I. Repo Rate, Marginal Standing Facility and Bank Rate:

  1. The Monetary Policy Committee voted unanimously to leave the policy repo rate
    unchanged at 4 per cent.
  2. It also unanimously decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.
  3. The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 percent.
  4. The reverse repo rate stands unchanged at 3.35 per cent.
  5. For the first time during the COVID-19 period, inflation has eased below the upper tolerance level of 6 per cent.
  6. The preliminary estimate of GDP for 2020-21 released by the National Statistical Office (NSO) on January 7, 2021 has turned out to be very close to the MPC’s December projection.
  7. Given that inflation has returned within the tolerance band, the MPC judged that the need of the hour is to continue to support growth, assuage the impact of COVID-19 and return the economy to a higher growth trajectory.

II. Assessment of Growth and Inflation:
A. Growth: –

  1. The movement of goods and people and domestic trading activity are growing at a robust pace.
  2. Manufacturing, services and composite purchasing managers’ indices (PMI) are in expansion zones – the manufacturing PMI rose to 57.7 in January 2021 from 56.4 in December 2020 and and the services PMI rose to 52.8 in January 2021 from 52.3 in December 2020.
  3. The flow of financial resources to the commercial sector has been improving, particularly in respect of non-food bank credit and via commercial paper (CPs), credit by housing finance companies, private placement of corporate bonds and foreign direct investment. The total flow of these resources is ₹8.85 lakh crore this year so far (up to January 15, 2021), compared with ₹7.97 lakh crore during the corresponding period of last year.
  4. The latest bank lending survey of the RBI suggests further sequential improvement in sentiment on loan demand across all sectors right up to Q2:2021-22.
  5. Real GDP growth is projected at 10.5 per cent in 2021-22 – in the range of 26.2 to 8.3 per cent in Half Year1 and 6.0 per cent in Quarter 3.
  6. The investment-oriented stimulus under AatmaNirbhar 2.0 and 3.0 (given during the peak of the pandemic) has started working its way through and is improving the spending momentum along with the quality of public investment.

 Inflation: –

  1. The projection for Consumer Price Index (CPI) inflation has been revised to 5.2 per cent for Quarter 4:2020-21, 5.2 per cent to 5.0 per cent in First Half Year:2021-22 and 4.3 per cent for Quarter 3:2021-22, with risks broadly balanced.

B. Liquidity Guidance:

  1. A two phase normalisation of the cash reserve ratio (CRR). Systemic liquidity would, however, continue to remain comfortable over the ensuing year. In fact, the CRR normalisation opens up space for a variety of market operations to inject additional liquidity. The underlying theme of our endeavour in these areas would be to flexibly use all instruments in our arsenal appropriately without jeopardising financial stability, which is at the core of RBI’s policy objectives.
  2. Gross market borrowing of the Centre for 2021-22 is budgeted at ₹12 lakh crore. As the government’s debt manager and banker, the Reserve Bank will ensure the orderly completion of the market borrowing programme in a non-disruptive manner.

3. Additional Measures:-

 Liquidity Measures:

  • TLTRO( Targeted Long Term Repo Operations) on Tap Scheme – Inclusion of NBFCs:RBI had announced the TLTRO on Tap Scheme for banks on October 9, 2020. Given that NBFCs are well recognised conduits in reaching out to the last mile in various sectors, it is now proposed to provide funds from banks under the TLTRO on Tap scheme to NBFCs for incremental lending to the specified stressed sectors.
  • Restoration of CRR in two phases beginning March 2021: To tide over the disruption caused by COVID-19, the Cash Reserve Ratio (CRR) of all banks was reduced by 100 basis points to 3.0 per cent for a period of one year ending on March 26, 2021. On a review of monetary and liquidity conditions, it has been decided to gradually restore the CRR in two phases in a non-disruptive manner to 3.5 per cent effective from March 27, 2021 and 4.0 per cent effective from May 22, 2021.
  • Marginal Standing Facility (MSF) – Extension of Relaxation: On March 27, 2020 banks were allowed to avail of funds under the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL), i.e., cumulatively up to 3 per cent of NDTL. This facility, which was extended in phases up to March 31, 2021, will now be available for a further period of another six months, i.e. up to September 30, 2021 to provide comfort to banks on their liquidity requirements. This dispensation provides increased access to funds to the extent of ₹1.53 lakh crore.

