From Loans To Digital Transactions: 5 Key Takeaways From RBI¡¯s MPC Meeting

In its first MPC meeting in new year 2024, India¡¯s central bank, the RBI (Reserve Bank of India) has decided to keep the repo rate unchanged. Besides the repo rate announcements, the RBI governor Shaktikanta Das announced a number of key moves regarding loans, digital transactions and much more.

5 Key Takeaways From RBI¡¯s MPC Meeting

RBI governor announces unchanged repo rate/mint

1.RBI Keeps Repo Rate Unchanged

For the sixth straight time, the RBI has not changed the repo rate, which now stands at 6.5%. Just like we borrow loans from banks, the banks borrow funds from the RBI to overcome short-term liquidity mismatches. The rate at which banks borrow money from the RBI is known as the policy repo rate. The banks borrow from the RBI against qualifying securities put as collateral, such as government bonds and treasury bills.

How Does Repo Rate Impact Finances?

RBI repo rate/indiatimes

The RBI bases its decision about the repo rate during the MPC meeting on the status of the economy since it is a crucial tool for keeping an eye on rising inflation and maintaining market liquidity. As a result, the RBI continuously modifies the repo rate or may decide to leave it at that level in response to shifting macroeconomic conditions. This has an impact on all sectors of the economy, including consumer loans and bank deposits.

As per industry experts, since the repo rate has been kept unchanged for the sixth straight time, your loan EMIs are unlikely to be affected soon.

Also, in the current scenario wherein bank FD rates are on the higher side, industry experts anticipate that short-term fixed deposit rates will increase shortly, but longer-term FDs are nearing their peak and have minimal room for further hikes.

In coming months, as the RBI moves towards rate cuts, it will affect FD rates across all tenures. The extent of the decrease will likely differ depending on the duration of the FD.

Experts, as per ET report, opine that whenever the interest rate starts falling, the short- and medium-term rates will be impacted more. It may take some time for the long-term interest rates to get impacted. So if you are planning to invest in FDs of short or medium term, this may be the last window in the current interest rate cycle to do so at the prevailing higher rates.

Also Read; Did You Know Why RBI's First Governor Never Signed Any Currency Note?

2.Introduction Of Key Fact Statement For Loans

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The Reserve Bank has announced several measures in the recent past to foster greater transparency and disclosure by the regulated entities (REs) in pricing of loans and other charges levied on the customers. One such measure is the requirement for lenders to provide their borrowers a Key Fact Statement (KFS) containing the key information regarding a loan agreement, including all-in-cost of the loan, in simple and easy to understand format.

Currently KFS is specifically mandated in respect of loans by scheduled commercial banks to individual borrowers; digital lending by REs; and microfinance loans. Now, it has been decided to mandate all REs to provide the ¡®Key Fact Statement¡¯ (KFS) to the borrowers for all retail and MSME loans. Providing critical information about the terms of the loan agreement, including all-inclusive interest cost, shall greatly benefit the borrowers in making an informed decision.

3.Enhancing Aadhaar Based Payment System

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Aadhaar Enabled Payment System (AePS), operated by NPCI, enables customers to perform digital payment transactions in assisted mode. In 2023, more than 37 crore users undertook AePS transactions, which points to the important role played by AePS in financial inclusion. To enhance the security of AePS transactions, it is proposed to streamline the onboarding process, including mandatory due diligence, for AePS touchpoint operators, to be followed by banks. Additional fraud risk management requirements will also be considered. Instructions in this regard shall be issued shortly.

4.Authentication Of Digital Payment Transactions

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Over the years, the Reserve Bank has prioritised security of digital payments, in particular the requirement of Additional Factor of Authentication (AFA). Though RBI has not prescribed any particular AFA, the payments ecosystem has largely adopted SMS-based One Time Password (OTP). With innovations in technology, alternative authentication mechanisms have emerged in recent years. To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based ¡°Framework for authentication of digital payment transactions¡±. Instructions in this regard will be issued separately.

5.New Proposal For Central Bank Digital Currency (CBDC)

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As per RBI, the CBDC Retail (CBDC-R) pilot currently enables Person to Person (P2P) and Person to Merchant (P2M) transactions using Digital Rupee wallets provided by pilot banks. It is now proposed to enable additional use cases using programmability and offline functionality. Programmability will permit users like, for instance, government agencies to ensure that payments are made for defined benefits.

Similarly, corporates will be able to program specified expenditures like business travel for their employees. Additional features like validity period or geographical areas within which CDBC may be used can also be programmed. Second, it is proposed to introduce an offline functionality in CBDC-R for enabling transactions in areas with poor or limited internet connectivity. Multiple offline solutions (proximity and non-proximity based) across hilly areas, rural and urban locations will be tested for this purpose. These functionalities will be introduced through the pilots in a gradual manner.

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