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RBI Circulars
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January 2024
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Financial Stability Report,
December 2023

Key Points on the Publication of RBI Financial Stability Report (FSR):

 The Reserve Bank of India (RBI) releases the Financial Stability Report (FSR)
biannually.

 The first edition of the reportis published at the end of June, covering the second half
of the preceding fiscal year.

 The second edition is released in December, encompassing the first half of the current
fiscal year.

 Specifically, the December RBI FSR report details the period from April 2023 to
September 2023, representing the first half of Fiscal Year 2024 (FY24).

Key Developments in the Indian Banking Sector Since the Last RBI FSR (June 2023):

1. Expansion of the banking sector in terms of size and capital adequacy.

2. Increase in net banking spreads.

3. Reduction in Non-Performing Assets (NPA) levels.

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4. During the December quarter, RBI imposed restrictions on consumer lending by banks

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and Non-Banking Financial Companies (NBFCs), the effects of which will be reflected in the

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next FSR.

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5. In the first half of FY24, banks experienced growth in both deposits and credit.

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6. Credit growth was primarily driven by lending to the services sector and an increase in

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consumer loans.

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7. A noticeable shift in deposits towards term deposits, is influenced by higher yields on

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fixed deposits (FDs).
Financial Stability Report,
December 2023

Key Highlights of the FSR December 2023:

Global Economic Challenges:

1. The global economy is grappling with challengeslike slowing growth, high public debt,
economic fragmentation, and geopolitical conflicts.

Resilience of the Indian Economy:

1. The Indian economy and financial system remain resilient amidst global challenges, bolstered
by strong macroeconomic fundamentals, stable financial institution balance sheets, moderate
inflation, an improved external sector, and ongoing fiscal consolidation.

Commercial Banks’ Health:

1. Scheduled commercial banks (SCBs) demonstrate robustness with a Capital Risk-Weighted

Assets Ratio (CRAR) of 16.8% and a Common Equity Tier 1 (CET1) ratio of 13.7% as of September
2023.

2. SCBs’ Gross Non-Performing Assets(GNPA) ratio is at a multiyear low of 3.2%, with Net Non-
Performing Assets (NNPA) at 0.8% in September 2023.

Macro Stress Tests:

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1. Stress tests indicate SCBs’ adherence to minimum capital requirements, with a system-level

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CRAR of 14.8%, 13.5%, and 12.2% under baseline, medium, and severe stress scenarios by

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September 2024.

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Non-Banking Financial Companies (NBFCs):

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1. The resilience of the NBFC sector is on the rise with a CRAR of 27.6%, a GNPA ratio of 4.6%,

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and a Return on Assets(RoA) of 2.9% as of September 2023.

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2. The high-risk stressscenario in the NBFC sector callsfor close monitoring due to increased

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inter-bank exposure.

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Credit and Deposit Growth:

1. The Indian financial system experiencesrobust credit growth and accelerating deposit growth.

2. NBFCs significantly contribute to credit growth, especially in personal loans and industry loans,
showing improved asset quality.
Financial Stability Report,
December 2023

Key Highlights of the FSR December 2023:

Concerns and Contagion Risks:

1. The NBFC sector faces higher risks and potential contagion risks from increased inter-bank
exposure.

2. Adjustments in risk weight for retail loan categories may impact NBFC credit growth.

Overall System Stability:

1. While stable, the Indian financial system contends with heightened global uncertainty,
necessitating vigilant monitoring for risk accumulation.

2. Emphasis is placed on prudent exposure management and building financial buffers.

Non-Banking Financial Companies (NBFCs): Characteristics and Role:

Characteristics of NBFCs:

1. Legal Framework: NBFCs are registered entities under the Companies Act, of 1956.

2. Financial Activities: They engage in a range of financial services, including lending, issuing

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advances, and acquiring securities.

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Exclusions and Regulatory Oversight:

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1. Exclusions: NBFCs do not primarily engage in agricultural, industrial activities, trading, or

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buying/selling immovable properties.

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2. Primary Regulator: The Reserve Bank of India (RBI) primarily regulates NBFCs.

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3. Additional Oversight: Some NBFCs are also regulated by authorities like SEBI and IRDAI.

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Operational Limitations:

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1. Demand Deposits: NBFCs cannot accept demand deposits.

2. Payment System Exclusion: They are not part of the payment and settlement system and
cannot issue cheques.

3. No Deposit Insurance: Depositors in NBFCs do not have access to deposit insurance.

Financial Stability Report,
December 2023

Contribution to Financial Inclusion:

1. Bridging Gaps: NBFCs play a key role in connecting traditional banking services with
underserved customers.

2. Access to Credit: They are significant in regions with limited traditional banking presence,
enhancing financial inclusion and credit access.

About Financial Stability and Development Council (FSDC)

 It is a non-statutory apex council under the M/o Finance by an Executive Order in 2010

 It was 1st proposed by the Raghuram Rajan Committee in 2008.

 Chairman: Finance Minister

 Its sub-committee is headed by the Governor of RBI.

Functions:

 To Strengthen and institutionalize the mechanism for maintaining financial stability, enhancing
inter-regulatory coordination, and promoting financial sector development To Monitor macro-
prudential supervision of the economy

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Master Circular on Exposure Norms and
Statutory / Other Restrictions – UCBs

Exposure Norms:

Exposure Ceiling to Individual / Group Borrowers:

 UCBs are required to establish exposure limitsfor both credit exposure (loans and advances)
and investment exposure (non-SLR securities) based on their Tier-I capital.

 Exposure to an individual borrower should not exceed 15% of Tier-I capital.

 Exposure to a group of connected borrowers/parties should not exceed 25% of Tier-I capital.

 These limits apply to new exposuresinitiated after March 13, 2020. UCBs were required to bring
existing exposures exceeding these limits within the revised limits by March 31, 2023.

Computation of Exposure Ceiling:

 Exposure ceilings should be calculated annually after finalizing and auditing the bank's balance
sheet.

 Changes in share capital after the balance sheet date can be considered for exposure ceiling
adjustments at half-yearly intervals with the Board of Directors' approval.

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 Capital funds other than share capital, such as half-yearly profits, should not be used to

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calculate exposure ceilings.

