks). This follows considerations of existing prudential requirements, as these banks already maintain a capital charge for market risk and adhere to revised norms on investment portfolio management. The guidelines for other bank categories are also undergoing revision to standardize instructions and address operational difficulties in complying with IFR regulatory thresholds.

In reviewing matters placed before bank Boards, the RBI undertook a comprehensive rationalization of instructions to enable Boards to focus on strategy and risk governance.

Strengthening Supervision and Payments​

Regarding supervisory instructions, the RBI has consolidated its regulatory framework. Following a comprehensive consolidation exercise involving over 9000 existing circulars and guidelines into 238 function-wise Master Directions (MDs), the drafts of 64 new Master Directions, consolidating extant supervisory instructions across up to nine functional areas, are being published for public comments.

To promote the ease of doing business for Micro, Small, and Medium Enterprises (MSMEs), the RBI proposed dispensing with the due diligence requirement for MSMEs when onboarding onto Trade Receivables Discounting System (TReDS) platforms.

Enhancements in Financial Markets​

The RBI also detailed measures aimed at deepening participation in the term money market. Currently, participation in this segment is limited to banks and standalone primary dealers. To enhance liquidity and participation depth, the RBI decided to expand the participant base to include non-bank participants such as AIFIs, NBFCs, and housing finance companies, among others. Additionally, the borrowing limit for standalone primary dealers in the term money market is set to be enhanced.

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