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RBI Rules

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19 views4 pages

RBI Rules

Uploaded by

shrass0357
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

Banking Regulations

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR):

 CRR: Banks are required to maintain a certain percentage of their net demand and time
liabilities (NDTL) as cash reserves with the RBI. It ensures liquidity and control over inflation.

 SLR: A specified percentage of NDTL is to be maintained in the form of gold, government-


approved securities, or cash.

Priority Sector Lending (PSL):

 Banks must allocate a fixed percentage of their loans to priority sectors such as agriculture,
small and medium enterprises (SMEs), education, and affordable housing.

 Current target: 40% for domestic banks and foreign banks with more than 20 branches.

Asset Classification and Provisioning Norms:

 Standard Assets: Performing loans with no payment defaults.

 Non-Performing Assets (NPAs): Loans overdue for 90 days or more.

o Substandard Asset: NPA for less than 12 months.

o Doubtful Asset: NPA for more than 12 months.

o Loss Asset: Unrecoverable loans.

 Banks are required to make provisions for these based on the asset class.

2. Foreign Exchange Management

FEMA (Foreign Exchange Management Act):

 Governs all foreign exchange transactions in India.

 Objective: Facilitate external trade, promote orderly forex market development, and ensure
macroeconomic stability.

Liberalized Remittance Scheme (LRS):

 Allows Indian residents to remit up to $250,000 per financial year for permissible
transactions like:

o Education, travel, medical treatment, and investments abroad.

o Restrictions: Prohibited for certain investments (e.g., in prohibited entities or


products).

External Commercial Borrowing (ECB):

 Guidelines for Indian entities to raise debt from foreign sources.

 Classification: Automatic route and approval route, based on compliance with RBI-prescribed
limits and conditions.
3. Digital Payments

Unified Payments Interface (UPI):

 A real-time payment system enabling interbank transactions.

 Guidelines focus on interoperability, transaction security, and fraud prevention.

Prepaid Payment Instruments (PPIs):

 Include wallets, smart cards, and vouchers.

 Classified as Closed System PPIs, Semi-Closed PPIs, and Open System PPIs.

Cybersecurity Framework for Payment Systems:

 Mandates regular security audits, incident reporting, and customer protection measures.

4. Non-Banking Financial Companies (NBFCs)

Registration and Categorization:

 NBFCs must register with RBI and meet minimum capital requirements.

 Types: Asset Finance Companies (AFCs), Investment and Credit Companies (ICCs),
Microfinance Institutions (MFIs), etc.

Capital Adequacy Norms:

 NBFCs must maintain a minimum Capital to Risk (Weighted) Assets Ratio (CRAR) to ensure
financial health.

Lending Practices:

 Restricted from providing certain types of loans, such as those for speculative purposes.

5. Consumer Protection

Ombudsman Scheme:

 A grievance redressal mechanism for banking customers.

 Covers issues like wrongful charges, delays, and service deficiencies.

Transparent Loan Pricing:

 Introduction of the Marginal Cost of Funds-Based Lending Rate (MCLR) to ensure


transparency in loan interest rates.

Protection Against Unauthorized Transactions:

 Banks must reimburse customers for unauthorized electronic banking transactions, subject
to reporting timelines.
6. Monetary Policy

Tools of Monetary Policy:

 Repo Rate: Rate at which RBI lends to banks.

 Reverse Repo Rate: Rate at which banks park excess funds with RBI.

 Open Market Operations (OMO): Buying and selling government securities to regulate
liquidity.

Inflation Targeting:

 Current target: 4% with a +/- 2% band.

 Bi-monthly monetary policy review by the Monetary Policy Committee (MPC).

7. Corporate Governance in Banks

Board Composition:

 Banks must have independent directors with relevant expertise.

Fit and Proper Criteria:

 RBI assesses the fitness of directors and senior management.

Risk Management Framework:

 Banks must establish robust internal control systems and conduct regular audits.

8. Anti-Money Laundering (AML) and Know Your Customer (KYC)

KYC Guidelines:

 Mandatory verification of customer identity before account opening.

 Regular updating of KYC details.

Suspicious Transaction Reporting (STR):

 Banks must report any suspicious transactions to the Financial Intelligence Unit (FIU-IND).

9. Microfinance and Rural Banking

Microfinance Institutions (MFIs):

 Guidelines for responsible lending practices and interest rate caps.

Financial Inclusion:

 Initiatives like Jan Dhan Yojana to promote banking access in rural areas.
10. Additional Key Rules

Foreign Investments:

 Guidelines for Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).

Green and Sustainable Banking:

 Encouraging banks to fund renewable energy projects and adopt environmentally


sustainable practices.

Cryptocurrencies and Digital Assets:

 RBI’s cautionary stance and advisory to banks to monitor transactions related to


cryptocurrencies.

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