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 UCBs should avoid exceeding exposure limits in anticipation of future capital infusion.

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Thresholds for Value of Loans:

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 UCBs must have at least 50% of their aggregate loans and advances comprising loans of not

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more than ₹25 lakh or 0.2% of their Tier-I capital (whichever is higher), up to a maximum of ₹1

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crore per borrower/party.

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 UCBs not currently in compliance with the prescribed threshold should conform to these
requirements by March 31, 2024. The term 'loans' encompasses all types of funded and non-
funded credit exposures.
Master Circular on Exposure Norms and
Statutory / Other Restrictions – UCBs

Exposure to Housing, Real Estate, and Commercial Real Estate:

 UCBsshould establish prudential normsfor the total amount of real estate loans, in line with RBI
guidelines, ensuring credit is used for construction rather than real estate speculation.

 Exposure to housing, real estate, and commercial real estate loans should be limited to 10% of
total assets. An additional limit of 5% of total assets is allowed for housing loans to individuals as
per priority sector eligibility limits.

 Total assets are determined based on the audited balance sheet as of March 31 of the preceding
financial year, excluding losses, intangible assets, and contra items.

 Working capital loans for construction materials to contractors undertaking small construction
without advance payments are exempt from the limit.

 UCBsshould not exceed the prescribed limit for housing, real estate, and commercial real estate
loans using funds from higher financing agencies and the National Housing Bank.

 Tier-1 UCBs can provide individual housing loans up to ₹60 lakh per borrower, while Tier-2 to 4
UCBs can offer up to ₹140 lakh per borrower, subject to prudential exposure limits.

Ceiling on Unsecured Advances (with Surety & without Surety)

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Maximum Ceiling on Advances to Nominal Members

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Master Circular on Exposure Norms and
Statutory / Other Restrictions – UCBs

Restriction on Advances to Defaulters of Statutory Dues

1. The law says that if a company or employer deducts money from their employees' wages for
things like provident funds (savings for employees). They don't give that money to the authorities
for more than six months, that money is the first thing the company's assets will be used to pay if
the company goes bankrupt or shuts down. Thisrule is meant to protect the employees' savings.

2. So, banks that lend money to these companies should make sure that these companies have
paid all the money they owe for thingslike provident funds and other required payments. The
banks can ask the companies to declare that they have paid these dues. If the bank has doubts
about the declaration, they can ask for proof. But they don't have to demand a certificate from the
Provident Fund Commissioner. Instead, a receipt showing the payment or a certificate from the
company's auditors or similar proof should be enough. However, if a company is not able to pay
these dues because it's facing problems beyond its control, the bank can still consider lending to
them based on the situation.

About Urban Co-operative Banks (UCBs)

 Urban Cooperative Banks (UCBs) are registered as cooperative societies under the provisions of,
either the State Cooperative Societies Act of the State concerned under the provisions of the or
the Multi State Cooperative Societies Act, 2002.

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 There is a duality of control over the UCB.

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 It is regulated by the Registrar of Cooperatives and also by the RBI.

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 UCBs registered under the State Cooperative Societies Act are regulated and supervised by the

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Registrar of Cooperative Societies (RCS) of the State concerned.

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 UCBs which are set up under the Multi-State Cooperative Societies Act, 2002 are regulated by

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the Central Registrar of Cooperative Societies (CRCS).

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RBI has now categorized Urban Co-Operative Banksin India into four tiers

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depending upon the deposit with the bank:

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Tier 1: UCBs are those banks having deposits up to Rs 100 crore operating in a single district or
having branches in contiguous districts.

Tier 2: UCBs with deposits of more than Rs.100 crores and up to Rs.1000 crore.

Tier 3 – UCBs with deposits of more than Rs.1000 crore and up to Rs.10, 000 crores.

Tier 4 – UCBs with deposits more than Rs.10, 000 crores.

RBI-Digital Payments Index (DPI) for
September 2023

 The Reserve Bank of India (RBI) has been publishing a composite Reserve Bank of India – Digital
Payments Index (RBI-DPI) since January 1, 2021, with March 2018 as the base to capture the extent
of digitization of payments across the country.

 The index for September 2023 stands at 418.77 as against 395.57 for March 2023.

About DPI

 The DPI is based on multiple parameters and shall reflect accurately the penetration and
deepening of various digital payment modes.

 It has been constructed with March 2018 asthe base period, i.e. DPI score for March 2018 is set at
100.

 It will be published on RBI’s website on a semi-annual basis from March 2021 onwards with a lag
of 4 months.

 The RBI-DPI comprises 5 broad parameters that enable the measurement of the deepening and
penetration of digital payments in the country over different periods.

5 Parameters:

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1. Payment Enablers (weight 25%),
2. Payment Infrastructure – Demand-side factors (10%),

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3. Payment Infrastructure – Supply-side factors (15%),

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4. Payment Performance (45%) and

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5. Consumer Centricity (5%)

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Amendment to the Master Direction (MD)
on KYC

Revised Definition of Politically Exposed Persons (PEPs) in RBI's Master Direction on KYC:

 The Reserve Bank of India (RBI) has amended its Master Direction on Know Your Customer
(KYC) guidelines, specifically redefining and clarifying the parameters for identifying Politically
Exposed Persons (PEPs).

 The previous definition of PEPs in the existing master direction on KYC was located in sub-clause
(xvii) of clause (a) of Section 3.

 For improved clarity, the RBI has now incorporated the definition of PEPs as an explanation to
Section 41 of the Master Direction.

 As per the updated definition: "Politically Exposed Persons" (PEPs) are individuals who are or
have been entrusted with prominent public functions by a foreign country. This includes Heads of
State/Governments, senior politicians, senior government/judicial/military officers, senior
executives of state-owned corporations, and important political party officials.

 Screening for PEPs is a critical aspect of the KYC process, given the increased potential risks
associated with such individuals.

 The amendment was announced in an RBI circular dated January 4, emphasizing the necessity for
Regulated Entities (REs) to conduct thorough Customer Due Diligence (CDD) based on these
revised guidelines.

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February 2024

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RBI raises ceiling on remuneration of non-
executive directors to Rs 30 lakh

• The Reserve Bank of India (RBI) increased the remuneration cap for non-executive directors
(NEDs) in private banks to Rs 30 lakh annually, up from Rs 20 lakh.

