• The monetary policy committee (MPC) decided to keep the policy repo rate unchanged at 4.0 per cent and to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.²

• Special refinance facilities for a total amount of ₹50,000 crore were granted to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB) to enable them to meet sectoral credit needs.³

• The priority sector lending (PSL) classification was extended to cover lending by banks to non-banking financial companies (NBFCs) for on-lending up to September 30, 2021.

• The PSL limit for loans against negotiable warehouse receipts (NWRs)/electronic negotiable warehouse receipts (eNWRs) was enhanced from ₹50 lakh to ₹75 lakh per borrower.

• Directions on certificates of deposit (CDs) were issued, allowing regional rural banks (RRBs) to issue CDs and banks to buyback CDs.

• Authorised dealer (AD) category-I banks were permitted to lend to FPIs for placing margins with Clearing Corporation of India Limited (CCIL) for the settlement of transactions in government securities within their credit risk management frameworks.

• The investment limit under the voluntary retention route (VRR) was increased by ₹1,00,000 crore to ₹2,50,000 crore with effect from April 1, 2022.

• The revised credit derivative directions were issued, permitting market participants to utilise single name credit default swap (CDS) contracts in the OTC segment and the stock exchanges. Retail users have been permitted to buy protection only for hedging. Non-retail users, viz., regulated financial entities, FPIs, etc., have been permitted to (i) buy protection for hedging and for purposes other than hedging; and (ii) sell protection.

• Banks in India having AD category-I licence under the Foreign Exchange Management Act (FEMA), 1999 were permitted to undertake transactions in the offshore foreign currency settled overnight indexed swap (FCS-OIS) market with non-residents and other AD category-I banks.

• The secondary market G-sec acquisition programme (G-SAP) was announced, under which the Reserve Bank committed upfront to a specific amount of open market purchases of government securities with a view to enable stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. The first such auction was conducted on April 15, 2021 for an amount of ₹25,000 crore.

• With a view to increase the focus of liquidity measures on the revival of activity in specific sectors, the on-tap targeted long-term repo operations (TLTRO) scheme announced on October 9, 2020 and initially made available up to March 31, 2021, was extended by a period of six months, i.e., up to September 30, 2021. It was later extended up to December 31, 2021.

• To boost provision of immediate liquidity for ramping up COVID-19 related healthcare infrastructure and services in the country, the on-tap liquidity window of ₹50,000 crore with tenors of up to three years at the repo rate was opened till March 31, 2022, and later extended up to June 30, 2022. Under the scheme, banks could provide fresh lending support to a wide range of entities including vaccine manufacturers; importers/suppliers of vaccine and priority medical devices; hospitals/ dispensaries; pathology labs and diagnostic centres; manufacturers and suppliers of oxygen and ventilators; importers of vaccines and COVID-related drugs; COVID-related logistics firms and also patients for treatment. By way of an additional incentive, such banks were eligible to park their surplus liquidity up to the size of the COVID-19 loan book with the Reserve Bank under the reverse repo window at a rate which is 25 basis points (bps) lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate.

• To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the second wave of the pandemic, it was decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to ₹10 lakh per borrower. This facility was initially made available till October 31, 2021. It was later extended to December 31, 2021 and made on-tap.

• A separate liquidity window of ₹15,000 crore with tenors of up to three years at the repo rate was opened till March 31, 2022 for certain contact intensive sectors, i.e., hotels and restaurants; tourism - travel agents, tour operators and adventure/heritage facilities; aviation ancillary services - ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organisers, spa clinics and beauty parlours/saloons. By way of an incentive, banks were permitted to park their surplus liquidity up to the size of the loan book created under this scheme with the Reserve Bank under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate. The scheme was later extended till June 30, 2022.

• It was decided to undertake G-SAP 2.0 in Q2:2021-22 and conduct secondary market purchase operations of ₹1.20 lakh crore to support the market.

• In view of the prevailing liquidity conditions, it was decided to conduct 14-day variable rate reverse repo (VRRR) auctions of ₹2.5 lakh crore on August 13, 2021; ₹3.0 lakh crore on August 27, 2021; ₹3.5 lakh crore on September 9, 2021; and ₹4.0 lakh crore on September 24, 2021.

• On March 27, 2020, banks were allowed to avail of funds under the MSF by dipping into the statutory liquidity ratio (SLR) up to an additional one per cent of NDTL, i.e., cumulatively up to 3 per cent of NDTL. This facility, which was initially available up to June 30, 2020, was later extended in phases up to December 31, 2021. From January 1, 2022, banks were again allowed to dip up to 2 per cent of NDTL for overnight borrowing under the MSF.

