The Reserve Bank of India (RBI) on Friday announced keeping the benchmark repo rate unchanged at 6.5 per cent while noting that inflation has improved significantly from 7.8 per cent in 2022 to 4-6 per cent now, which is well within its tolerance band. Concluding the first monetary policy committee (MPC) meeting in FY25, RBI Governor Shaktikanta Das also highlighted the proposals to change the rates for standing deposit facility (SDF) and marginal standing facility (MSF) at 6.25 per cent and 6.75 per cent, respectively, and the reasons for the MPC’s stance on ‘withdrawal of accommodation’ until inflation reaches its 4 per cent target.

RBI tweaks the SDF and MSF rates to optimise liquidity in the market and handle inflation. Das said, “After a detailed assessment of the evolving macroeconomic and financial developments, it was decided by a 5 to 1 majority to keep the policy repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent.”

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The Inflation ‘Elephant’ Out For A Walk

Highlighting the country’s improving inflation situation, Das said, “The elephant has gone out for a walk, and RBI wants it to be in the forest”. He noted that inflation fell from its peak at 7.8 per cent in 2022 to 4-6 per cent now, even as the anti-inflation measures continue. Das stressed inflation must continue to moderate, and until it is achieved, the task remains unfinished. “The success in the disinflation process so far should not distract us from the vulnerability of the inflation trajectory to the frequent incidence of supply-side shocks,” he added.

The RBI governor also highlighted the proposed changes to the liquidity coverage ratio (LCR) that banks maintain to face withdrawal pressure during uncertain situations.

Proposal To Modify LCR Framework

RBI implemented LCR in January 2015 to ensure adequate liquidity in the banks to handle any stressful situation. RBI’s April 17, 2020, circular further specifies that banks should maintain high-quality liquid assets (HQLA) to meet “30 days net outgo under stressed conditions”.

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To further strengthen the LCR framework, RBI’s MPC meeting has proposed additional changes to equip banks to deal with a sudden rush of withdrawals by depositors simultaneously. Providing reasons for this decision, Das noted, “The recent episodes in some jurisdictions have demonstrated the increased ability of depositors to withdraw quickly or transfer deposits during times of stress, using digital banking channels. Such emerging risks may require a revisit of certain assumptions under the LCR framework. Therefore, certain modifications to the LCR framework are proposed to facilitate better management of liquidity risk.”

Das said a draft circular will be issued shortly for stakeholders’ comments.

RBI Mulls Retail Direct Mobile App 

RBI also announced on Friday a Retail Direct Mobile App, which it will launch soon to enable people to invest in government securities. RBI said, “To further improve the ease of access, a mobile application of the Retail Direct portal is being developed. The app will enable investors to buy and sell instruments on the go.” The Retail Direct portal allows investors to invest in government securities, such as central and state government bonds, Treasury bills, and sovereign gold bonds (SGBs). The application will likely include features for account management, investment tracking, credit of interest and principal amount, and customer support. Experts believe it will reduce transaction costs as there will be no intermediaries and commissions.

RBI’s retail direct portal, launched in 2021, is equipped with net banking and UPI-enabled payment services for retail investors. To open an account on the retail direct portal, investors will need a savings bank account, a permanent account number (PAN), an email ID and a valid phone number, as well as KYC documents, Aadhaar, etc., for verification.

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RBI Proposes Non-Banking PSOs To Offer CBDCs 

RBI’s MPC meeting also proposed to involve non-banking payment system operators (PSO) to offer the central bank digital currency (CBDC) to retail customers. Highlighting the proposal, Das said, “CBDC pilots in the retail and wholesale segments are underway with more use cases and participating banks. It is proposed to make CBDC Retail accessible to a broader segment of 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 resiliency of the CBDC platform to handle multi-channel transactions.”

RBI has kept CBDC as a pilot project to test its effectiveness in different scenarios and challenges. It has not set a definitive timeline for CBDC’s full-fledged launch. There are currently around 43 lakh CBDC retail users and some 40 lakh merchant users.

RBI Plans UPI-Based Cash Deposit Facility

RBI also proposed a Unified Payments Interface (UPI)-based cash deposit facility to boost digital transactions and enhance customer convenience at its monetary policy meeting. Usually, UPI is used for peer-to-peer transactions, bill payments, and merchant transactions. RBI now wants to expand its use for cash deposits. For example, one can deposit cash at Cash Deposit Machines (CDMs) using UPI, eliminating the need for an ATM or debit card.

“Given the popularity and acceptance of UPI, as well as the benefits seen from its availability for card-less withdrawal at ATMs, it is now proposed to facilitate a cash deposit facility through UPI. Operational instructions will be issued shortly,” Das said. “This measure will further enhance customer convenience and make the currency handling process at banks more efficient,” RBI said in a statement.

The Unified Payments Interface (UPI), developed by the National Payments Corporation of India (NPCI), is a real-time payment system between bank accounts via mobile platforms.

RBI To Allow PPI Payments Via Third-Party Apps 

The central bank has also proposed allowing UPI payments for Prepaid Payment Instruments (PPIs) through third-party apps. Currently, the UPI payments from PPIs are made via web or mobile apps provided by the PPI issuer. It is now proposed that third-party UPI apps be permitted for UPI payments from PPI wallets. This move is expected to boost the adoption of digital payments for small-value transactions.