• Initially, in April 2021, the RBI had set the remuneration limit for NEDs at Rs 20 lakh per year.

• The raise is in recognition of the essential role that NEDs play in the governance of banks and
their committees.

• The increase aims to attract qualified and competent individuals to bank boards.

• Banks must establish clear criteria for the fixed remuneration of NEDs, which should be approved
by their boards before any changes to the current pay structure.

• The bank's board can set the remuneration at a lower rate than the Rs 30 lakh cap, considering
factors like the bank's size, the NED's experience, and other pertinent aspects.

• The revised guidelines on fixed remuneration for NEDs apply to all private sector banks, including
small finance banks (SFBs), payment banks (PBs), and wholly-owned subsidiaries of foreign banks.

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Interest Equalization Scheme (IES) on Pre-
and Post-Shipment Rupee Export Credit

• The Government of India has extended the Interest Equalization Scheme for Pre- and Post-
Shipment Rupee Export Credit until June 30, 2024.

• The interest equalization rate is set at 2% for Manufacturers and Merchant Exporters, and 3% for
MSME manufacturers exporting.

• Starting from FY 2023-24, banks charging loans under this scheme at an average interest rate
exceeding Repo Rate + 4% before subvention will face restrictions.

• The Director General of Foreign Trade (DGFT) will identify banks not complying with the interest
rate provision for FY 2023-24. Non-compliant banks will be restricted from the scheme until they
provide a required undertaking to DGFT.

• Any further non-compliance identified by DGFT may result in debarment from the scheme.

• The scheme's annual net subvention amount is capped at Rs 10 Cr per Importer-Exporter Code
(IEC) for a financial year.

About Interest Equalisation Scheme (IES)

• The Interest Equalisation Scheme (IES) was launched on April 1, 2015, aimed at providing pre- and
post-shipment export credit in rupees to exporters.

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• Initially set for 5 years until March 31, 2020, the scheme has seen continued support, including a
one-year extension during the COVID pandemic and further extensions alongside additional fund

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allocations.

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• The Reserve Bank of India (RBI) oversees the scheme's implementation, collaborating with both
Public and Non-Public Sector banks that offer pre- and post-shipment credit facilities to exporters.

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• Oversight of the scheme is a joint effort between the Directorate General of Foreign Trade

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(DGFT) and the RBI, facilitated through a consultative mechanism.

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• IES aims to bolster the international competitiveness of select export sectors, encouraging robust

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export performance, especially in labor-intensive industries.

• To avail of the scheme, eligible exporters must provide a certification from an external auditor to
their bank.

• Participating banks extend the IES benefits to qualifying exporters and subsequently seek
reimbursement from the RBI, contingent on the submission of the required external auditor
certification.
Interest Equalization Scheme (IES) on Pre-
and Post-Shipment Rupee Export Credit

• Presently, the scheme offers a 2% interest equalisation benefit on pre- and post-shipment rupee
export credit for merchant and manufacturer exporters across 410 specified tariff lines at the 4-
digit level, and 3% for all MSME manufacturer exporters.

• A recent modification has introduced a funding cap, restricting the benefit to Rs 10 Crore
annually per Import Export Code (IEC) for individual exporters.

• Banks charging an average interest rate exceeding Repo Rate + 4% for loans under this scheme
are subject to debarment.

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Master Direction – Reserve Bank of India
(Bharat Bill Payment System) Directions,
2024
• The RBI introduced the Bharat Bill Payment Systems Directions, in 2024, targeting NPCI Bharat
Bill Pay Limited (NBBL) and all Bharat Bill Payment Operating Units (BBPOUs).

• Objectives include streamlining bill payments, increasing participation, and improving customer
protection. Effective from April 1, 2024, after being issued on February 29.

• NBBL is designated as the authorized Payment System Provider for the Bharat Bill Payment
System (BBPS).

• Non-biller entities handling bill payments outside BBPS must secure RBI authorization as a
‘payment system’.

• They have defined roles and responsibilities for system operators and participants.

• Bharat Bill Pay Central Unit (BBPCU) ensures transaction settlement via NBBL, mandates BBPS
reference numbers from payment initiation, prohibits fund flow through TSPs, and outlines a
consumer dispute redressal framework.

• Biller Operating Units (BOUs) are responsible for merchant onboarding compliance.

• Customer Operating Units (COUs) to offer digital/physical customer interfaces, ensure access to
all BBPS billers, manage dispute resolution, and oversee agent institutions’ activities.

• Non-bank BBPOUs must open escrow accounts with Scheduled Commercial Banks exclusively for

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BBPS transactions and operate as Payment Aggregators (PAs).

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• The directions emphasize the importance of a Complaint Management and Grievance Redressal

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system, requiring:

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o A centralized complaint management framework by NBBL, adhering to RBI guidelines.

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o Integration of COUs and BOUs for dispute resolution, utilizing BBPS reference numbers.

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o Adherence to RBI’s timelines and compensation rules for failed transactions by COUs and BOUs.

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Enabling Framework for
Regulatory Sandbox
• The Reserve Bank of India has enhanced the 'Enabling Framework for Regulatory Sandbox',
extending the duration for sandbox process stages to nine months and facilitating pre-application
partnerships.

• These modifications draw from four and a half years of experience with four cohorts,
incorporating inputs from fintechs, banking partners, and various stakeholders, as noted in a
central bank release.

• Additionally, the framework now mandates adherence to the Digital Personal Data Protection
Act, of 2023, for all sandbox entities.

• The revision permits prospective sandbox participants to establish "in-principle partnership

arrangements" with stakeholders before application submission.

• The RBI reserves the right to exclude applications for products or services mirroring those
previously tested in the sandbox without introducing innovations.

• Launched in August 2019, the Regulatory Sandbox framework has been updated twice before to
stimulate responsible innovation in the financial sector, enhance operational efficiency, and benefit
consumers, including lowering the net worth requirement for applicants to Rs 10 lakh from Rs 25
lakh and broadening the inclusion of regtech and Supertech offerings.

