GR Exclusive: From Udgam Portal To Withdrawn of Rs 2,000 Notes RBI's 5 Key Moves In 2023

The Reserve Bank of India (RBI) launched the RBI Udgam Portal in 2023 and took revolutionary steps to alter the digital payments industry. The year has been marked by five strategic decisions that have irreversibly altered the course of our financial destiny, not only how things are now emerged. These are the RBI's most groundbreaking initiatives for individuals and the national economy.

Pointed Out By Shavir Bansal- Founder of Bekifaayati

1) Making Credit Bureaus more accountable: This initiative revolves around enhancing transparency, accountability, and ultimately, consumer empowerment within the credit information ecosystem. RBI's directive mandates credit information companies (CICs) to take specific actions for better transparency. Firstly, they are now required to inform customers via SMS or email whenever Banks and NBFCs access their Credit Information Report (CIR). This newfound transparency ensures that individuals have visibility into who is accessing their credit information.

Additionally, credit institutions, including banks and NBFCs, must send SMS or email alerts to customers whenever they submit information to CICs regarding defaults or Days Past Due (DPD) on existing credit. These real-time updates allow individuals to stay informed about their credit status and any potential issues. Furthermore, RBI has introduced regulations asking CIs and CICs to compensate customers with Rs 100 per day if they fail to resolve complaints within 30 days. This measure serves as a powerful incentive for the industry to address customer concerns swiftly and efficiently.

2) Rupay Credit Card UPI Linking: The linking of RuPay credit cards with UPI transactions marks a significant development in India's digital payment landscape. This move brings forth both opportunities and financial challenges, for different stakeholders. The linking of RuPay credit cards with UPI offers several advantages to consumers. It unlocks access to credit card perks, rewards, and interest-free credit, making it an appealing choice for individuals seeking more from their digital payment experience, and hopefully moving away from physical cash.

For the Merchants- NPCI has decided to waive charges on RuPay credit card transactions up to Rs. 2,000 made via UPI. This move is expected to incentivize more users to embrace RuPay credit cards for UPI transactions, ultimately contributing to the growth of the digital payment ecosystem. Furthermore, the Reserve Bank of India's decision to allow users to select their preferred card network, be it Visa, MasterCard, or RuPay, on credit, debit, and prepaid cards provides individuals with greater flexibility and choice in their payment preferences.

3) Increasing Risk Weight for Unsecured Loans and Credit Cards: The Reserve Bank of India (RBI) has taken a significant step to address concerns about the rapid growth in unsecured loans and credit card lending by tightening norms in this lending category. This move has implications for both Banks and NBFCs. One of the key changes is the increase in the risk weight for Consumer Credit Exposure. RBI has raised it from 100% to 125%. This higher risk weight means that Banks and NBFCs will need to set aside additional capital for the same exposure, potentially leading to a lower Capital Adequacy Ratio (CAR). This, in turn, may require these institutions to raise additional capital to meet regulatory requirements.

Specifically, Credit card exposure will now carry a risk weight of 150%, up from 125%, and lending from Banks to NBFCs will see a risk weight of 125%, up from 100%. This adjustment impacts the cost of borrowing for NBFCs, as they'll likely face higher interest rates when dealing with banks. Additionally, NBFCs, which are major players in instant loans, are facing double trouble. They not only have to allocate higher Capital to risk-weight assets Ratio (CRAR) for each unsecured loan but also face increased borrowing costs from banks.

This could impact their margins and potentially limit the availability of instant loans. For consumers, this move could translate into higher interest rates on credit cards and personal loans. Those looking to obtain new credit cards or personal loans may find it more challenging, as banks and NBFCs might impose stricter terms and conditions. Existing borrowers could also face higher monthly payments and increased overall borrowing costs if interest rates are raised on their outstanding balances due to the increased risk weightage.

4) Withdrawing Rs 2,000 Notes from Circulation: The withdrawal of Rs 2,000 notes by the Reserve Bank of India (RBI) in mid-2023 was a noteworthy step taken under the clean note policy. This policy, introduced in 1988, was aimed at providing high-quality currency notes to the public while also combating the circulation of counterfeit notes in the country. Back In its heyday (in 2018), Rs 2,000 notes accounted for a substantial portion of the total money in circulation, with a total value of Rs 6.73 lakh crore, representing 37.3% of the total.

