RBI | Monetary policy meeting highlights

On June 8, 2022, RBI released the results of its June policy meeting. Here are the major highlights of the meeting:

  • Repo rate increased: The policy repo rate was raised 50 basis points to 4.90 percent with immediate effect, as expected.
  • Inflation expected to remain high: RBI has increased FY23 consumer price index (CPI) inflation forecast to 6.7% from 5.7%. Inflation is likely to remain above 6% in the first three quarters of the current fiscal.
  • Limit enhanced for e-mandates on cards for recurring payments: The RBI proposed to enhance the limit for emandates on cards from INR 5,000 to INR 15,000 per recurring payment.
  • UPI linked to RuPay Credit Cards: UPI had become the most inclusive means of payment in India, with over INR 26 crore unique users and 5 crore merchants on board. In May alone, UPI processed INR 594.63 crore transactions worth INR 10.40 lakh crore. It is proposed that credit cards be linked to UPI to expand its reach and usage. To begin, Rupay credit cards will be able to use this feature.
  • Review of PIDF: Payments Infrastructure Development Fund (PIDF) Scheme was launched in January 2021 to encourage the development of payment acceptance infrastructure. As of the end of April 2022, the Scheme deployed about INR 1.18 crore new touch points. It is now suggested to make changes to the PIDF Scheme, including increasing the subsidy amount and streamlining the subsidy claim process.
  • Limit enhancement in individual housing loans by cooperative banks: The Tier I/Tier II Urban Co-operative Banks (UCB) limits will be changed from INR 30 lakh/70 lakh to INR60 lakh/140 lakh, respectively. For Rural Cooperative Banks (RCBs) having an assessed net worth of less than INR 100 crore, the restrictions will increase from INR 20 lakh to INR 50 lakh, and from INR 30 lakh to INR 75 lakh for other RCBs.
  • RCBs allowed to lend to CRE-RH sector: State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs) are now forbidden from making commercial real estate loans. The RBI has decided to allow StCBs and DCCBs to extend finance to Commercial Real Estate – Residential Housing (CRE-RH) within the existing aggregate housing finance limit of 5% of their total assets, in response to the growing demand for affordable housing.
  • UCBs allowed to offer door-step banking: UCBs to offer doorstep banking services to its customers on par with scheduled commercial banks to achieve regulatory uniformity.

RBI | Increased limit for emandates

The Reserve Bank raised the Additional Factor of Authentication (AFA) limit from INR 5,000 to INR 15,000 per transaction for e-mandates on cards, Prepaid Payment Instruments (PPIs) and UPI for recurring transactions. It implies that additional authentication will not be need for payment of INR 15,000 per transaction.

The RBI has, over the past decade, put in place various safety and security measures for card payments, including the requirement of AFA, especially for 'card-not-present' transactions. Under e-mandate, an individual can give standing instruction to the bank to debit a specific amount automatically on recurring basis.

RBI | Fintechs must innovate without resorting to regulatory arbitrage

Fintechs are focused on reaching out to sections of borrowers that do not have access to formal credit. However, many fintech businesses are doing so without the requisite licence and other adherence to other regulatory aspects. As an example, fintechs are creating new products with no clarity on which party owns the customer and who is responsible for ensuring data security.

In India, there is a thin line between an underlying credit line available on a credit card and a running credit line from a lender. In this backdrop, RBI asked the non-bank prepaid payment instruments (PPI) issuers to not load their PPI instruments through credit lines, which seems to have affected several fintech players. RBI reiterated that nonbank PPIs should be loaded only through the following ways:

  • Cash
  • Debiting a bank account
  • Debit and credit cards

The amounts that have been disbursed in this manner may be small, but the absence, or near absence, of due diligence by the ultimate lenders or the banks and NBFCs creates systemic risk that can put the country's financial system at risk. The RBI prefers a construct where the underlying lender issues a credit card by tying up with a credit card network. In a circular addressed to the non-bank PPI issuers, the RBI said, that the PPI- master direction does not permit loading of PPIs from credit lines. Such practice, if followed, should be stopped immediately and any non-compliance may attract penal action under provisions contained in the Payment and Settlement Systems Act, 2007.

SEBI | Placement memorandum guidelines for Large Value Funds

On June 17, 2022, SEBI announced new guidelines on filing the placement memorandum for Large Value Fund (LVF) schemes and extension for their tenure beyond 2 years, which is applicable for the accredited investors of the Large Value Fund.

LVF refers to an AIF or scheme of an AIF in which each investor (other than the manager, sponsor, employees or directors of the AIF or employees or directors of the manager) is an accredited investor and invests at least INR 70 crore. Last year, the regulator had introduced the concept of 'accredited investors' in the Indian securities market in a bid to open a new channel for raising funds.

Current norms:

  • While filing such schemes with SEBI, a duly signed and stamped undertaking by CEO and compliance officer of the manager to the AIF (or person holding equivalent role or position depending on the legal structure of manager) needs to be submitted in a prescribed format.
  • In case of LVF schemes already filed with SEBI, similar duly signed and stamped undertaking by CEO of the manager to the AIF is required to be submitted to the regulator by July 31.

Revised norms:

  • LVFs are exempt from filing their placement memorandum with SEBI through merchant banker and incorporating comments of the regulator, if any, in their placement memorandum i.e LVFs can launch their scheme under intimation to SEBI.
  • LVF is required to obtain approval from its trustee/board of directors/designated partners for extending the tenure beyond two years, at least one month before expiration of the fund tenure or extended tenure.
  • In case requisite conditions are not fulfilled, LVF will have to liquidate and wind up in accordance with AIF rules. This extension is subject to terms of the contribution agreement and other fund documents.
  • All AIFs shall ensure that manager to AIF designates an employee or director as compliance officer who shall be a person other than CEO of the manager (or such equivalent role or position depending on the legal structure of manager). The compliance officer shall be responsible for monitoring compliance.

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