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Major Surveys conducted by
RBI
Consumer Confidence Survey

➢ Held every two months

➢ Aims to assess current and anticipated consumer views on five economic aspects

➢ The current situation index tracks consumer sentiment shifts regarding an economic matter over
the previous year

➢ The future expectations index evaluates consumer predictions for the same economic factors for
the forthcoming year

➢ An index value above 100 indicates an optimistic outlook

➢ An index value below 100 signifies a pessimistic viewpoint

Inflation Expectation Survey

➢ Conducted every two months by the RBI

➢ The objective is to gather subjective evaluations of price trends and inflation from around 6,000
households, reflecting their unique consumption patterns.

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➢ Seeks both qualitative and quantitative feedback on anticipated price variations (for general

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items, food, non-food goods, durable household items, housing, and service costs) over the next

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three months and the coming year, as well as their current inflation perceptions based on personal

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consumption.

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➢ There has been a decrease of 10 basis points in the households' present perception of inflation,

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settling at 8.1% in January 2024, compared to the earlier survey period.

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Survey of Professional Forecasters on Macroeconomic

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Indicators

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➢ Aimed at predicting the trajectory of critical economic metrics such as growth in output,
inflation rates, and exchange rates, which is vital for the Central Bank, government, private sector
entities, and individual households.

➢ Since September 2007, the RBI has been conducting the Survey of Professional Forecasters
(SPF) to enhance its internal assessments and macroeconomic projections.
Major Surveys conducted by
RBI
➢ The SPF participants submit predictions for approximately 20 major macroeconomic variables
on an annual and quarterly basis.

➢ The forecast for Real GDP growth is 7.0% for the fiscal year 2023-24; this projection has been
adjusted upwards by 20 basis points to 6.5% for 2024-25.

Order Books, Inventories and Capacity Utilisation Survey (OBICUS)

➢ The RBI has routinely conducted the Order Books, Inventories, and Capacity Utilisation Survey
(OBICUS) of the manufacturing sector every quarter since 2008.

➢ The survey's goal is to provide a quick overview of the demand climate within India's
manufacturing industry.

➢ Capacity utilization refers to the extent to which a country or company is using its manufacturing
and production capacities.

Index of Industrial Production (IIP)

➢ The Index of Industrial Production (IIP) is a nationwide metric that tracks short-term fluctuations
in the production volume of a set basket of industrial goods, comparing current output with that of

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a selected base period.

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➢ For instance, if the base year production is 100 units and the current production is 150 units, the

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index value would be 50.

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➢ Capacity utilization is defined as the proportion of actual output against the potential full

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capacity of production facilities.

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➢ Capacity represents the level of output that can be consistently achieved under normal

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conditions.

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➢ As an example, with a sustainable capacity of 200 units and an actual production of 150 units, the
capacity utilization would be 150 divided by 200, equating to 75%.

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Industrial Outlook Survey

➢ The objective is to evaluate the performance and forecast the future outlook of India's
manufacturing sector.
Major Surveys conducted by
RBI
➢ The Business Assessment Index (BAI) for the manufacturing sector saw a decrease, coming in at
113.9 in the third quarter of the fiscal year 2023-24, down from 115.0 in the preceding quarter.

➢ Despite a slight reduction, the Business Expectations Index (BEI) remained strong at 130.3 in the
fourth quarter of 2023-24, after a previous quarter figure of 135.4.

Bank Lending Survey

➢ Aims to obtain the qualitative evaluation and forecasts from major scheduled commercial banks
(SCBs) regarding credit metrics.

➢ The survey measures the sentiment related to loan demand, loan conditions, and the short-term
outlook across key sectors.

➢ It gathers insights from senior loan officers on anticipated loan demand, and potential changes in
terms and conditions, and provides an avenue for comments on the current state of the credit
market.

Services and Infrastructure Outlook Survey

➢ The survey focuses on gathering qualitative insights into the present conditions and future

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expectations within Indian firms in the services and infrastructure sectors.

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➢ Firms operating in the services sector display a higher degree of optimism compared to those in

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the infrastructure sector.

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 April 2024
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Master Direction on Framework of
Incentives for “Currency Distribution
& Exchange Scheme (CDES)” for bank
branches including currency chests

• Introduction of CDES: The Currency Distribution & Exchange Scheme (CDES) is designed to
motivate all bank branches, including Currency Chests (CCs), to enhance customer service in
alignment with the Clean Note Policy objectives.

• Incentive Structure: Banks can receive financial incentives or service charges for establishing
infrastructure and managing the exchange/distribution of notes and coins.

Detailed Incentive Breakdown:

For Currency Chests having a population of lessthan 1 lakh, underbanked areas:

• Capital Costs: Up to 50% of capital expenditure reimbursed, capped at ₹50 lahks, with 100%
reimbursement available in the North Eastern region.

• Revenue Costs: 50% of revenue expenditure reimbursed for the first 3 years, extended to 5
years in the North Eastern region.

For handling soiled and mutilated notes:

• Soiled Notes: ₹2 per packet for exchanging notes up to ₹50 denomination.

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• Mutilated Notes: ₹2 per adjudicated note.

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For coin distribution:

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• Base Rate: ₹65 per bag.

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• Rural and Semi-Urban Bonus: Additional ₹10 per bag with a Concurrent Auditor’s certificate.

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Cash Deposit Incentives Under Linkage Scheme:

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• Large modern CCs: ₹8 per 100 pieces.

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• Other CCs: ₹5 per 100 pieces.

Operational Guidelines for Incentive Payment:

• Incentives for soiled notes are based on the actual volume received by the RBI.

• Incentives for mutilated notes are paid upon receipt, whether included with soiled notes or sent
separately.

• Coin distribution incentives are calculated based on net withdrawals from the currency chest.
Master Direction on Framework of
Incentives for “Currency Distribution
& Exchange Scheme (CDES)” for bank
branches including currency chests
Incentive Claim Process:

• Banks do not need to submit a separate claim for incentives; incentives are automatically
passed to linked branches/chests on a pro-rata basis based on the volume of soiled notes
deposited and coins distributed.

Verification and Monitoring:

• The RBI Regional Offices will inspect currency chests and conduct incognito visits to
branches to verify the distribution of coins.

Note- The currency chest is essentially the storage facility of the Reserve Bank of India (RBI). It is
where the cash for banks and ATMs is stored. These chests are strategically situated within select
banks throughout India.