However, by 2023, it had significantly reduced to Rs 3.62 lakh crore, constituting only 10.8% of the total circulation value. The decision to introduce Rs 2,000 banknotes in 2016 was driven by the need for higher denomination notes. Once sufficient quantities of lower denomination notes became available, the printing of Rs 2,000 notes ceased in the fiscal year 2018-19, as confirmed by the RBI. One interesting observation was that the Rs 2,000 notes were seen by some as promoting hoarding among black market operators due to their ease of storage and exchange. This may have contributed to their gradual disappearance from the market.

The withdrawal of these high-denomination notes aligns with prudent currency management practices, promoting financial discipline. It also plays a role in reducing or eliminating the use of cash in high-value real estate transactions, which is a positive step toward increasing transparency in financial transactions.

5) Introduction of RBI Udgam Portal: The introduction of the RBI Udgam Portal, (Unclaimed Deposits - Gateway to Access Information) was a significant step towards providing a centralized platform for individuals to retrieve information about their unclaimed deposits from various banks. Initially, when the portal was launched, it had the participation of only seven banks. However, over time, the number of registered banks has grown significantly. Currently, more than 90% of unclaimed deposits can be accessed through the UDGAM Portal, making it a comprehensive and valuable resource for depositors. Traditionally, banks used to display lists of unclaimed deposits on their respective websites.

The introduction of the UDGAM Portal by the RBI aims to improve and broaden depositors' access to such data. This centralized platform has simplified the process of searching for unclaimed deposits, ensuring that depositors or beneficiaries can easily find and claim what rightfully belongs to them. What's even more promising is the RBI's plan to enhance search results on the UDGAM Portal by incorporating artificial intelligence (AI) tools in the future. This innovation is expected to make the process even more efficient and user-friendly, helping individuals locate their unclaimed deposits with greater ease.

By - Mr Amit Goel, Co-Founder and Chief Global Strategist at Pace 360

RBI ups consumer loans' risk weights

The RBI issued regulatory measures to banks and NBFCs, directing an increase in risk weights associated with consumer credit and bank credit by an additional 25 percentage points. The Reserve Bank has mandated an increase in the risk weight on loan exposure to 125 per cent, up from the earlier 100 per cent. These measures are effective immediately, with mandatory adherence required before the end of February next year."

RBI's frictionless credit platform to ease credit access.

On August 17, 2023, the Reserve Bank of India launched a pilot project known as the 'Public Tech Platform for Frictionless Credit.' This initiative aims to provide digital information to lenders, facilitating quicker access to credit and loans. The RBI's project is designed to streamline Kisan Credit Card lending by automating various processes within banks and integrating their systems with service providers

Monetary policy decisions in 2023

In February 2023, the RBI raised rates by only 25 basis points. Since then, the Reserve Bank has maintained the repo rate at 6.5 per cent for four consecutive times. Alongside the repo rate hikes, the RBI has made significant announcements in every policy meeting regarding UPI, bank liquidity, frictionless credit, MSMEs, and more.

Pointed Out By S. Ravi Promoter & Managing Partner, Ravi Rajan & Co. LLP

As we stand at the precipice of 2024, India's financial landscape bears the indelible mark of the Reserve Bank of India's (RBI) 2023. It has been a year of decisive action, characterized by five strategic maneuvers that have not merely reshaped the present, but irrevocably redefined the trajectory of our financial future.

Digital Lending Safeguards: Recognizing the nascent online lending ecosystem's inherent risks, the RBI's First Loss Default Guarantee framework instilled critical accountability, fostering sustainable growth within this burgeoning space.

UPI's Global Embrace: The expansion of UPI beyond Indian borders represents a watershed moment, unlocking a plethora of opportunities for seamless international transactions and propelling India's economic footprint on the global stage.

Central Bank Digital Currency Dawn: The digital rupee's pilot launch signifies a bold foray into the realm of CBDCs, potentially revolutionizing financial inclusion, accessibility, and transparency in the years to come.

Fintech's Regulatory Embrace: By establishing clear guidelines for cross-border payments within the Fintech sector, the RBI nurtured responsible innovation and paved the way for its seamless integration into the mainstream financial fabric.

