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ADDITIONAL MEASURES

Loan loss provisions

A Discussion Paper would be released on loan loss provisioning based on expected loss approach and comments from stakeholders would be invited.

Potential impact: Loan loss provisioning based on expected loss approach, if implemented, could generally serve to upfront provisions to some extent since current IRAC norms mandate a provision of just 15% when a loan turns 90 dpd and 25%, cumulatively, when a bad loan ages to 1 year.

At the same time, provisioning based on expected loss could serve to smoothen out provisions over a period of time rather than bunch up on a back-ended basis.

Thirdly, for lenders that run business models where the steady state bad loan ratios are on the higher side but the loss given default (LGD) is on the lower side, due to sound collateral, may see some decline in actual provision levels. An example of such a lender could be City Union Bank.

Securitisation of stressed assets

A Discussion Paper would be released on securitization of stressed assets, which would serve to provide a framework for securitization of NPAs, which would be in addition to the existing ARC route. Comments from stakeholders would be invited.

Potential impact: If implemented, it would serve to deepen the market for stressed assets and enhance the avenues available to lenders to resolve stressed assets.

Internet banking for RRBs

Revised guidelines will be issued for internet banking offered by regional rural banks.

Potential impact: The step is indicative of RBI continuing to nurture RRBs and make them relatively more meaningful players in the credit eco-system.

Offline payment aggregators

It is proposed to extend regulations to offline payment aggregators with an intention to foster regulatory synergy and convergence.

Potential impact: The step is indicative of RBI’s focus on the Indian payments landscape and regulating the same effectively.

POLICY RATE AND OTHER KEY ASPECTS

Policy Rate

The Monetary Policy Committee decided, with 5 out of 6 members in favour of the decision, to raise the key policy rate, i.e. the repo rate, by 50 bps to 5.9%.

The RBI has further decided to continue with its calibrated withdrawal of monetary accommodation.

Real GDP growth

The real GDP growth was 13.5% in 1QFY23, which was lower than RBI expectations.

The real GDP projection for FY23 now stands at 7% whereas that for 1QFY24 is projected at 7.2%.

Inflation

While the acute inflationary pressure has eased, the projection for CPI inflation has been retained at 6.7% for FY23.

CPI inflation is expected to decline to 5% in 1QFY24.

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