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Primary (Urban) Co-operative
Banks’ Outlook 2022-23
• Significant Growth in Advances: Urban Co-operative Banks (UCBs) experienced a substantial
increase in priority sector advances, rising over 27% in the financial year 2023 compared to the
previous year.

• Financial Figures: According to the Reserve Bank of India's report titled "Primary (Urban)
Co-operative Banks' Outlook 2022-23," advances for UCBs in FY23 reached Rs 2.2 trillion, up
from Rs 1.73 trillion in FY22.

• Focus on MSMEs: Urban Co-operative Banks (UCBs) directed a significant portion of their
advancesto micro, small, and medium enterprises (MSMEs), with the total reaching Rs 1.3 trillion
in FY23, up from Rs 1 trillion in FY22.

• Proportion of Priority Sector Lending: In FY23, nearly 40% of UCBs' total priority sector
lending was allocated to MSMEs, an increase from 34.27% in the previous year.

• Micro Enterprises' Share: Within the MSME category, micro-enterprises received the highest
proportion of funding, accounting for 17.23% of the total lending by UCBs.

• UCBs' Priority Sector Lending Achievement: The Reserve Bank of India (RBI) had set a priority
sector lending target of 60% for Urban Co-operative Banks (UCBs) to achieve by FY24.
Remarkably, UCBs surpassed this goal in FY23, reaching 66.88%.

• Comparison with Commercial Banks: As of March 31, 2023, scheduled commercial banks
achieved 44.7% in priority sector lending. Public and private sector banks, including foreign

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banks, met the prescribed 40% overall priority sector lending target for the fiscal year 2022-23.

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• Impact of MSMEs Recovery Post-COVID: Sanjay Agarwal, senior director at CARE Ratings,

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attributed the significant growth in priority sector lending to MSMEs resuming normal operations

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after the COVID-19 pandemic, which led to an expansion in their business activities.

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• Current Statistics of UCBs: As of March 31, India hosted 1,502 Urban Co-operative Banks
(UCBs) with a network of 10,117 branches nationwide.

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• Financial Overview: These UCBs held total deposits amounting to Rs 5.3 trillion and provided

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total advances of Rs 3.3 trillion.

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Regional Distribution:

• Maharashtra: This state has the highest concentration of UCBs, totaling 475.

• Western Region: The western region of India accounts for 693 UCBs, reflecting its significant
role in the sector.
Overview of Deendayal Antyodaya
Yojana - National Rural Livelihoods
Mission (DAY-NRLM)

Background

• Initiation and Evolution: Originally launched as the National Rural Livelihood Mission
(NRLM) by the Ministry of Rural Development (MoRD) on April 1, 2013, by restructuring
the Swarnajayanti Gram Swarojgar Yojana (SGSY). It was renamed DAY-NRLM on March
29, 2016.

• Objective: DAY-NRLM aims to reduce poverty by building strong community

institutions, primarily for women, to facilitate access to financial services and livelihood
opportunities.

• Approach: The program adopts a demand-driven strategy, allowing states to develop

specific poverty reduction plans tailored to their needs.

Women SHGs and Federations

• Formation of SHGs: Promotesthe formation of women-centric Self-Help Groups

(SHGs), although groups including persons with disabilities and other special categories

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like elders and transgenders can be mixedgender.

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• SHG Size: Typically consists of 10-20 members, but can be asfew as 5membersin

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special circumstancessuch as difficult areas, disabled persons' groups, or remote tribal

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locations.

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• Federations: SHGs can form federations at variouslevels (village, gram panchayat,

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cluster) which may be registered under relevant state acts.

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Financial Assistance to SHGs

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• Revolving Fund (RF): Provides RF support of ₹20,000 - ₹30,000 per SHG to enhance
their financial management capabilities and establish a good credit history, available to
SHGs that adhere to 'Panchasutras' norms and have existed for at least 3/6 months
without prior RF support.
Overview of Deendayal Antyodaya
Yojana - National Rural Livelihoods
Mission (DAY-NRLM)

• Capital Subsidy: No capital subsidies are provided to SHGs under DAY-NRLM.

• Community Investment Support Fund (CIF): MoRD provides CIF to SHGsfor loan
disbursement or collective socio-economic activities, managed through local
federations.

• Interest Subvention: Available to women SHGs to encourage lower borrowing costs

and promote timely repayment.

This comprehensive program by the Indian government is designed to empower rural

communities, especially women, by providing them with the necessary financial tools
and support to improve their livelihoods and economic stability.

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RBI releases Draft Master Direction –
Reserve Bank of India (Electronic
Trading Platforms) Directions, 2024

• Release of Draft Master Direction: The Reserve Bank of India (RBI) issued a draft
Master Direction for Electronic Trading Platforms(ETPs) on Monday,seeking to
regulate electronic systems that facilitate trading in various financial instruments.

• Invitation for Feedback: RBI has opened the floor for comments and feedback on the
draft directions from operators, banks, market participants, and other stakeholders,
with a deadline set for May 31.

• Background and Purpose: This initiative follows RBI Governor Shaktikanta Das’s
announcement during the February monetary policy review, aiming to refine the
regulatory framework for ETPs and improve market makers' access to offshore
platforms offering Indian Rupee (INR) financial products.

• Historical Context: In October 2018, the RBI introduced a framework to authorize

ETPs, which support transactions in regulated financial market instruments such as
securities, money market instruments, foreign exchange instruments, and derivatives.

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ETPs are distinct from recognized stock exchanges.

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• Recent Concerns on Unauthorized Trading: The draft directions were preceded by

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RBI's warning about unauthorized entities offering foreign exchange trading with

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promises of high returns. The RBI emphasized that authorized dealers should report

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such activities to the Enforcement Directorate immediately upon detection.

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• Investigation Findings: The RBI'sinvestigationsrevealed that unauthorized forex

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trading was facilitated by local agents who opened bank accounts at various branches

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to collect funds related to margins, investments, and other charges. These accounts
were set up under the names of individuals, proprietary concerns, and trading firms.
Lead Bank Scheme
• Launch of Lead Bank Scheme: The Reserve Bank of India introduced the Lead Bank
Scheme to promote financial inclusion and enhance accessto banking services across
all societal sections.

