RBI Monetary Policy December 2024- Key Rates and Measures

1. Resolution of Monetary Policy Committee

The various decisions taken in the meeting of Monetary Policy Committee are as follows. (RBI Monetary Policy Resolution dated 06/12/2024)

– Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and marginal standing facility (MSF) rate and bank Rate at 6.75%.

– Continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

– CPI inflation target of 4% with in a band of +/- 2%.

– The real GDP growth projected for 2024-25 at 6.6%.

– The CPI Inflation projected for 2024-25 at 4.8%.

– The updated policy rates are Repo- 6.5%, SDF- 6.25%, MSF and Bank Rate- 6.75%, CRR- 4.0% (Changed from earlier 4.5%), SLR- 18.0%, Fixed Reverse Repo- 3.35%.

B. Statement on Development and Regulatory Policies

 The various measures set out are as follows. (RBI Monetary Policy- Development and Regulatory Policies Dated 06/12/2024)

I. Liquidity and Financial Markets

– Reduction in Cash Reserve Ratio: It has been decided to reduce the cash reserve ratio (CRR) of all banks by 50 bps in two equal tranches of 25 bps each to 4.0 per cent of net demand and time liabilities (NDTL) with effect from the fortnight beginning December 14, 2024 and December 28, 2024, respectively. This reduction in the CRR would release primary liquidity of about ₹1.16 lakh crore to the banking system.

– Interest Rates on FCNR(B) Deposits: At present, interest rates on Foreign Currency Non-Resident Bank [FCNR(B)] deposits are subject to ceilings of Overnight Alternative Reference Rate (ARR) for the respective currency/swap, plus 250 basis points for deposits of 1 year to less than 3 years maturity and overnight ARR plus 350 basis points for deposits of 3 years and above and up to 5 years maturity. In order to attract more capital inflows, it has been decided to increase the interest rate ceilings on FCNR(B) deposits. Accordingly, banks are permitted to raise fresh FCNR(B) deposits of 1 year to less than 3 years maturity at rates not exceeding ARR plus 400 bps and deposits with maturity between 3 to 5 years at rates not exceeding ARR plus 500 bps. This relaxation will be available till March 31, 2025.

– Expanding reach of FX-Retail Platform through linkages with Bharat Connect: To expand the reach of FX-Retail platform and enhance user experience, it is proposed to facilitate the linking of the FX-Retail platform with Bharat Connect (earlier known as Bharat Bill Payment System) operated by the NPCI Bharat Connect. The linkage will enable users to register and transact on the FX-Retail platform through the apps of banks (mobile applications, internet banking etc.) and non-bank payment system providers, which are integrated with Bharat Connect. In the first phase, it is proposed to implement a pilot facilitating purchase of US Dollar against the Rupee by individuals and sole proprietors. Going forward, the scope will be expanded to cover other FX transactions including sale of US Dollar against the Rupee and other categories of users. Instructions to banks on the operational aspects of the pilot will be issued separately.

– Introduction of the Secured Overnight Rupee Rate (SORR) – a benchmark based on the secured money markets: It is proposed to develop a benchmark based on the secured money markets (both basket repo and TREP) – the Secured Overnight Rupee Rate (SORR). Financial Benchmarks India Limited (FBIL) is being requested to take the proposal forward.

II. Regulation

– ‘Connect 2 Regulate’ – An Initiative for Open Regulation: Reserve Bank proposes to launch a programme named ‘Connect 2 Regulate’ under the ongoing RBI@90 commemorative events. A dedicated section in the Reserve Bank’s website shall provide an opportunity to the stakeholders to share their ideas and inputs in the form of case studies/ concept notes, etc. on the topics announced by the Reserve Bank from time to time. A press release on the programme will be issued separately.

III. Communication

– Introduction of Podcast facility as an additional medium of communication: RBI has been expanding the scope of its public awareness activities including through social media over the last few years. In continuance of this endeavour, the Reserve Bank proposes to launch podcasts for wider dissemination of information that is of interest to the general public.

IV. Financial Inclusion

– Collateral-free Agriculture Loan –– Enhancement of Limit: At present, banks are required to extend collateral-free agriculture loans up to ₹1.6 lakh per borrower. Keeping in view the overall inflation and rise in agricultural input costs since then, it has been decided to raise the limit for collateral-free agriculture loans from ₹1.6 lakh to ₹2 lakh. The circular to this effect will be issued shortly.

V. Payment Systems

– Pre-sanctioned Credit Lines through UPI – Extending the scope to SFBs: In September 2023, the scope of Unified Payments Interface (UPI) was expanded by enabling pre-sanctioned credit lines to be linked through UPI and used as a funding account by Scheduled Commercial Banks (excluding Payments Banks, Small Finance Banks (SFBs) and Regional Rural Banks). It is proposed to permit SFBs to extend pre-sanctioned credit lines through the UPI. Necessary guidelines will be issued shortly.

VI. Fintech

– Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector – Setting up of a Committee: The financial sector landscape is witnessing paradigm shifts with the advent of frontier technologies. Technologies like Artificial Intelligence (AI)/ Machine Learning (ML), tokenisation, Cloud Computing hold transformative potential for the financial sector as they can handle enormous volumes of data, automate complex processes, enhance decision-making, and bring in unprecedented efficiencies. While the benefits are many, the attendant risks like algorithmic bias, explainability of decisions, data privacy, etc., are also high. It is proposed to constitute a committee to develop a Framework for Responsible and Ethical Enablement of AI (FREE-AI) in the Financial Sector. The details of the committee will be notified separately.

– AI solutions to identify mule bank accounts – MuleHunter.AI: The Reserve Bank has been taking various measures in coordination with banks and other stakeholders to prevent and mitigate digital frauds in the financial sector. Another initiative in this direction is the AI / ML based model called MuleHunter.AITM, being piloted by Reserve Bank Innovation Hub (RBIH), a subsidiary of Reserve Bank. This model enables detection of mule bank accounts (being used for committing financial frauds) in an efficient manner. A pilot with two large public sector banks has yielded encouraging results. Banks are encouraged to collaborate with RBIH to further develop the initiative to deal with the issue of mule bank accounts.

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Disclaimer: The contents of this article are for informational purposes only. The user may refer to the relevant notification/ circular/ decisions issued by the respective authorities for specific interpretation and compliances related to a particular subject matter)