For the fourth time in a row in the current financial year (FY 2019-20), the Reserve Bank of India’s Monetary Policy Committee (MPC) has narrowed down the repo rate. The MPC lowered it by 35 basis points to 5.40%, marking the lowest rate in over nine years. Aimed at supporting slow economic growth and stimulating aggregate demand, this reduction is coupled with a downward GDP growth revision from 7% to 6.9% for FY20.
Downward Revision of GDP Growth
The revised GDP figures were presented in August, suggesting a range of 5.8-6.6% for the first half of FY20 and 7.3-7.5% for the second half of the same. These risks are somewhat tilted to the downside due to various affecting factors.
RBI’s Decision on Fund Transfers
With the intention of promoting digital transactions, the RBI decided to enable 24/7 fund transfers through NEFT from December 2019. The National Electronic Funds Transfer (NEFT), currently, functions between 8 a.m. and 7 p.m. on weekdays excluding second and fourth Saturdays each month. This system, managed by the RBI, is used for transferring funds up to ₹2 lakh.
Removal of Charges and Boosting Digital Transactions
In its Monetary Policy statement made in June, the RBI had eliminated charges on fund transfers via RTGS and NEFT channels in order to promote digital transactions further. As a result, banks were instructed to pass the benefits onto customers. The Real Time Gross Settlement System (RTGS) is designed specifically for high-value instantaneous fund transfers.
| Key Points | Details |
|---|---|
| Repo Rate | Reduced to 5.40% |
| GDP Growth Revision | Down to 6.9% for FY20 |
| NEFT Timings | 24/7 from December 2019 |
National Payments Corporation of India (NPCI) and Bharat Bill Payment Service (BBPS)
The NPCI’s Bharat Bill Payment Service (BBPS) hub has been given permission to facilitate payments for all recurrent billers except prepaid recharges. Presently, it only caters to DTH services, electricity, gas, telecom, and water bills. The BBPS, a concept by the RBI executed by NPCI, ensures an accessible and interoperable payment service for all customers.
Introduction of Central Payment Fraud Registry
The RBI has proposed to set up a central payment fraud registry, aiming to keep track of banking fraud. This development is in addition to the existing Central Fraud Monitoring Cell of the central bank. The new registry will enable payments operators to monitor and respond to frauds quickly, and the aggregated fraud data will be published to educate customers about emerging risks.
Makeover for NBFCs
The central bank raised the limit of a bank’s exposure to a single Non-Banking Financial Company (NBFC) from 15% to 20% of its Tier-I capital. This measurement is particularly relevant currently as the lending activity by many NBFCs has decreased significantly, causing a demand slowdown for a range of items including cars, tractors, and white goods among others.