• District-Level Implementation: The scheme designates a lead bank for each district in
India to spearhead coordination among various banks and financial institutions within
the district.

• Coordination Role: The lead bank is responsible for ensuring effective collaboration
between different financial entitiesto optimize the use of banking services in its area.

• Enhancing Banking Efficiency: The primary goal is to improve the efficiency of

banking facilities and ensure they effectively serve the community's needs.

• Focus on Priority Sectors: The scheme emphasizes increasing credit flow to sectors
considered as a priority, supporting essential areas of the economy.

• Promotion of Rural Development: A significant aim of the scheme is to foster rural

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development through better financialservices and increased credit availability.

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• Introduction Date: The Lead Bank Scheme was initiated in 1969.

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• Objective: It is designed to extend banking and credit facilities to rural areas.

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• Service Area Approach: The scheme operates on a 'service area approach,' where a

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specific bank is assigned to service each designated area.

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• Origin of the Scheme: The implementation of the Lead Bank Scheme was suggested

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by the Gadgil Study Group and the Banker's Committee.

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Features of the scheme

1. Coordination: The Lead Bank Scheme ensures coordination among various banks to
optimize resource allocation and service delivery.
Lead Bank Scheme
2. Credit Planning: It involves the preparation and execution of District Credit Plans,
which aim to distribute credit systematically and equitably across different sectors.

3. Priority Sector Lending: The scheme prioritizes directing credit flow to essential
sectors such as agriculture, small-scale industries, and socially weaker sections.

4. Financial Inclusion: Lead banks play a crucial role in extending banking services to
unbanked and underserved areas, thereby promoting financial inclusion.

5. Credit Monitoring: They are responsible for monitoring the distribution of credit and
assessing the progress of various credit-linked governmental schemes and initiatives.

6. Stakeholder Engagement: Lead banks actively engage with diverse stakeholders like
government agencies, local bodies, and self-help groups to enhance the effectiveness
of developmental programs.

7. Training and Capacity Building: The scheme includes conducting training sessions to
improve the skills and knowledge of bank officials and staff.

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8. Evaluation and Reporting: Lead banks assessthe impact of credit distribution and

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regularly report their findings to the Reserve Bank of India (RBI) and other relevant

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authorities.

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9. Dispute Resolution: They assist in resolving disputes related to credit and financial

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services, fostering a supportive business environment.

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10. Promoting Financial Literacy: Lead banksinitiate efforts to enhance financial literacy

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among the public, educating them about various banking products and services

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MARCH 2024
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Recently, RBI stated that they
may undertake a comprehensive
review of the architecture of
payment banks (PBs).
• The regulatory capital framework for Small Finance Banks (SFBs) is under
consideration, as highlighted in the Report on Trend and Progress of Banking in India
(2022-23).

• This review will also have implications for Payments Banks (PBs) seeking to transition
into SFBs.

• Key aspects under review include governance standards, the sustainability of the
payment bank business model, and requisite modifications.

• The objective of the exercise is to evaluate the comprehensive performance,

governance, and longterm viability of payment banks within the dynamic financial
environment.

Profitability of Payment Banks:

• Payment banks (PBs) achieved profitability in FY23, marking the first time since their
establishment nearly a decade ago.

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• Interest income growth surpassed interest expenses, and crucial profitability metrics

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such as return on assets and return on equity were positive in FY23.

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• Net interest margins rose to 3.7% from 2.3% in FY22, reversing a trend of decline over

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three consecutive fiscal years.

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Payments banks are financial institutions established by the RBI to improve financial

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inclusion, particularly for marginalized communities.

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Key characteristics include:

• Limited Operations: Payment banks function on a smaller scale compared to

conventional banks, focusing primarily on fundamental financial services while avoiding
credit-related risks.

• Deposit Limits: They are permitted to accept deposits up to a specified threshold,

typically set at Rs. 2 lakh.
Recently, RBI stated that they
may undertake a comprehensive
review of the architecture of
payment banks (PBs).
• Financial Inclusion: Payments banks strive to advance financial inclusion by offering
services such as savings accounts and facilitating payment transactions.

• No Credit Facilities: Unlike traditional banks, payment banks do not provide lending
services such as loans or credit cards.

Capital adequacy framework for PBs:

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Payments Banks Deposits:

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1. Deposits in Payments Banks (PBs):

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• PBs are permitted to accept savings and current deposits from customers, subject to

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a total deposit limit per customer set at ₹200,000.

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• Payment banks can accumulate a substantial pool of funds for distribution among

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multiple accounts, provided that the aggregate balance does not exceed ₹200,000 by

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the end of the day.

2. Collaborative Arrangements:

• PBs have the option to collaborate with other scheduled commercial banks or small
finance banks to manage funds exceeding the prescribed limits, subject to the
customer's prior written consent.
Recently, RBI stated that they
may undertake a comprehensive
review of the architecture of
payment banks (PBs).
3. Documentation:

• Passbooks are not mandatory for deposit accounts with PBs; however, they may
furnish paper account statements upon customer request.

• Electronic confirmation, such as SMS, email, or printed receipts, should be provided

by PBs for each account transaction. Inter-bank Borrowings:

• PBs are permitted to engage in borrowing and lending activities in the call money
and CBLO market among banks, subject to specified limits on call money borrowings
similar to scheduled commercial banks. Investment Classification and Valuation Norms:

1. Lending Prohibition:

• Payments banks are prohibited from engaging in lending activities and must allocate
their investments accordingly.

• PBs are required to invest 75% of their funds in government securities (G-Secs) and
25% in deposits of commercial banks.

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2. Investment Mandate:

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• PBs are mandated to maintain a minimum investment equivalent to at least 75% of

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'demand deposit balances' (DDB) in government securities or Treasury Bills with a

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maturity of up to one year, recognized by the RBI as eligible securities for Statutory
Liquidity Ratio (SLR)

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3. Deposit Management:

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• Payment banks (PBs) are required to maintain balances in demand and time deposits

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with other Scheduled Commercial Banks (SCBs), not exceeding 25% of their Demand
Deposit Balances (DDB).

• The combined investments and deposits made under the aforementioned guidelines
should constitute at least 100% of the DDB.