 Regulations and Supervisions:

  • SLR Holdings in Held to Maturity (HTM) category: On September 1, 2020, the Reserve Bank increased the limits under Held to Maturity (HTM) category from 19.5 per cent to 22 per cent of net demand and time liabilities (NDTL) in respect of statutory liquidity ratio (SLR) eligible securities acquired on or after September 1, 2020, up to March 31, 2021. This dispensation was made available up to March 31, 2022. In order to provide certainty to the market participants in the context of the borrowing programme of the centre and states for 2021-22, it has now been decided to extend the dispensation of enhanced Held To Maturity of 22 per cent up to March 31, 2023 to include securities acquired between April 1, 2021 and March 31, 2022. The Held To Maturity limits would be restored from 22 per cent to 19.5 per cent in a phased manner starting from the quarter ending June 30, 2023.
  • Credit to MSME Entrepreneurs: In order to incentivise new credit flow to the micro, small, and medium enterprise (MSME) borrowers, Scheduled Commercial Banks will be allowed to deduct credit disbursed to ‘New MSME borrowers’ from their net demand and time liabilities (NDTL) for calculation of CRR. For the purpose of this exemption, ‘New MSME borrowers’ would be those who have not availed any credit facilities from the banking system as on January 1, 2021. This exemption will be available for exposures up to ₹25 lakh per borrower for credit extended up to the fortnight ending October 1, 2021.
  • Capital Conservation Buffer and Net Stable Funding Ratio: Deferment of implementation of last tranche of the Capital Conservation Buffer (CCB) of 0.625 per cent and also defer the implementation of Net Stable Funding Ratio (NSFR) by another six months from April 1 to October 1, 2021.
  • Review of the Regulatory Framework for Microfinance: Reserve Bank will come out with a consultative document harmonising the regulatory frameworks applicable to various regulated lenders (NBFC-Micro Finance Institutions, Scheduled Commercial Banks, Small Finance Banks and NBFC–Investment and Credit Companies) in the microfinance space.
  • Expert Committee on Primary (Urban) Co-operative Banks: An Expert Committee (EC) will be constituted to provide a medium-term road map for strengthening the sector leveraging on the legislative amendments.
  • Remittances to IFSCs under the Liberalised Remittance Scheme: Currently, resident individuals are not allowed to make remittances under the Liberalised Remittance Scheme (LRS) to International Financial Service Centres (IFSCs). To further develop IFSCs and bring them at par with other international financial centres, it is proposed to permit resident individuals to make remittances to IFSCs for investment in securities issued by non-resident entities in IFSCs. For this specific purpose, resident individuals would be allowed to open a non-interest bearing Foreign Currency Account (FCA) in IFSCs.

 Deepening Financial Markets:

  • Allowing Retail Investors to Open Gilt Accounts with RBI: It is proposed to provide retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank (‘Retail Direct’). This will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market. This is a major structural reform placing India among select few countries which have similar facilities. This measure together with Held To Maturity relaxation, will facilitate smooth completion of the Government borrowing programme in 2021-22.
  • Foreign Portfolio Investors (FPIs) Investment in Defaulted Bonds: In order to further promote investment by foreign portfolio investors (FPI) in corporate bonds, FPI investment in defaulted corporate bonds will be exempted from the short-term limit and the minimum residual maturity requirement under the Medium-Term Framework.

 Payment and Settlement Systems:

  • Setting up of 24×7 Helpline for Digital Payment Services: With enhanced penetration and efficiency of digital payments, major payment system operators would be required to facilitate setting-up of a centralised industry-wide 24×7 helpline for addressing customer queries in respect of various digital payment products and give information on available grievance redress mechanisms. Going forward, the facility of redress of customer grievances through the helpline shall be considered.
  • Guidelines on Outsourcing for Operators and Participants of Authorised Payment Systems: To manage the attendant risks in outsourcing and ensure that a code of conduct is adhered to while outsourcing payment and settlement related services, the Reserve Bank shall issue guidelines on outsourcing of such services by these entities.
  • Cheque Truncation System (CTS) Clearing across all Bank Branches: It is now proposed to bring all these branches under Cheque Truncation System clearing by September 2021. With this measure, all bank branches in the country would be covered under the Cheque Truncation System. This will enhance customer convenience and bring in operational efficiency to paper based clearing system.

 Consumer Protection:

  • Integrated Ombudsman Scheme: To make the Ombudsman mechanism simpler, efficient and more responsive, it has been decided to integrate the three Ombudsman schemes and introduce centralised processing of grievances following a ‘One Nation One Ombudsman’ approach. This is intended to make the process of redress of grievances easier by enabling the customers to register their complaints under the integrated scheme, with one centralised reference point. The Integrated Ombudsman Scheme will be rolled out in June 2021.

NOTE: – The above information is taken from the RBI Governor’s Statement Press Release dated 05th February, 2021.