Fintech Governance Framework: The creation of a dedicated Fintech department and robust regulatory frameworks underscores the RBI's commitment to fostering a vibrant and secure Fintech ecosystem, safeguarding both consumers and industry players.

By Sameer Singh Jaini, founder and chief executive officer of The Digital Fifth

FLDG Guidelines: RBI's FLDG guidelines offer much-needed clarity, reshaping the digital lending landscape. We believe that these will increase lending by fintechs and enhance transparency with disclosure requirements for LSPs.

Pre-Sanctioned UPI Credit Lines: Enabling UPI for pre-sanctioned credit lines will drive financial inclusion, granting easier credit access to underserved populations. This move could notably lower credit costs for both consumers and businesses.

Increased Risk Weights for Unsecured Credit: Higher risk weights for unsecured loans will elevate capital costs for Banks and NBFCs, potentially increasing borrowing expenses for consumers. Secured credit lenders, like Housing Finance companies, might seize growth opportunities utilizing digital.

E-Rupee Growth: Following RBI's late 2022 pilot program, major banks rolled out e-Rupee apps in 2023. This CBDC adoption offers a swift, secure payment channel, promoting a cashless economy.

Cross-Border Payment Streamlining: RBI's Payment Aggregator - Cross Border (PA-CB) guidelines clarify compliance needs for cross-border payment service providers. Although this adds compliance burdens for fintechs, it enhances user credibility and curbs money laundering risks.

By Payal Jain Funngro-Co Founder & CEO

In 2023, the Reserve Bank of India (RBI) made five transformational moves to revolutionize the digital payments landscape. During the Global Fintech Fest, the RBI Governor announced these innovative solutions developed by the National Payments Corporation of India (NPCI).

Digital Lending

In this direction, the recent introduction of FLDG guidelines by the Central Bank is definitely set to enhance digital lending by managing credit risks, reducing the chances of borrower defaults and encouraging lender participation by providing transparency and boosting investor confidence. Underlining its significance and role, the Reserve Bank of India in its efforts to ensure the digital lending ecosystem is credible, responsible and transparent with high regulatory standards, had approved First Loss Default Guarantee (FLDG) as a safety net among regulated entities and online lending service providers against potential losses resulting from borrower defaults.

Enabling UPI for cross-border transactions

NPCI International Payments Limited (NPIL) has entered into partnerships with corresponding payment systems outside India to enable acceptance of UPI payments in Singapore, UAE, Mauritius, Nepal and Bhutan to facilitate digital payments for Indian users while visiting such countries. Cross-border UPI transactions have the potential to significantly reduce the costs associated with international money transfers.

Central Bank Digital Currency

RBI has launched the e-Rupee (the virtual currency issued by the RBI) - In the evolving landscape of digital payments, some pivotal moments redefine the way we transact. One such moment occurred on April 11, 2016, when the National Payments Corporation of India (NPCI), under the guidance of the Reserve Bank of India (RBI), introduced the Unified Payments Interface (UPI). This innovation promised to revolutionise digital payments in India. The result? Empowering merchants that currently accept bank-to-bank or credit-to-bank UPI payments by scanning the UPI QR code to seamlessly accept digital rupee (e₹) payments through customers' CBDC wallets. The marriage of CBDC and UPI is poised to redefine the way merchants and customers transact.

Cross Border Payment Guidelines for Fintechs

The Reserve Bank of India had issued rules for payment aggregator cross-border (PA-CB) licences that would be mandatory for entities providing cross-border payment services. Applicants could choose to facilitate payments for imports, exports, or both. A key condition is that all non-bank PA-CBs should register themselves with the Financial Intelligence Unit-India (FIU-IND) as a prerequisite before applying for authorisation. Also, the applicant must have a minimum net worth of Rs 15 crore, and raise it to Rs 25 crore by 31 March 2026.
As per the regulations, all Payment Aggregators (PAs) which facilitate the processing of domestic transactions in online mode are covered within the scope of the circulars.

Fintech regulatory framework

The RBI will create a fintech repository that will be operational by April 2024 or earlier. It will be run by the RBI's Innovation Hub. The rationale behind this framework is to better understand developments in the fintech ecosystem as financial entities such as banks and non-banking financial companies (NBFCs) are increasingly partnering with them. "Fintechs are encouraged to provide information voluntarily to this repository," RBI Governor Shaktikanta Das said.