• Excess balances with other SCBs beyond the 25% limit of DDB are permissible if
sourced from funds other than DDB, including earnest money deposits of Business
Correspondents (BCs).
Recently, RBI stated that they
may undertake a comprehensive
review of the architecture of
payment banks (PBs).
4. Investment Regulations:

• PBs are prohibited from categorizing investments, except those sourced from their
funds, as Held to Maturity (HTM).

• They are not permitted to engage in 'when issued' and 'short sale' transactions.

• PBs are allowed to invest in bank Certificates of Deposit (CDs) within the limit
applicable to bank deposits.

5. Registration, Licensing, and Regulations:

• Payments banks are registered as public limited companies under the Companies Act,
of 2013, and licensed under Section 22 of the Banking Regulation Act, of 1949.

• They are covered under the Deposit Insurance and Credit Guarantee Corporation
(DICGC).

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RBI issues directions to card
networks for the issuance of
credit cards to customers
The Reserve Bank of India (RBI) has issued guidelines aimed at enhancing options and
flexibility for customers in the issuance of credit cards by card networks. According to
the RBI, authorized card networks collaborate with both banks and non-bank entities for
credit card issuance.

The decision on which network to use for a customer's card, whether it is a bank or a
non-bank institution, rests with the card issuer and is influenced by agreements between
issuers and card networks.

After conducting a review, the RBI observed that certain arrangements between card
networks and issuers were restricting customer choices. Consequently, leveraging its
authority under the Payment and Settlement Systems Act, of 2007, the RBI has
mandated:

a) Card issuers must refrain from entering into any agreement with card networks that
limits their ability to utilize services from other card networks.

b) Card issuers must offer eligible customers the option to select from multiple card

A
networks during card issuance. For existing cardholders, this choice may be provided at

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the time of the next renewal.

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The directive identifies authorized card networks as American Express Banking Corp.,

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Diners Club International Ltd., MasterCard Asia/Pacific Pte. Ltd., National Payments

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Corporation of India–Rupay, and Visa Worldwide Pte. Limited. Both card issuers and

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networks are required to comply with these provisions in existing agreements, upon

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amendment or renewal, as well as in new agreements.

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However, it is clarified that these guidelines do not apply to credit card issuers with

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fewer than 10 lakh active cards. Additionally, issuers issuing credit cards on their

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authorized card networks are exempt from the circular's applicability. The directive
concerning customer choice during issuance will be effective six months from March 6,
2024.
RBI amends these debit card,
and credit card rules: What
cardholders should know
The Reserve Bank of India (RBI) amended the regulations governing credit and debit
cards. The RBI has requested business card issuers to put in place an adequate system
to track the use of money. The new provisions are effective from March 7, 2024, as per
RBI.

Who is it applicable to?

• It applies to all credit card issuing banks and nonbanking financial companies (NBFCs).

• Instructions relating to debit cards shall apply to every bank operating in India.

Amended Provision-

• Card issuers have the authority to issue business credit cards to business entities or
individuals to cover business expenses.

• These business credit cards can take various forms such as charge cards, and

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corporate credit cards, or be linked to credit facilities like overdrafts or cash credits

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specifically designed for business purposes.

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• Issuers are required to implement an efficient mechanism to monitor the utilization of

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funds associated with these business credit cards.

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• Additionally, card issuers have the flexibility to issue add-on cards along with business

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credit cards as needed.

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• In case the closure process for a business credit card account exceeds seven working

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days, card issuers will incur a penalty of ₹500 per calendar day of delay payable to the
cardholder until the closure is completed, provided there are no outstanding balances
remaining in the account.

• Card issuers are obligated to educate cardholders about the consequences of making
only the minimum payment due on their credit card bills.
RBI amends these debit card,
and credit card rules: What
cardholders should know
• A prominent warning message stating, “Making only the minimum payment every
month would result in the repayment stretching over months/years with consequential
compounded interest payment on your outstanding balance," must be displayed in all
billing statements to alert cardholders aboutthe risks associated with paying only the
minimum amount due.

• Additionally, the MITC (Most Important Terms and Conditions) provided by the card
issuer should explicitly clarify that the 'interest-free credit period' will be suspended if
any balance from the previous month's bill remains outstanding.

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RBI releases Annual Report
of Ombudsman Scheme,
2022-23
1. This report highlighted a significant surge of over 68 percent in complaints filed under
the Reserve Bank's ombudsman schemes during the fiscal year 2022-23, totaling 7.03
lakh.

2. The complaints encompassed various issues such as mobile/electronic banking, loans

and advances, ATM/debit cards, credit cards, pension payments, remittances, and para
banking.

3. The Annual Report of the Ombudsman Scheme 2022- 23 marked the first stand-alone
report under the Reserve Bank Integrated Ombudsman Scheme (RBIOS), 2021,
elucidating the activities of the 22 Offices of the RBI Ombudsman (ORBIOs), Centralised
Receipt and Processing Centre (CRPC), and the Contact Centre during the year.

4. Under RB-IOS, 2021, there was a notable increase in the number of complaints, with a
total of 7,03,544 complaints received attheORBIOs and CRPC in 2022- 23, reflecting a
surge of 68.24 percent, attributed to intense public awareness initiatives and the
simplified process for lodging complaints under RBIOS.

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5. Complaints against banks constituted the largest portion, with 1,96,635 complaints,

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accounting for 83.78 percent of complaints received by the ORBIOs.

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6. The ORBIOs handled 2,34,690 complaints, while 4,68,854 were disposed of at the
CRPC.

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7. The RBI noted that complaints disposed of at the ORBIOs had an average turnaround

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time (TAT) of 33 days during 2022-23, significantly improved from 44 days in 2021-22.

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8. The majority (57.48 percent) of maintainable complaints disposed of under RB-IOS,

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2021, were resolved through mutual settlement, conciliation, or mediation.

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9. Complaints related to mobile/electronic banking were the highest contributors to the
total number of complaints received against banks and non-bank payment system
participants, while complaints related to non-adherence to fair practices code were
predominant concerning NBFCs.

