RBI MPC Meeting: To promote the use of UPI for medical and educational services, there is a proposal to increase the payment limit for hospitals and educational institutions from ₹1 lakh to ₹5 lakh per transaction.
In today’s Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das made several announcements. In this article, we will discuss these announcements in detail.
RBI MPC Meeting: I. Financial Markets
1. Review of the regulatory framework for hedging of foreign exchange risks
The rules for hedging foreign exchange risks were reviewed in 2020 to create a more flexible and comprehensive framework. Based on feedback from market participants and past experience, the regulations have been consolidated into a single Master Direction that covers all types of transactions. The framework has also been improved to make it easier for users with small exposures to access and manage foreign exchange derivatives. The Master Direction will be released separately.
RBI MPC Meeting: II. Regulations
2. Framework for Connected Lending
Connected lending, or lending to people who can influence the lender’s decisions, can be concerning if the lender does not have a neutral relationship with these borrowers. It can create issues of moral hazard, affecting the pricing and management of credit. The current guidelines on this matter are limited and do not apply equally to all regulated organizations. Therefore, the Reserve Bank has decided to introduce a unified regulatory framework on connected lending for all regulated entities. A draft circular will be released for public feedback.
3. Regulatory Framework for Web-Aggregation of loan products
The Reserve Bank has agreed to the recommendation of the Working Group on Digital Lending. They will establish a regulatory framework for web-aggregators of loan products (WALP). WALP is a platform that gathers loan offers from different lenders. It helps borrowers compare and select the best loan option from available lenders. More information can be found in the Press Release dated August 10, 2022.
Based on the recommendation of the Working Group, it has been decided to regulate loan aggregation services provided by the Lending Service Providers (LSPs). The objective of this regulatory framework is to improve transparency, enhance customer focus, and empower borrowers to make informed decisions. Detailed guidelines will be issued separately.
RBI MPC Meeting: III. Payment Systems and Fintech
4. Enhancing UPI transaction limit for Specified Categories
Unified Payments Interface (UPI) is becoming increasingly popular. The transaction limit for UPI is ₹1 lakh, except for certain categories like Capital Markets, Collections, and Insurance, where the limit is ₹2 lakh. In December 2021, the transaction limit for UPI payments under the Retail Direct Scheme and IPO subscriptions was increased to ₹5 lakh. Reference
To promote the use of UPI for medical and educational services, it is suggested to increase the payment limit for transactions to hospitals and educational institutions. The proposed increase is from ₹1 lakh to ₹5 lakh per transaction. Separate instructions will be provided soon.
5. e-Mandates for recurring online transactions – Enhancement of limit for specified categories
The framework for processing e-mandates for recurring transactions was introduced in August 2019. This framework aims to balance the safety and security of digital transactions with customer convenience. Currently, the limits for executing e-mandates without Additional Factor of Authentication (AFA) is ₹15,000/-, as last updated in June 2022.
The e-mandate system currently has 8.5 crore registrations and handles transactions worth ₹2800 crores per month. While the system is stable, there is a need to increase the transaction limit for certain categories like mutual fund subscriptions, insurance premium payments, and credit card bill payments, especially for transactions larger than ₹15,000. This is because the adoption of e-mandates for these categories has been slower.
It is proposed to exempt the requirement of AFA for transactions up to ₹1 lakh for the following categories: subscription to mutual funds, payment of insurance premium, and payments of credit card bills. The other existing requirements such as pre- and post-transaction notifications, opt-out facility for users, etc. will still apply to these transactions. A revised circular will be issued soon.
6. Establishment of Cloud Facility for the Financial Sector in India
Banks and financial companies are storing more and more data. They are using both public and private cloud services. The Reserve Bank of India is planning to create a cloud service specifically for the financial sector. This service will improve the security, integrity, and privacy of financial data. It will also make it easier to handle more data and ensure business continuity. Initially, the Reserve Bank’s subsidiary, Indian Financial Technology & Allied Services (IFTAS), will handle the cloud service. Eventually, it will be transferred to a separate company owned by the financial sector. The roll-out of this cloud service will happen gradually in the medium term.
7. Setting up of Fintech Repository
To ensure a strong and secure FinTech industry, regulators and stakeholders need timely and relevant information about FinTech companies and their activities. Today, FinTechs are adopting technologies like Distributed Ledger Technology (DLT), Artificial Intelligence / Machine Learning (AI / ML), and more. To better understand the advancements in the FinTech ecosystem and support the sector appropriately, it is proposed to create a Repository. This Repository will collect important information about FinTechs, including their activities, products, technology stack, and financial data. FinTechs will be encouraged to voluntarily share relevant information with the Repository, which will help shape appropriate policies. The Reserve Bank Innovation Hub aims to launch the Repository in April 2024 or even earlier. Detailed guidelines for implementation will be provided separately.
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