I Introduction

The Reserve Bank of India (RBI), as the central bank of the country, was set up in April 1935 on the basis of the recommendations of the Hilton Young Commission, under the aegis of the Reserve Bank of India Act 1934 (the RBI Act). Since then, the RBI's functions and focus have evolved in response to the changing economic environment, and encompass core central banking functions such as pan-India monetary policy, bank supervision and regulation, foreign exchange control management, oversight of the payments system and development of the financial markets.

In addition to the RBI Act, the primary legislation governing banks in India is the Banking Regulation Act 1949 (the BR Act). Additionally, the RBI periodically issues various circulars, directions and guidelines to be followed by banks.

Depending on whether the companies licensed to carry out banking business in India have been listed in the Second Schedule to the RBI Act or not, banks in India may be scheduled banks or non-scheduled banks. Scheduled banks are further categorised as cooperative banks, whether urban or rural, and commercial banks, which include public sector banks (PSBs), private sector banks (PVBs) (including domestic PVBs and foreign banks) and regional rural banks (RRBs). Recent entrants into the banking sector include small finance banks (SFBs) and payment banks (PBs), which may be scheduled or non-scheduled. In addition, certain development banks have also been set up under special statutes, such as National Bank for Agriculture and Rural Development and National Housing Bank.

The Indian banking system consists of 20 PSBs, 22 PVBs, 44 foreign banks, 45 active RRBs, 1,544 urban cooperative banks and 96,248 rural cooperative credit institutions. As at 31 March 2019, the total number of ATMs in India had increased to 221,579, and the total number of debit card and credit cards had increased to 858 million and 47.1 million, respectively.2 Further, powered by the recent digital financial inclusion movement in India, total bank account penetration in the Indian adult population has more than doubled since 2011, to 80 per cent.3

Based on asset size alone, the five largest PSBs in India are State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank and Bank of India, and the five largest PVBs in India are HDFC Bank Limited, ICICI Bank Limited, Axis Bank Limited, YES Bank Limited and IDBI Bank Limited.4

Overall, profitability of PVBs worsened in 2019 compared with the previous year, although this was higher than the profitability of PSBs. In contrast, PSBs have been more successful in reducing their losses, building on the improvements in their asset quality. However, interest income has accelerated, and non-interest income has been revived for commercial banks, leading to an upswing in overall profitability.5

Recently, banks' capacity to lend has been severely affected because of mounting non-performing assets (NPAs). However, the recent enactment of the Insolvency and Bankruptcy Code 2016 (IBC) has been a game changer in the resolution of stressed assets, and, to support the IBC framework, the RBI has also instituted a remedial framework through the Prudential Framework Circular dated 7 June 2019, which envisages a time-bound implementation of a resolution plan, failing which disincentives in the form of additional provisions will kick in.6 As a result of these and other efforts to improve banking asset quality, there has been a decline in gross NPA ratios.7

There is increased focus on financial inclusion, and to increase the level of penetration of banking services to unserved and underserved areas. In particular, leveraging the latest technology to develop state-of-the-art national payments infrastructures and digitisation platforms is on the RBI's policy agenda.

The ongoing spate of privatisation and consolidation of PSBs is also a significant step for the banking industry. In August 2019, the Indian government announced the mergers of eight major PSBs in India. This is the biggest public banking sector restructuring since the nationalisation of 14 private banks in July 1969, and is intended to improve governance and accountability of the affected PSBs.

II The Regulatory Regime Applicable to Banks

i Banking business and licensing requirements

Banks in India are required to obtain a licence from the RBI to carry on banking business in India. 'Banking business', as per Section 6 of the BR Act, refers to acceptance of public deposits for the purpose of lending or investment, which would be repayable and capable of withdrawal, and includes guarantee and indemnity business, discounting, dealing in negotiable instruments, underwriting, participating or managing of any issue, and other incidental activities.

On-tap banking licences (rather than banking by invitation licences) were introduced in 2016, subject to the bank complying with conditions such as: (1) the ability to pay present and future depositors in full as their claims accrue; (2) conducting banking affairs in a manner not detrimental to the interests of present or future depositors; (3) adequate capital structure and earnings prospects; and (4) maintenance of public interests. Additionally, depending on the nature of the banking business, specialised requirements may also apply. The RBI has the power to revoke or cancel the licence if a bank fails to meet the conditions or if the bank ceases to carry on banking operations in India.