10. Chandigarh, NCT of Delhi, Haryana, Rajasthan, and Gujarat were the top five
contributors to ombudsman complaints, while Mizoram, Nagaland, Meghalaya, Manipur,
and Arunachal Pradesh were the lowest contributors during 2022-23.
RBI organizes the Annual
Conference of the RBI
Ombudsmen
1. The Reserve Bank of India (RBI) hosted the Annual Conference of the RBI
Ombudsmen in Mumbai, Maharashtra.

2. The conference's theme centered on "Protecting the Consumers – Building Robust

Systems and Procedures."

3. The inauguration of the conference was done by Shri Shaktikanta Das, the Governor
of RBI.

4. Shri Dipak Misra, former Chief Justice of the Supreme Court of India, delivered the
keynote address, highlighting the unique aspects of the Reserve Bank – Integrated
Ombudsman Scheme, 2021.

5. Key features discussed included 'deficiency in service,' centralization, and procedural

justice.

6. Deputy Governors of the Reserve Bank, Shri M Rajeshwar Rao, and Shri Swaminathan
J emphasized RBI's initiatives in consumer protection and grievance redressal.

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7. Sessions during the conference delved into global perspectives on alternate grievance

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redress and strategies for developing resilient systems in fraud prevention and

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detection.

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8. The conference concluded with an interactive session among the Ombudsmen.

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9. The Banking Ombudsman Scheme, established under Section 35 A of the Banking
Regulation Act, 1949, by RBI in 1995, offers customers a swift and costeffective platform

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to address grievances related to specific banking services.

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10. The current iteration, the Banking Ombudsman Scheme 2006, incorporates
amendments up to July 1, 2017, outlining the grounds for complaints and providing a
mechanism for dispute resolution between banks and customers.
Sovereign Gold Bond
Scheme 2023-24

Launch Year November 2015

Objective To reduce the demand for physical gold

and shift a part of the domestic savings,
used for the purchase of gold, into
financial savings.

Scheduled Commercial banks (except

SGBs will be
Small Finance Banks, Payment Banks, and
sold through Regional Rural Banks)

• Stock Holding Corporation of India

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Limited (SHCIL)

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(CCIL)

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• Designated post offices, and

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Issuance
BSE)

To be issued by the Reserve Bank of

India on behalf of the Government of
India.
Sovereign Gold Bond
Scheme 2023-24

Eligibility A person who is a resident of India as defined

under the Foreign Exchange Management Act,
1999 is eligible to invest in SGB. He can be an
individual, joint holder, minor HUF, trust,
university and charitable institution. Individual
investors with subsequent change in residential
status from resident to non-resident may
continue to hold SGB till early
redemption/maturity.

Denomination The SGBs will be denominated in multiples of

gram(s) of gold with a basic unit of One gram.

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Tenor The tenor of the SGB will be for eight years with

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an option of premature redemption after 5th

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year to be exercised on the date on which

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Minimum size
The minimum permissible investment will be

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One gram of gold.

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Maximum limit
The maximum limit is 4 kg for individuals and
HUF. In the case of joint holding, the limit
applies to the first applicant. Each family
member can buy the bonds in his/her name. An
investor can buy 4 Kg every year as the ceiling
has been fixed on a fiscal year
RBI’s Digital
Payments Index (DPI)
1. The Reserve Bank of India (RBI) has introduced the "RBI’s Digital Payments
Index” (DPI) to effectively gauge the level of digitization in payments.

2. The DPI is a composite index based on multiple parameters, accurately

reflecting the penetration and expansion of various digital payment methods.

3. Description: The Reserve Bank of India (RBI) Digital Payments Index

assesses the level of digital payment adoption throughout the nation.

4. Base Year: The RBI-DPI is anchored to March 2018 as the reference period,
with the DPI score for March 2018 established at 100.

5. Release: The RBI disseminates the RBI-DPI semiannually, with a delay of 4

months.

6. Components: The RBI-DPI incorporates five overarching criteria to gauge

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DPI. These criteria encompass

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RBI’s Digital
Payments Index (DPI)

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Investments in Alternative
Investment Funds (AIFs)
• The RBI has issued a directive preventing regulated entities (REs) from
investing in Alternative Investment Funds (AIFs) that have direct or indirect
investments in a debtor company of the REs.

• REs must liquidate their investments in such AIFs within 30 days from the AIF's
downstream investment or from the date of the circular, applicable to existing
investments.

• A 'debtor company' is defined as any company to which the RE has, or had,

loan or investment exposure in the last 12 months.

• This measure is aimed at stopping REs, including NBFCs, from engaging in

'evergreening' of loans.

• In common scenarios, REs invests in AIFs which then invest in non-convertible

debentures (NCDs) of the debtor company. The debtor company uses these
funds to repay overdue loans, making it appear as though the debt has been

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cleared while the RE maintains exposure indirectly.

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• Such evergreening practices are used to safeguard the debtor company's

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creditworthiness without directly resolving the underlying financial issues.

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• However, the RBI's blanket ban on investments in AIFs with downstream

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investments in debtor companies may lead to unintended outcomes, including:

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• Potential misclassification of all AIF investments as 'evergreening' activities,

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even those involving financially stable companies.

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• The requirement for REs and AIFs to conduct extensive due diligence and
establish internal controls to ensure compliance, which could deter investments.

• Disadvantaging domestic institutional capital compared to foreign institutional

investors who typically invest throughNCDs or external commercial borrowing
routes.
Investments in Alternative
Investment Funds (AIFs)

Also, certain practical challenges may have to be considered while

complying with the circular

• AIFs involved in NCD investments are usually Category 1/2 AIFs, which are
close-ended, making it challenging to redeem units promptly due to illiquid
investments and restrictions set by investment managers and lock-in periods.

• Regulated entities may face difficulties in finding buyers for the AIF units
because potential buyers might be cautious, given the recent circular.

• When REs serve as sponsors for these AIFs, the requirement to liquidate
their investments means they must identify a new sponsor and secure
approval from the Securities Exchange Board of India, aligning with SEBI AIF
regulations that mandate sponsors' continued interest in the AIF.

• While the RBI's efforts to curb evergreening practices are understandable,

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the circular's broad approach may inconvenience legitimate REs and

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introduce practical challenges. Clarifications from the RBI to resolve these
concerns and smooth out implementation issues for REs and the AIF sector

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are anticipated.

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