Reform by RBI for Financial Inclusion and Digital Innovation

• 12 Apr 2024

Source: TH

Why in News?

Recently, the Reserve Bank of India (RBI) governor, in a press conference on monetary policy decisions, announced several changes aimed at promoting greater economic inclusivity and enhancing the utilisation of information technology for economic activities.

What are Recent Developments Proposed by RBI?

• Cash Deposit Facility by Unified Payment Interface (UPI):
  • Customers will have the option to deposit cash at cash deposit machines (CDMs) in banks and ATMs using the UPI app.
    • Presently, cash deposits at CDM typically necessitate the use of a debit card, whether at banks or ATMs.
  • UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • UPI is currently the biggest among the National Payments Corporation of India (NPCI) operated systems including National Automated Clearing House (NACH), Immediate Payment Service (IMPS), Aadhaar enabled Payment System (AePS), Bharat Bill Payment System (BBPS), RuPay etc.
• Allowing Third Party App to access UPI for Prepaid Payment Instruments (PPIs):
  • Currently, UPI payments from PPIs require using the web or mobile app provided by the PPI issuer.
  • RBI suggested allowing users to use third-party UPI apps to make UPI payments from PPI wallets.
    • PPIs are instruments that facilitate the purchase of goods and services, conduct of financial services and enable Remittance facilities, among others, against the money stored in them.
    • PPIs can be loaded/reloaded by cash, debit to a bank account, or credit and debit cards.
• Permit FPIs to invest in Sovereign Green Bond:
  • To encourage broader participation of non-residents in Sovereign Green Bond, the RBI has decided to authorise eligible foreign investors in the International Financial Services Centre to invest in these bonds.
  • Currently, foreign portfolio investors (FPIs) registered with SEBI can invest in Sovereign Green Bond through various investment routes available for FPIs in government securities.
    • Sovereign Green bonds are issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed-income payments.
    • The projects can include renewable energy, clean transportation and green buildings, among others.
• . Mobile App for Retail Direct Scheme:
  • The RBI also decided to introduce a mobile app for its Retail Direct scheme, launched in November 2021.
  • This scheme allows individual investors to hold gilt accounts with the RBI and invest in government securities.
    • A Gilt Account is an account opened and maintained for holding Government securities.
• Review of Liquidity Coverage Ratio (LCR):
  • The RBI is likely to review the framework on LCR for better management of liquidity risk by banks.
  • The LCR is a ratio that measures the proportion of high-quality liquid assets (HQLA) that financial institutions hold.
    • Banks covered under the LCR framework must maintain a stock of HQLA to cover 30 days' net outflow under stressed conditions, with a minimum LCR of 100% since 1^st January 2019.
  • HQLAs include cash, short-term bonds, and other cash equivalents, as well as excess Statutory Liquidity Ratio (SLR), Marginal Standing Facility (MSF) assets and the Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) (set at 15% of the bank's deposits since 1^st April 2020).

UPSC Civil Services Examinations, Previous Year Questions

Prelims:

Q1. Which of the following is the most likely consequence of implementing the ‘Unified Payments Interface (UPI)’? (2017)

(a) Mobile wallets will not be necessary for online payments.
(b) Digital currency will replace the physical currency in about two decades.
(c) FDI inflows will drastically increase.
(d) Direct transfer of subsidies to poor people will become very effective.

Ans: (a)

Q2. Concerning digital payments, consider the following statements: (2018)

1. The BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2. While a chip-pin debit card has four factors of authentication, the BHIM app has only two factors of authentication.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Ans: (a)

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Mains:

Q. Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (2019)