HIKE IN REPO RATE

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Context

• The repo rate, the rate at which RBI lends money to commercial banks, has been hiked by one half of a percent. 

Read about Repo Rate and Monetary Policy in detail here: https://www.iasgyan.in/daily-current-affairs/hike-in-repo-rate-and-crr-8

Read about Inflation in detail here: https://www.iasgyan.in/daily-current-affairs/inflation-29#:~:text=Inflation%20refers%20to%20a%20sustained,transport%2C%20consumer%20staples%2C%20etc.

Details

• Considering the prevailing adverse global environment, resilience in domestic economic activity, uncomfortably high inflation level, the RBI has hiked the policy repo rate by 50 basis points, to 5.40%.
• The Monetary Policy Committee of the RBI came to this judgement since it felt the need to keep inflation and inflationary expectations under check.

 

Additional Measures

The Governor announced a series of five additional measures, as given below.

 

Encouraging Standalone Primary Dealers to further Develop Financial Markets

• Standalone Primary Dealers (SPDs) will now be able to offer all foreign exchange market-making facilities as currently permitted to Category-I Authorized Dealers, subject to prudential guidelines.
• This will provide customers with a wider set of market makers to manage their foreign currency risk. This will also increase the breadth of the forex market in India.
• SPDs will also be permitted to undertake transactions in the offshore Rupee Overnight Indexed Swap market with non-residents and other market makers. This measure will supplement a similar measure announced in February this year for the banks.
• These measures are expected to remove the segmentation between onshore and offshore OIS markets and improve price discovery.
• The measures are being taken, considering the role of SPDs in developing financial markets.

 

Primary Dealers A primary dealer is a bank or other financial institution that has been approved to trade securities with a national government. Primary government securities dealers sell the Treasury securities that they buy from the central bank to their clients, creating the initial market.

 

Managing Risks and Code of Conduct in Outsourcing of Financial Services

• There has been an increasing trend of outsourcing of financial services by regulated entities. Considering this, the RBI is going to issue a draft Master Direction on Managing Risks and Code of Conduct in Outsourcing of Financial Services for public comments.
• This is being done to strengthen the risk management framework and harmonize and consolidate the existing guidelines.

 

Bharat Bill Payment System to be open to NRIs as well

• The Bharat Bill Payment System (BBPS), an interoperable platform for standardized bill payments, will now be able to accept cross-border inward bill payments.
• This will thereby enable NRIs as well to use the system to pay their bills for utility, education and other such services, on behalf of their families in India. This will thus greatly benefit senior citizens.

 

Credit Information Companies to be brought under Reserve Bank Integrated Ombudsman Scheme (RB-IOS) 2021

• To make the RB-IOS more broad-based, Credit Information Companies (CICs) are being brought under the RB-IOS framework. With this, we get a cost-free alternative mechanism for redressal of grievances against Credit Information Companies.
• Further, these companies will now need to have their own internal Ombudsman (IO) framework. The Governor informed that this will strengthen the internal grievance redress mechanism by CICs themselves.

Who is the Ombudsman? The Ombudsman is a senior official appointed by the RBI to redress customer complaints against the bank or NBFC or System Participants (as defined in the scheme) for deficiency in certain banking related services covered under the grounds of complaint specified under the Clause 8 of the scheme.   Banking Ombudsman Scheme, 2006 The Banking Ombudsman Scheme was launched under the Banking Regulation Act 1949 by the Reserve Bank of India with effect from 1995. It was implemented to redress the complaints of customers on certain types of banking services provided by banks and to facilitate the settlements of those complaints. All the Regional Rural Banks, Scheduled Commercial Banks, and Scheduled Primary Co-Operative Banks are covered under the Banking Ombudsman Scheme. The Ombudsman Scheme for Non-Banking Financial Companies, 2018 The Reserve Bank of India introduced the Ombudsman Scheme for Non-Banking Financial Companies on 23rd February 2018 for the customers of NBFCs. It is an expeditious and cost-free apex level mechanism for the resolution of complaints of customers of NBFCs, relating to certain services rendered by NBFCs.   The Ombudsman Scheme for Digital Transactions, 2019 The Reserve Bank of India had launched The Ombudsman Scheme for Digital Transactions on 31st January 2019. It is an expeditious and cost-free apex level mechanism for resolution and complaints regarding digital transactions undertaken by the customers of the System Participants as defined by the scheme. Reserve Bank - Integrated Ombudsman Scheme as 'One Nation, One Ombudsman System' The Reserve Bank - Integrated Ombudsman Scheme as 'One Nation, One Ombudsman System', was launched in 2021. It will provide cost-free redressal to the customer complaints involving deficiency in services rendered by entities regulated by the Reserve Bank of India (RBI), if not resolved to the satisfaction of the customers or not replied within a period of 30 days by the regulated entity. This new scheme integrates the RBI's three existing ombudsman schemes, namely: 1.      The Banking Ombudsman Scheme, 2006   2.      The Ombudsman Scheme for Non-Banking Financial Companies (NBFCs), 2018 3.      The Ombudsman Scheme for Digital Transactions, 2019 Moreover, the new scheme also includes under its ambit Non-Scheduled Primary Co-Operative Banks with a deposit size of Rs 50 Cr and above.

 

MIBOR Benchmark Committee to be set up

• The RBI has decided to set up a committee to undertake an in-depth examination of the issues relating to development and use of interest rate derivatives, including the need for transitioning to an alternative benchmark for Mumbai Interbank Outright Rate, and suggest the way forward. The study is being done in view of recent international efforts to develop alternative benchmark rates.

 

https://www.pib.gov.in/PressReleasePage.aspx?PRID=1848656