RBI announces six key measures to strengthen India's banking, fintech, payments ecosystems

Mumbai: In a move to strengthen India's financial ecosystem, Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday announced six additional measures focused on banking regulation, fintech, and payment systems.

These initiatives were revealed by the RBI governor while announcing the Monetary Policy initiatives. The RBI plans to introduce a new market-based mechanism to enable the securitisation of stressed assets.

This will complement the existing Asset Reconstruction Company (ARC) route under the SARFAESI Act, 2002, and aim to deepen the secondary market for distressed loans.

Currently, co-lending arrangements are restricted to only priority sector loans by banks and Non-Banking Financial Companies (NBFCs), but they will now be extended to all regulated entities for all loans, priority sector or otherwise.

The RBI will issue comprehensive prudential and conduct regulations for gold loans to ensure consistency across regulated entities and account for their varying risk-bearing capacities.

The central bank also plans to harmonise the regulations governing non-fund-based credit facilities, such as bank guarantees and letters of credit, across financial institutions.

Additionally, the RBI intends to revise guidelines on partial credit enhancement (PCE), a step aimed at expanding funding avenues for infrastructure projects.

Draft guidelines for the above four proposals are released for public consultation, with final frameworks to be issued following stakeholder feedback.

The fifth announcement is that the National Payments Corporation of India (NPCI) will be empowered to set transaction limits for Unified Payments Interface (UPI) person-to-merchant transactions in consultation with banks and relevant stakeholders. This could pave the way for higher-value digital payments in the retail ecosystem.

In a move to foster continuous innovation, the RBI will make its Regulatory Sandbox framework theme-neutral and 'on-tap'.

This means fintechs and other entities can apply at any time without waiting for themed cohorts, encouraging more agile experimentation and faster adoption of emerging technologies.

RBI Governor stated, "The other two announcements relate to enabling NPCI to decide, in consultation with the banks and other stakeholders, the transaction limits in UPI for person to merchant transactions; and making the Regulatory Sandbox theme-neutral and 'on-tap'. Necessary directions for the implementation of these two measures shall be issued separately."