• As a step towards rebalancing the liquidity surplus, it was decided to provide one more option to banks to prepay the outstanding amount of funds availed under the targeted long-term repo operations (TLTRO 1.0 and 2.0) announced on March 27, 2020, and April 17, 2020.

• In an effort to continue to rebalance the liquidity surplus, it was decided to enhance the 14-day VRRR auction amounts on a fortnightly basis in the following manner: ₹6.5 lakh crore on December 17; and further to ₹7.5 lakh crore on December 31. Consequently, from January 2022 onwards, liquidity absorption was announced to be undertaken mainly through the auction route.

• Shivalik Small Finance Bank Limited commenced operations as a SFB with effect from April 26, 2021.

• Based on the feedback received on the discussion paper on ‘Governance in Commercial Banks in India’ issued by the Reserve Bank in June 2020, comprehensive review of corporate governance framework of banks has been carried out. The operative part of the framework was issued as a prelude to the Master Direction on Corporate Governance, proposed to be issued in due course.

• In view of the resurgence of COVID-19, the Resolution Framework 2.0 was announced, which permits lending institutions to restructure eligible loans, which had not been restructured under Resolution Framework 1.0 dated August 6, 2020, and were classified as standard as on March 31, 2021, while classifying the restructured exposures as standard subject to conditions. The framework shall have to be invoked by September 30, 2021 and will have to be implemented within 90 days from the date of invocation. Even in respect of MSME accounts as well as other eligible accounts restructured under earlier schemes, lending institutions have been permitted, as a one-time measure, to review the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring.

• In view of the impact on banks due to COVID-19, as a measure to enable capital conservation, banks have been permitted to utilise 100 per cent of floating provisions/countercyclical provisioning buffer held by them as on December 31, 2020 for making specific provisions for non-performing assets (NPAs) with prior approval of their boards. Such utilisation is permitted with immediate effect and up to March 31, 2022.

• In terms of the Master Direction on KYC, REs have been instructed to carry out periodic updation of KYC of existing customers. Keeping in view the COVID-19 related restrictions in various parts of the country, REs were advised, that in respect of the customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/enforcement agency/court of law, etc. REs were also advised to continue engaging with such customers to get their KYC updated.

• The periodic updation of the KYC information is to be carried out by REs at least once in 2 years, 8 years and 10 years for high-risk, medium-risk and low-risk customers, respectively. Master Direction on KYC was amended to simplify the process.

• The video-based customer identification process (V-CIP), introduced in January 2020, was expanded in scope vide amendment dated May 10, 2021, to the Master Direction on KYC. Following major changes have been carried out in this regard: (i) customer due diligence (CDD) of proprietor of proprietorship firm and authorised signatories & beneficial owners (BOs) of legal entities (LEs) have been allowed using V-CIP; (ii) updation/periodic updation of KYC of account holders can be carried out using V-CIP; (iii) conversion of existing accounts opened in non-face to face mode using Aadhaar OTP based e-KYC authentication into a fully KYC compliant account can be carried out using V-CIP; (iv) the scope of V-CIP has been expanded to include the use of KYC records downloaded from the central KYC registry (CKYCR) and equivalent e-document of officially valid documents (OVDs) including OVDs issued through Digilocker; and (v) certain amendments have been made to enhance the robustness and security of the V-CIP infrastructure and processes.

• With the growing complexities in the banking sector and increase in size and scope of business, primary (urban) cooperative banks (UCBs) face diverse and greater degree of risks in their business. Therefore, UCBs having asset size of ₹5,000 crore or above have been advised to appoint a Chief Risk Officer (CRO). They have also been advised to set up a risk management committee of the board in order to provide the required level of attention on various aspects of risk management.

• A circular on appointment of Managing Director (MD)/Whole-Time Director (WTD) in UCBs was issued by the Reserve Bank on June 25, 2021. The circular prescribes ‘fit and proper’ criteria, remuneration, tenure, etc. for the post of MD/WTD in UCBs. It also advises UCBs to seek the Reserve Bank’s prior approval (and process thereof) for appointment/re-appointment/termination of appointment of MD/WTD. The circular was issued to enhance the governance standards in UCBs and to give effect to the provisions of the BR (Amendment) Act, 2020.

• In view of the discontinuance of LIBOR as a benchmark rate after December 2021, banks have been permitted to extend export credit using any other widely accepted ARR in the currency concerned.

