RBI maintains status quo on policy rates, revises GDP growth: Key takeaways

RBI announced some important decisions taken by its Monetary Policy Committee which includes unchanged repo rate, revised GDP growth and 24X7 availability of RTGS system.

New Delhi:After three-day deliberation of Reserve Bank of India's Monetary Policy Committee (MPC), RBI Governor Shaktikanta Das today announced that the central bank has unanimously decided to keep the repo rate unchanged at 4 per cent.

Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI.

Here are the key decisions taken by the MPC:

RBI revises FY21 growth to (-)7.5% on current recovery rate, vaccine hopes

RBI has revised the real GDP growth projection for FY21 upwards to (-) 7.5 per cent, an upward revision from the earlier estimate of (-) 9.5 per cent, on the back signs of faster recovery after the narrowing of the GDP contraction for the July-September, along with hopes of Covid-19 vaccines.

Das also said that the growth will enter positive zone in the third quarter of current fiscal with projection that GDP may grow at 0.1 per cent and the growth will further improve in Q4 to 0.7 pet cent.

Noting that the economic recovery for India has been faster than anticipated, he said that the road to recovery is still clouded by the rise in Covid cases in patches across the country, which may lead to local restrictions, obstructing economic activities.

Inflation likely to remain elevated, Q3 CPI seen at 6.8%

RBI expects inflation to remain high and the consumer price index (CPI) for the October-December quarter of FY21 is projected at 6.8 per cent.

Das noted that CPI inflation rose sharply to 7.3 per cent in September and further to 7.6 per cent in October 2020, with some evidence that price pressures are spreading.

He said that while cereal prices may continue to soften with the bumper kharif harvest arrivals and vegetable prices may ease with the winter crop, other food prices are likely to persist at elevated levels. The cost-push pressures continue to impinge on core inflation, which could remain sticky, Das added.

RTGS to be made available 24X7 in next few days

In a business friendly move, the Real Time Gross Settlement (RTGS) system, used for large value transactions, will be made available round-the-clock in the next few days which currently is available for customers from 7.00 am to 6.00 pm on all working days of a week, except second and fourth Saturdays of every month.

Das said that with this enablement, it is proposed to reduce settlement and default risk in the system by facilitating settlement of AePS, IMPS, NETC, NFS, RuPay, UPI transactions on all days of the week instead of five days earlier. This will make the payment ecosystem more efficient, he added.

In order to expand adoption of digital payment in a safe and secure manner, he said, it has been decided to enhance the limits for contactless card transactions and e-mandates for recurring transactions through cards and UPI from Rs 2,000 to Rs 5,000 from January 1, 2021.

RBI asks banks to retain profit, not make any dividend payment for FY20

In view of the economic shock caused by the COVID-19 pandemic, RBI asked scheduled commercial banks and co-operative banks not to make any dividends for the financial year ended March 2020.

In view of the ongoing stress and the heightened uncertainty on account of the pandemic, RBI said it is imperative that banks continue to conserve capital to support the economy and absorb losses, if any.

The decision is based on review of the September quarter financial performance of banks.

In response to the pandemic, RBI has focused on resolution of stress among borrowers, and facilitating credit flow to the economy, while ensuring financial stability, Das said.

Guidelines on the above measure will be issued shortly.

RBI to come out with digital payment security control directions

The central bank will be introducing digital payment security control directions for regulated entities, Das said. He said that such a move will improve the security of digital payment channels and also convenience for users.

“These directions will contain requirements for robust governance, implementation and monitoring of certain minimum standards on common security controls for channels like internet and mobile banking, card payments, etc,” Das said.

The announcement comes a day after the RBI temporarily barred HDFC Bank from selling new credit cards or launching new digital banking initiatives, taking a serious view of service outages at the systemically important bank over the last two years. The digital banking app SBI was also facing service outages on Thursday, the second time in a week that the bank was struggling with the service.

On Thursday, Das said preservation of financial stability and depositors' interest is the “uppermost” priority on the RBI's agenda and cited the rescues of Yes Bank and Lakshmi Vilas Bank as efforts in the same direction.

He said the banks and non-bank finance companies (NBFCs) are the first line of defence in matters relating to financial sector stability.

RBI allows RRBs to access LAF, MSF windows

RBI allowed regional rural banks (RRBs) to access the liquidity adjustment facility (LAF), marginal standing facility (MSF) and call or notice money market, aimed at facilitating better liquidity management for these lenders.

At present, RRBs are not permitted to access the liquidity windows of the RBI as well as the call or notice market.

“With a view to expanding participation in money market and to facilitate better liquidity management, RRBs will now be allowed to access LAF and MSF of the RBI, and also the call or notice money market,” Das said.

RBI to review guidelines on credit default swaps

RBI said it will review the guidelines on credit default swaps to facilitate the development of the credit derivatives market.

The central bank will soon issue draft directions for public comments in this regard.

"With the recent enactment of the legislation for Bilateral Netting of financial contracts providing a fillip to the underdeveloped credit derivatives market in India, it has been decided to review the extant guidelines on Credit Default Swaps (CDS) and issue draft directions for public comments shortly," Das said.

The revised directions are expected to facilitate the development of credit derivatives market and a liquid and vibrant market for corporate bonds, especially for low-rated issuers, he said.

(With inputs from agencies)