The Reserve Bank of India’s (RBI) six-member monetary policy committee (MPC) has been pre-emptive in its rate actions, basing decisions on domestic economic activities, and is independent of what the US Federal Reserve (US Fed) does, Governor Shaktikanta Das said at the post-MPC press conference. Excerpts:

Are repo rate cuts likely in the current fiscal?Das: I cannot give you a forward guidance. The rate action is linked to the evolving path of inflation. On expectations of repo rate action being linked to US Fed, our monetary policy is primarily guided and determined by domestic situations. So we do not just follow the footsteps of the US Fed. In 2019, when we did a rate cut or at the beginning of the rate hikes which we did in 2022, these actions actually preceded the US Fed actions.Does the Centre want RBI to focus more on growth over inflation?Das: Prime Minister Narendra Modi on Monday talked about growth and also about stability and trust. Therefore, my understanding is that whatever the PM said is in line with what is provided in the RBI Act with regard to inflation targeting. PM also used the word “balance”, so that’s it.Why has RBI lowered growth forecast for FY25 versus FY24?DG Michael Patra: The 8% (average growth trajectory over the past three years) will provide a base effect for FY24 and FY25. But the momentum is very strong, as strong as it was in FY23 and FY24, as it is a year-on-year (YoY) growth rate.

Why did the RBI defer directive for ETCD to May 3?

Patra: The RBI’s policy on foreign market risk management has remained consistent over the last few years and there is no change in the policy approach. In 2008 , when ETCD (exchange traded currency derviative) were introduced for the first time, they were introduced under the aegeis of the Foreign Exchange Management Act (FEMA) and the regulations of FEMA clearly stated that ETCDs are for hedging only. When you state that it implies that you must have an underlying exposure. In 2014, the RBI, to promote the ease of doing business, provided a relaxation that while you must have underlying exposure, upto $10 million of that exposure you need not produce documentary evidence of it. Over the next few years, the limit was raise to $100 million, just to provide an incentive to market turnover and to expand the size of the market. The moot point is that it is only for hedging and underlying exposure is a mandatory requirement. The Jan 5, 2024 circular was in pursuance of a commitment made in the monetary policy statement of December in 2023. The January 2024 was a master direction which just reiterated what has been there since 2014. So there was no change in that.

By when can we expect the final fintech-SRO recognition framework?DG T Rabi Sankar: We have received feedback on the draft fintech SRO framework for which the deadline was the end of February. We are examining the comments and we will come out with a framework based on which entities can apply for SROs. There were certain issues that we pointed in the draft framework, including those on having a consensus on membership criteria and whether dual SROs are needed.Das: We propose to release the framework by the end of April. I had mentioned in last year’s Global Fintech Festival (GFF) that in 2024 GFF, we would like to see one SRO related to fintech to be operational, and we are working towards that.SFBs are seeking to shed ‘small finance’ tag in title and certain regulatory relaxations. Is the RBI open to such changes?DG M Rajeshwar Rao: SFBs have been conceptualised as differentiated banks with a specific objective and the tag of “small finance bank” after their name is a key part of that differentiator. So, I do not think there is any requirement to modify that at this point in time. The objective of SFBs is to further financial inclusion among underserved and unserved by using high-tech and low-cost operations, and meeting priority sector norms, etc is a key part of this entire process. So, I think the norms will continue to be at that level for SFBs.After imposing business restrictions on two large NBFCs, is the RBI looking at imposing more restrictions on capital market-focused lenders?Das: Our supervision machinery regularly inspects banks and NBFCs. Wherever we feel there is a major deviation in compliance and other regulatory norms, the first attempt is to directly sensitise them and asking them to take corrective action. When we see the progress is not up to the mark, we impose supervisory restrictions. Therefore, this is not a system-wide action, we only take action against outlier cases. Financial stability is a joint responsibility of all stakeholders and it includes regulator and regulated entities. We have about 90-odd banks and over 9,000 NBFCs, and till now our action has been against just two NBFCs and one payments bank. So, calling it a spate of regulatory actions would not be correct way of describing the situation. ENDS