• For derivative contracts, as per extant instructions, change in any of the parameters of the original contract is treated as a restructuring and the resultant change in the mark-to-market value of the contract on the date of restructuring is required to be cash settled. Since the change in reference rate from LIBOR was a ';force majeure'; event, banks were advised that change in reference rate from LIBOR/LIBOR-related benchmarks to an ARR would not be treated as restructuring.

• The resolution plans implemented in terms of the resolution framework for COVID-19 related stress issued on August 6, 2020 were required to achieve certain financial parameters by March 31, 2022. In view of the resurgence of the COVID-19 pandemic in 2021 and recognising the difficulties it may pose for the borrowers in meeting the operational parameters, it was decided to defer the target date to October 1, 2022 for meeting the specified thresholds in respect of the four operational parameters, viz., total debt/earnings before interest, taxes, depreciation and amortisation (TD/EBITDA), current ratio, debt service coverage ratio (DSCR) and average debt service coverage ratio (ADSCR). However, the target date for achieving the total outside liabilities/adjusted tangible net worth (TOL/ATNW) ratio, as crystallised in terms of the resolution plan, was kept unchanged as March 31, 2022.

• A Master Direction – Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2021 - incorporating all the existing guidelines/instructions/directives on the subject has been issued to enable banks to have current instructions at one place.

• Post simplification of the procedure of notification of HFCs having assets worth ₹100 crore and above as ‘Financial Institution’ under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 by the GoI, previously prescribed criteria for such notification of HFCs have been withdrawn.

• A Master Direction – Reserve Bank of India (Financial Statements - Presentation and Disclosures) Directions, 2021 - comprehensively consolidating the existing instructions for presentation of financial statements and disclosures in notes to accounts was issued for banks. This Master Direction also broadly harmonises the disclosure requirements across the banking industry by covering all commercial banks [including RRBs and local area banks (LABs)] and UCBs.

• It was observed that though extant guidelines governing compensation of whole-time directors/ chief executive officers/material risk takers and control function staff in private sector banks issued on November 4, 2019 required share-linked instruments to be fair valued on the date of grant using Black-Scholes model, banks do not recognise grant of the share-linked compensation as an expense in their books of account concurrently. Therefore, in the interest of better clarity, the following sentence has been added to the extant instructions: “The fair value thus arrived at should be recognised as expense beginning with the accounting period for which approval has been granted”.

• Guidelines were issued to provide clarity on the eligible limit for foreign currency and rupee denominated overseas additional tier 1 (AT1) bonds.

• Consequent to the enhancement in family pension of employees of banks, a special dispensation was given: banks were allowed the option to amortise the additional expenditure over a period not exceeding five years beginning with the financial year ending March 31, 2022, subject to a minimum of 1/5th of the total amount involved being expensed every year.

• In order to ensure uniformity in the implementation of income recognition, asset classification and provisioning pertaining to advances (IRACP norms) across all lending institutions, certain aspects of the extant regulatory guidelines were clarified and/or harmonised. The circular clarified on specification of due date/repayment date, operational aspect of classification of account as Special Mention Account (SMA) and NPA, definition of ‘out of order’, aligning 90 days delinquency norm for NPA classification in case of interest payments, upgradation of accounts classified as NPAs and income recognition policy for loans with moratorium on payment of interest.

• Further, in order to increase awareness among the borrowers related to concept of asset classification of loan accounts, the Reserve Bank vide this circular required lending institutions, to put in place consumer education literature on their websites, explaining with examples, the concepts of date of overdue, SMA and NPA classification and upgradation, with specific reference to day-end process.

• Extant regulatory instructions on classification and valuation of investment portfolio by SCBs are largely based on a framework introduced in October 2000, drawing upon the then prevailing global standards and best practices. In view of the subsequent significant developments in global standards on classification, measurement, and valuation of investments, the linkages with the capital adequacy framework as well as progress in the domestic financial markets, there is a need to review and update these norms. Accordingly, a discussion paper covering all the relevant aspects was placed in the public domain for comments. It, inter alia, proposes symmetric recognition of unrealised gains and losses with concerns on such recognition addressed through prudential filters on regulatory capital and dividend distribution supplemented by enhanced disclosures.

• Regulations were issued pertaining to the manner of filing of particulars of transactions with the central registry by a trade receivables discounting system (TReDS) on behalf of factors in case of factoring transactions undertaken on TReDS platform.

• Regulations were issued pertaining to the manner of granting the certificate of registration (CoR) to companies which propose to do factoring business. In addition to NBFC-Factors, all non-deposit taking NBFC-investment and credit companies (NBFC-ICCs) with asset size of ₹1,000 crore and above have been allowed to undertake factoring business, subject to meeting certain conditions.

