Context

RBI, in its monetary policy committee (MPC) meeting, made a series of announcements proposing to introduce specific measures ranging from expanding the UPI network to increased participation in SGrBs, etc.

RBI Monetary Policy Committee’ April 2024: Announcements

• Cash Deposit through UPI:  

  • RBI is gearing up to facilitate a cash deposit facility through UPI, with operational instructions to be issued shortly.
    • At present:  The facility of cash deposit is available only through the use of debit cards as of now.

• Prepaid Payment Instruments (PPIs) Holders: 

• • To provide more flexibility to PPI holders, RBI has proposed to permit the linking of PPIs through third-party UPI applications. 
    • This will enable the PPI holders to make UPI payments like bank account holders.

• • • At Present: PPIs can currently be used to make UPI transactions only by using the application provided by the PPI issuer.

• Non-Resident participation in Sovereign Green Bonds (SGrBs): 

  • RBI to permit eligible foreign investors in the International Financial Services Centre (IFSC) to also invest in SGrBs.
    • At present: Foreign portfolio investors (FPIs) registered with SEBI are permitted to invest in SGrBs under the different routes available for investment by FPIs in government securities.
    • Sovereign Green Bonds (SGrBs): These are debt instrument issued  to fund green initiatives and promote ecological conservation.
      • The Government of India had issued SGrBs in January 2023. 

• A Mobile App for RBI Retail Direct Scheme:  

  • A mobile application of the Retail Direct portal is being developed to enable investors to buy and sell instruments at their convenience and to improve ease of access. 
    • To give individual investors access to maintain gilt accounts with RBI and invest in government securities.
    • The Scheme enables investors to buy securities in primary auctions and buy/sell securities through the NDS-OM platform.

• Distribution of Central Bank Digital Currencies (CBDCs) through Non-bank Payment System Operators: 

  • RBI has proposed to make CBDC-Retail accessible to users by enabling non-bank payment system operators to offer CBDC wallets.
    • This is expected to enhance access and expand choices available to users apart from testing the resilience of the CBDC platform to handle multi-channel transactions. 
    • Central bank digital currencies (CBDCs): These are digital currencies similar to cryptocurrencies issued by a country’s central bank, who fixes its value and is equivalent to the country’s fiat currency. 

• Small Finance Banks: 

• • RBI will allow SFBs to deal with permissible rupee interest derivative products regarding rupee interest rate derivatives.  
    • It is to hedge interest rate risk in their balance sheet and commercial operations more effectively and provide them with greater flexibility.
    • At Present: The current guidelines permit Small Finance Banks to use only Interest Rate Futures (IRFs) for proprietary hedging.

• Review the Liquidity Coverage Ratio (LCR) Framework: 

  • Certain modifications to the LCR framework are being proposed to facilitate better management of liquidity risk by the banks. 
    • LCR framework: It refers to the proportion of highly liquid assets held by financial institutions to ensure that they maintain an ongoing ability to meet their short-term obligations (i.e., cash outflows for 30 days).

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