In May 2017, branches of banks were redefined as 'banking outlets' for the purpose of harmonising the treatment of different forms of bank presence including those in underserved areas. A banking outlet now covers all points of service delivery by banks, whether full-time or part-time, including all branches, extension counters and satellite offices. This relaxation is a significant step for facilitating financial inclusion and providing flexibility to banks on their choice of delivery channel.

The RBI's permission is no longer required to open banking outlets in Tier 1 to Tier 6 centres.8 However, it has mandated that banks must open 25 per cent of these outlets in unbanked rural centres (Tiers 5 and 6) that do not have any bricks-and-mortar structure for a scheduled bank, local area bank or cooperative bank to carry out core banking customer transactions. Further, banks with this general permission may shift, merge or close all banking outlets at their discretion, but the merger, closure or shifting of any rural outlets or sole semi-urban outlets requires approval from the relevant district committee.

ATMs, e-lobbies, bunch note acceptor machines, cash deposit machines, e-kiosks and mobile branches fall outside the purview of banking outlets. These can, therefore, be set up by banks at centres or places of their choosing.

ii Legal structures for banking entities

Banks must be set up as companies (including foreign companies). As such, domestic banks are also subject to the purview of the Indian Companies Act 2013 (CA) to the extent applicable, and if such banks are listed on a stock exchange in India, additional trading or listing rules apply.

At present, foreign banks, if eligible, are allowed by the RBI to set up business in India through a single mode of presence (i.e., either through a branch model or a wholly owned subsidiary (WOS) model). In particular, the WOS would be given near-national treatment, including in the opening of branches, as the WOS structure was deemed to be more financially stable given the lessons learned from the economic crisis of 2007–2009. Owing to incentives given for the subsidiarisation model, the presence of foreign banks in India increased during 2018 and 2019.

In recent years, there has been increased focus by the RBI and the government on consolidating, recapitalising and providing technological assistance to other banking sector players; namely, to RRBs, cooperative banks, SFBs and PBs, as these banks represent the key to greater financial inclusion.

RRBs were formed under the RRB Act 1976 with the objective of providing banking facilities to small farmers, agricultural labourers, artisans and other rural impoverished citizens. Cooperative banks, on the other hand, play a crucial role in extending financial inclusion through their geographic and demographic outreach, and are characterised by the dual control of the RBI and respective state governments or central government.

The more recent players, SFBs and PBs, have a smaller operational scale than RRBs and cooperative banks, but also fewer regulatory constraints. SFBs were set up in 2016 to offer basic banking services such as accepting deposits and lending to the underserved sections, including small businesses, marginal farmers, micro and small enterprises (MSEs) and the unorganised sector. PBs were established to improve financial inclusion by specifically harnessing technology services via mobile telephony. Unlike SFBs, PBs cannot undertake lending activities and their design is functionally equivalent to that of pre-paid instrument (digital wallet) providers.

III Prudential Regulation

i Relationship with the prudential regulator

As a 'banker to banks' and as 'lender of last resort', the RBI directly controls the prudential regulation of banks, introducing norms for income recognition, asset classification and provisioning for the advance portfolios of banks, and ensuring consistency and transparency in published accounts.

The BR Act specifically requires banks to maintain books and records in a particular manner and file the same with the regulatory authority on a periodic basis. The RBI's directives on know your customer (KYC) and anti-money laundering provide for transactional and identification records to be maintained for a minimum period of 10 years from the date of transaction and 10 years from the cessation of relationship with the client, respectively. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the CA and the rules thereunder also apply to banks.

Further, for more effective supervision over the burgeoning NPA situation, the RBI has set up the Central Repository of Information on Large Credits to collect, store and disseminate data reporting entities' exposure to the borrower (as individuals or as a group, or both) under various heads, including 'special mention accounts' with aggregate debt exposure of 50 million rupees and above.

The RBI is empowered under the BR Act to conduct periodical on-site inspections on matters relating to banks' portfolios, risk management systems, internal controls, credit allocation and regulatory compliance, at regular intervals. Further, the RBI also conducts on-site supervision of selected branches with respect to their general operations and foreign exchange transactions. To this end and to enable off-site monitoring and surveillance by the RBI, banks are also required to periodically report to the RBI on these and other aspects.

ii Management of banks

The appointment, reappointment or termination of the appointment of a chairperson, managing director, full-time director or chief executive officer of a bank shall have effect only if made with the prior approval of the RBI.

