The Reserve Bank of India (RBI) today released a major policy statement outlining several developmental and regulatory initiatives covering financial markets, regulations pertaining to lending institutions, and payment systems including digital currency and fintech.
On the financial markets front, RBI announced that it will comprehensively review the existing regulatory guidelines for Electronic Trading Platforms (ETPs) that enable transactions in financial instruments regulated by RBI such as foreign exchange and government securities. The review comes in the wake of growing integration between Indian rupee (INR) markets onshore in India and offshore centers, rapid evolution in trading technologies and infrastructure, as well as increasing diversity of tradable products.
RBI said that financial market participants have also been demanding access to offshore ETPs that offer INR derivative products for effective price discovery and risk management. As part of the revised norms likely to be unveiled after public feedback, Indian banks and traders may get more flexibility in accessing overseas trading venues.
In another move aimed at easing hedging against gold price fluctuations, the central bank has allowed resident entities in India to access overseas derivative platforms both on recognized exchanges as well as over-the-counter (OTC) markets based in International Financial Services Centre (IFSC). The measure will provide domestic traders and jewelers better ability to hedge their gold exposures through a diverse set of hedging products available globally.
On the regulatory front for banks and lending institutions, RBI has now mandated that all regulated entities must provide a standardized Key Fact Statement (KFS) to retail and MSME borrowers giving key details of the loan agreement including all-in interest cost. This will equip the customers, especially the middle and low-income segments, to make better sense of the loan terms and conditions enabling informed decisions.
Further, the RBI aims to improve safety and security of transactions made under the popular Aadhaar Enabled Payment System (AePS) that allows digital payments to be made against Aadhaar identification. Additional guidelines are expected on strengthening customer onboarding verification process for entities managing AePS touchpoints, as well as incorporating risk management requirements to prevent frauds.
On the digital payments and central bank digital currency (CBDC) front, RBI indicated that it will be adopting a broad principle-based framework for authentication of various types of digital transactions. This is expected to promote adoption of more advanced authentication mechanisms beyond the prevalent SMS-based OTPs. Further functionality enhancements are also slated to be introduced in the ongoing CBDC retail pilot including features like programmability that will allow agencies and corporates to define specific use cases, as well as offline functionality to enable transactions in remote areas with poor internet connectivity.