The Reserve Bank of India recently announced it’s developmental and regulatory policy measures concerning various sectors of the economy. These measures are as follows:

Regulation and Supervision

• For the purpose of computing Liquidity Coverage Ratio (LCR), the total carve-out from Statutory Liquidity Ratio (SLR) available to banks would be 13 per cent of their NDTL.
• The valuation of securities issued by each state government should be valued based on observed prices. The valuation of traded state government securities would now be at the price at which they have been traded in the market. In case of non-traded state government securities, the valuation would be based on the state-specific weighted average spread over the yield of the central government securities of equivalent maturity, as observed at primary auctions.
• In view of the continuing rise in yield of government securities as also the inadequacy of time to build an Investment Fluctuation Reserve (IFR) for many banks, banks would be granted the option to spread the mark-to-market (MTM) losses on investments held in Available for Sale (AFS) and Held for Trading (HFT) portfolio for the quarter ending June 30, 2018, equally over a period of four quarters, commencing from the quarter ending June 30, 2018.
• Urban Cooperative Banks (UCBs) meeting the prescribed criteria, would now be allowed for voluntary transition into Small Finance Banks (SFBs).
• To encourage formalisation of the MSME Sector, banks and NBFCs would be temporarily allowed to classify their exposure, as per the 180 day past due criterion, to all MSMEs with aggregate credit facilities up to ₹250 million limit, including those not registered under GST.
• With a view to bring greater convergence of the Priority Sector Lending (PSL) guidelines for housing loans with the Affordable Housing Scheme, and to give a fillip to the low-cost housing for the economically weaker sections and lower income groups, the housing loan eligibility limits for PSL have been revised upwards.
• Keeping in view the increasing level of NPAs for the ticket size of up to ₹ 2 lakh, banks are advised to strengthen their screening and follow up in respect of lending to housing sector in particular.
• Core Investment Companies (CICs) registered with the Reserve Bank as Non-Bank Financial Companies (NBFCs), now permitted to invest in Infrastructure Investment Trusts (InvITs) as Sponsors within limits on amount and tenor as prescribed by Securities and Exchange Board of India (SEBI) (Infrastructure Investment Trusts) Regulations, 2014.

Financial Markets

• With a view to harmonise Liquidity Adjustment Facility (LAF) haircuts with international standards, it has been decided to require — starting August 1, 2018 — initial margin on collateral of Central Government Securities (including T-bills) and State Development Loans (SDLs) on the basis of its residual maturity.
• To enhance participation in Government Securities Market (G-Sec) it has been decided to liberalise the eligible participants’ base, relax the entity-wise and security category-wise limits for short selling in G-Sec and for taking positions in the when issued market.
• In order to provide comprehensive services to Foreign Portfolio Investor (FPI) clients, Standalone Primary Dealers (SPDs) would be provided a limited foreign exchange licence. With a view to increase activity and participation in financial markets and redistribute financial exposure of the banking system, it is proposed to introduce regulations, in line with the best global practices, to prevent abuse in markets regulated by the Reserve Bank.
• The Reserve Bank would lay down the framework for the recognition of the foreign Central Counter-parties (CCPs) as also the capital requirement and governance framework for all CCPs so that these entities function in an efficient and effective manner.

Debt Management

• In order to further incentivise adequate maintenance of Consolidated Sinking Fund and Guarantee Redemption Fund of State Governments and to encourage them to increase the corpus of these funds, it has been decided to lower the rate of interest on Standing Deposit Facility (SDF) from 100 bps below the Repo Rate to 200 bps below the Repo Rate.

Payment and Settlement

• In order to minimise concentration risk in retail payment systems from a financial stability perspective, the Reserve Bank plans to encourage more players to participate in and promote pan-India payment platforms so as to give a fillip to innovation and competition in the sector.

Currency Management

• The Reserve Bank has been sensitive to the challenges faced by the visually challenged in conducting their day to day business with Indian banknotes. Hence, the Reserve Bank, in consultation with various entities representing the visually challenged, will explore the feasibility of developing a suitable device or mechanism for aiding them in the identification of Indian banknotes.

Other Measures

• With a view to address information asymmetry, foster access to credit, and strengthen the credit culture in the economy and as per the recommendations of the High Level Task Force on Public Credit Registry (PCR) for India (Chairman: Shri Yeshwant M. Deosthalee), an Implementation Task Force (ITF) is being constituted by the Reserve Bank to help design undertake logistics for the next steps in setting up of the Public Credit Registry (PCR)
• It has been decided that furnishing of PAN, which hitherto was not to be insisted upon while putting through permissible current account transactions of up to USD 25000, shall now be mandatory for making all remittances under the Liberalised Remittance Scheme (LRS) by Authorised Dealer (AD) banks. Further, in the context of remittances allowed under LRS for maintenance of close relatives, it has been decided to align the definition of ‘relative’ with the definition given in Companies Act, 2013 instead of Companies Act, 1956.