• The extant instructions for UCBs on issue and regulation of capital funds have been reviewed keeping in view the amended Banking Regulation Act, 1949.

• The GoI extended the validity of the interest equalisation scheme (IES) for pre and post shipment rupee export credit up to March 31, 2024 or till further review, whichever is earlier. The extension takes effect from October 1, 2021 and ends on March 31, 2024.

• The Bilateral Netting of Qualified Financial Contracts Act, 2020 has been notified by the Government of India vide gazette notification dated October 1, 2020. The Act provides a legal framework for enforceability of bilateral netting of qualified financial contracts (QFC). The Reserve Bank vide notification dated March 9, 2021, has since notified (a) “derivatives”; and (b) “repo” and “reverse repo” transactions as defined under the Reserve Bank of India Act, 1934 as a QFC. Accordingly, select instructions contained in various circulars/directions of the Reserve Bank were modified/ amended appropriately.

• Master Direction on ‘Classification, Valuation and Operation of Investment Portfolio of Commercial Banks’ was amended to clarify that the investments in special securities received from the GoI towards banks’ recapitalisation requirement from the financial year 2021-22 onwards shall be recognised at fair value/market value on initial recognition in held to maturity (HTM). The fair value/ market value of these securities shall be arrived on the basis of the prices/yield to maturity of similar tenor central government securities put out by Financial Benchmarks India Pvt. Ltd.

• Reserve Bank - Integrated Ombudsman Scheme (RB-IOS), 2021 was launched adopting ‘One Nation One Ombudsman’ approach to make the alternate dispute redress mechanism simpler and more responsive to the customers of entities regulated by the Reserve Bank by integrating the erstwhile three Ombudsman schemes – (i) the Banking Ombudsman Scheme, 2006, as amended up to July 1, 2017; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019.

• A ‘Centralised Receipt and Processing Centre’ was set up at the Reserve Bank, Chandigarh as a single point of contact for complainants and for receiving complaints by email and through physical modes. Additionally, a Contact Centre with a toll-free number - 14448 was operationalised in Hindi, English and in eight regional languages (nine regional languages as on March 31, 2022).

• The existing interim WMA limit of ₹51,560 crore for all states/ UTs was extended for six months, i.e., up to September 30, 2021.

• Relaxed overdraft (OD) regulations were continued to be in force, wherein, the number of days for which a state/UT can be in OD continuously was increased from 14 working days to 21 working days, and the number of days for which a state/UT can be in OD in a quarter was increased from 36 working days to 50 working days.

• The existing interim WMA limit of ₹51,560 crore for state governments/UTs were extended for another six months up to March 31, 2022.

• Relaxed OD regulations for state governments/UTs were extended for six months, i.e., up to March 31, 2022.

• Mobile prepaid recharge was permitted as a biller category in Bharat Bill Payment System (BBPS).

• Guidelines were issued regarding new investment from or through non-compliant Financial Action Task Force (FATF) jurisdictions in Payment System Operators (PSOs).

• Indo Nepal remittance facility scheme was enhanced with increase in the per-transaction ceiling to ₹2 lakh and removal of the cap of 12 remittances per year per remitter.

• Master Direction on issuance and operation of PPIs (MD-PPIs) was revised with changes broadly related to change in classification of PPIs, clarifications to existing instructions, deletion of certain clauses which are no longer relevant, etc.

• Enablement of small value transactions through an “on-device” wallet in UPI application was announced.

• The transaction limit for payments through UPI for Retail Direct Scheme and IPO applications was increased from ₹2 lakh to ₹5 lakh.

• The NACH mandate limit was increased from ₹1 crore to ₹3 crore for TReDS settlements.

• Payment and Settlement Systems Regulations, 2008 were amended for discontinuing certain monthly/quarterly/annual returns prescribed and removing redundant operational guidelines.

• UPI123Pay was launched to enable UPI payments for feature phone users.

• DigiSaathi, a 24x7 helpline to address the queries of digital payment users across products, was launched.

¹ The list is indicative in nature and details are available on the Reserve Bank’s website.
² The MPC maintained status quo on the repo rate and the accommodative stance in all its subsequent meetings in 2021-22.
³ This comprised ₹25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and microfinance institutions (MFIs); ₹15,000 crore to SIDBI for on-lending/refinancing; and ₹10,000 crore to NHB for supporting housing finance companies (HFCs). Advances under this facility were provided at the Reserve Bank’s policy repo rate.