Development and Regulatory Policy Measures by RBI

The reserve bank of India is India’s largest bank and is also known as a banker’s bank and is regulated by the government of India. The policies are made to better public banking, business-friendly schemes and societal development, and the up-lifting of weaker sections of society. The formation of policies faces recent changes in RBI’s development and regulatory policies.

These policies are always updated on the official website of RBI, along with a summary of the development and regulatory policies; the last statement for development and regulatory policy measures was updated on Feb 05, 2021. There are five policies covering all the sectors, including financial, regulatory, supervision, liquidity, consumer, payment, and settlement policies.

Summary of the development and regulatory policy by RBI

There are 5 broader regulations and development policy measures mentioned and 16 sub-policies are also defined. Here are the points of summary of the development and regulatory policy by RBI:-

1. Liquidity measure

• TLTRO on Tap Scheme

• Restoration of Cash Reserve Ratio

• Marginal Standing Policy

2. Regulations and supervision

• SLR holding in held to maturity category

• Credits to MSME entrepreneurs

• Basel III capital regulations

• Implementation of the net stable funding ratio

• Review of the regulatory framework for microfinance

3. Deepening financial market

• Allowing retail investors to open a GILT account with RBI

• Foreign portfolio investors

4. Payment and settlement system

• Setting 24/7 helpline number for digital payment services

• Guidelines on outsourcing for operators and participants of authorised payment system

• Enabling participation in CTS clearing across all bank branches in-country

5. Consumer protection

• Integrated Ombudsman scheme

This summary of the development and regulatory policy is modified and regulated timely and updated on the official website to showcase to the public and allow NBFC to understand the terms and work accordingly. The main aim is to provide the best services and diversification in the baking system.

What is the regulatory framework of RBI?

RBI is the banker of all banks, and for managed and efficient regulation, it needs a framework to be followed. RBI has introduced Prompt Corrective Actions (PCA); this framework specialised for Non-banking financial institutions in 2002. 

The primary objective in the regulatory framework of RBI for PCA policy is to supervise the situation and entity and pull out the appropriate solution for specific hindrances and smoothly restore financial health. PCA policy allows RBI to interfere and make a suggestion in the solution produced by PCA. However, these solutions are mostly according to the framework and work best to restore the statements. 

It is a proven framework for an effective management system. PCA has shown efficient supervision in non-banking financial companies, and connectedness with other financial institutions has strengthened the banking system and re-defines banks’ working patterns and goals. 

Based on the financial position on Mar 31, 2022, the PCA modified framework enclosed in Annex will come into effect on Oct 01, 2022. Before working with the modified framework, the government and NBFC will be given adequate time through official notice to contain the capital and work more strategically in banking. 

PCA issues risk thresholds that are meant to follow, and if records any breach, the PCA takes strict actions against those institutions. A menu is provided under PCA for better understanding and institutions’ use if they face any similar issues. These are the corrective measures:-

• Special supervisory actions

• Strategy related actions

• Government-related actions

• Capital related actions

• Credit risk related actions

• Market risk-related actions

• HR-related actions

• Profitability related actions

• Operations related actions

• RBI can fit any other related issues if such issues come into consideration for NBFC.

These actions work as supervisory and regulate the development of the NBFC and financial institutions answerable to RBI.

Objectives of Reserve Bank of India

• The first objective of the RBI is to regulate all banks all over the country, along with non-banking financial companies (NBFCs) and financial institutions.

• Maintaining reserve to stabilise & secure the monetary regulation all over the country.

• It handles the credit and currency system within the country to offer full advantages to citizens of the country.

• To frame economy-friendly policies for an easy and efficient banking system for banks and citizens both.

CONCLUSION

In the above article, we read the summary of RBI’s development and regulatory policy and the framework, and recent changes. Several corrective measures and policies are mentioned for better understanding for both citizens and banks. These policies are formulated to strengthen and develop financial ground and infrastructure.

The objective and aim of these policies and RBI are discussed in detail. The RBI follows the PCA framework for the regulation of policies. Rbi has the right to interfere in the solution and make suggestions accordingly.