NEWS

• RBI unveils measures to deepen financial markets, support corporate consolidation, and internationalise the rupee.
• Banks can now finance mergers & acquisitions (M&As) and extend rupee-denominated loans to residents of Nepal, Bhutan, Sri Lanka, and select neighbouring countries.
• Announced alongside RBI keeping repo rate unchanged at 5.5% and monetary policy stance as neutral.

HIGHLIGHTS

Special Rupee Vostro Accounts (SRVAs)

• Introduced in 2022 to invoice and settle trade in rupees.
• Idle balances can now be invested in corporate bonds and commercial papers, not just government securities.
• Enhances liquidity in India’s corporate bond market and provides foreign participants more investment options.

 Rupee Internationalisation

• Indian banks and their overseas branches can lend in rupees to residents and institutions in neighbouring countries.
• Expansion of Financial Benchmarks India Limited (FBIL) to cover currencies beyond USD, Euro, Pound, and Yen.
• Goal: Make the rupee a regional settlement and investment currency, laying groundwork for global acceptance.

 Corporate and Infrastructure Financing Reforms

• Banks permitted to finance corporate takeovers.
• Withdrawal of decade-old lending cap of ₹10,000 crore for certain borrowers.
• Reduction of risk weights for infrastructure financing by non-bank lenders, making funding cheaper for operational, high-quality projects.

 Monetary Policy Updates

• Repo rate: 5.5%, policy stance: neutral.
• Headline retail inflation projected at 2.6% for 2025-26, below RBI’s medium-term target of 4%.
• MPC retains policy space for growth support, while ensuring financial stability.

 Significance of RBI Moves

• Strategic shift from inward-looking to regional/global influence.
• Enhances corporate liquidity, cross-border financial flows, and rupee credibility.
• Supports long-term growth and internationalisation of Indian financial system.

Background of RBI

• Established 1 April 1935 under Reserve Bank of India Act, 1934.
• First Governor: Sir Osborne Arkell Smith, first Indian Governor: Sir C.D. Deshmukh.
• Functions:
  • Regulate banknote issuance and maintain monetary stability.
  • Operate currency and credit system to India’s advantage.
  • Maintain price stability while considering growth objectives.