Introduction and Decisions
  • The 51st Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) was recently held, with the RBI Governor presiding.
  • Major decisions include maintaining the repo rate at 6.5% for the tenth time and altering the monetary policy's stance to ‘Neutral’ from 'withdrawal of accommodation'.
  • Inflation targets were also maintained, with CPI inflation predicted to be 4.5% for the financial year of 2025, in line with the Flexible Inflation Targeting (FIT) approach introduced in 2015.
  • Projections for the real GDP growth in FY25 were also retained at 7.2%.
Monetary Policy Developments
  • The RBI announced a raise in the UPI 123PAY transaction limit from Rs 5,000 to Rs 10,000, as well as an increase in the UPI lite per transaction limit and wallet limit.
  • A departure from the withdrawal of accommodation indicates a shift from restriction to provision of support for economic growth by the RBI.
  • The UPI 123PAY payment system, designed primarily for non-smartphone users, allows transactions without internet connectivity.
Proposals and New Introductions
  • The RBI has proposed to establish the Reserve Bank-Climate  Risk  Information  System (RB-CRIS), a data repository to consolidate fragmented climate-related data.
  • This proposed system will conduct climate risk assessments to ensure the financial system's stability.
  • The RBI also issued guidance to non-banking financial companies (NBFCs), microfinance institutions (MFIs), and housing finance companies (HFCs) to adhere to a 'compliance first' mentality and effectively respond to customer complaints.
NBFC Regulation and RBI's Approach
  • The "growth at any cost" mentality concerning some NBFCs was highlighted by the RBI Governor, along with concerns about unsustainable business processes and weak risk management frameworks.
  • The RBI advised NBFCs to reconsider their employee compensation models, particularly regarding bonuses and incentives tied to short-term goals.
  • High-interest rates, exorbitant processing fees, and penalties imposed by NBFCs were flagged as troubling.
  • NBFCs were appealed to align their aggressive growth targets with real demand to avoid excessive indebtedness.
Important Points for GK
  • The MPC is responsible for setting the policy repo rate that will obtain the targeted inflation level, but other decisions are made by the RBI.
  • The UPI lite wallet, part of a recently introduced payment solution, enables users to load money from their bank account for online transactions.
  • The RBI's recent concerns indicate a focus on sustainable growth and responsible business practices rather than aggressive, short-term gains.