No amendments in relation to (1) the maximum permissible number of directors or the appointment, reappointment or termination of the appointment or remuneration of a chairperson, managing director, full-time director or chief executive officer of a bank; or (2) the remuneration of the chairperson, managing director, full-time director, any other director or chief executive officer shall have effect unless approved by the RBI. The RBI is also empowered to remove a chairperson, managing director or full-time director from office on the grounds of public interest or the interests of depositors or in securing proper management of the bank. The relevant provisions of the CA relating to appointment and remuneration of managerial personnel shall not apply to such matters that require RBI approval.

The RBI may, at any time, in the interest of the public, banking policy, depositors or the bank itself, pass certain orders in writing, such as:

  1. convening board and general meetings to discuss any matter in relation to the bank, including the election of new directors;
  2. require the bank to discuss any relevant matter with an officer of the RBI, and submit relevant disclosures;
  3. appoint one or more RBI officers as observers of the bank;
  4. make such changes to the management of the bank as it deems necessary; and
  5. supersede the board of directors of a banking company for a period of six to 12 months.

The RBI has directed PVBs to undertake a process of due diligence to determine the suitability of candidates for appointment or reappointment as a director on the board of directors of a bank, based upon qualification, expertise, track record, integrity and other relevant factors. Additionally, at least half the board of a PVB must comprise independent directors. Moreover, for foreign banks that have adopted the WOS model: (1) at least 50 per cent of their directors must be Indian residents (with at least one-third being Indian national residents); (2) the chief executive officer must be an Indian resident; and (3) at least two-thirds of directors must be non-executive directors.

To ensure minimum political intervention and transparency, the following are not eligible to be members of a PSB's board:

  1. members of Parliament, state legislatures or local governments;
  2. statutory auditors of PSBs; and
  3. persons on the board of any other bank, financial institution or other competing body.

The decision-making process in banks is participative and conducted as per the procedural guidelines for board and shareholders' meetings stipulated in the CA. Moreover, it is expected that the RBI will soon issue guidelines on corporate governance for regulated entities to align the current regulatory framework with global best practices while being mindful of the context of the domestic financial system.

To prevent misaligned remuneration and incentive schemes for bank managers and employees, in November 2019 the RBI directed that a substantial proportion of compensation of full-time directors, chief executive officers, material risk-takers and control function staff (i.e., at least 50 per cent), should be variable and paid on the basis of individual, business unit and firm-wide measures that adequately measure performance. The total variable pay shall be limited to a maximum of 300 per cent of the fixed pay. Moreover, if variable pay is up to 200 per cent of the fixed pay, a minimum of 50 per cent of the variable pay should be via non-cash instruments; and if variable pay is above 200 per cent, a minimum of 67 per cent of the variable pay should be via non-cash instruments.

For senior executives, deferral arrangements for a minimum of 60 per cent of the total variable pay must invariably exist for the variable pay, regardless of the quantum of pay, and should also be subject to clawbacks in the case of subdued or negative financial performance of the bank. These guidelines will be applicable to PVBs, including local area banks, SFBs and PBs, as well as to foreign banks operating in a WOS structure, for pay cycles beginning from and after 1 April 2020.

iii Regulatory capital and liquidity

The RBI has set out the minimum capital adequacy standards for banks based on the guidelines of the Basel Committee on Banking Supervision. The RBI Basel III Capital Regulations became effective on 1 April 2013 and were fully implemented by 31 March 2020, in a phased manner. Under RBI guidelines, the minimum total capital to risk-weighted assets ratios to be maintained for three years from commencement of operations are as follows:

  1. for PVBs: 9 per cent
  2. for PSBs: 12 per cent: and
  3. for WOS-model foreign banks: 10 per cent.

These percentages are all higher than the Basel III prescription.

Presently, a bank's capital comprises Common Equity Tier 1 (CET1) capital and Common Equity Tier 2 (CET2) capital with a restriction that CET2 capital cannot be more than 100 per cent of CET1 capital. CET1 capital typically comprises ordinary equity shares, with or without voting rights, and innovative instruments up to 15 per cent thereof. CET2 capital may be in the form of debt capital instruments and preference shares capital instruments, as long as these instruments have certain loss absorption features. Further, the RBI has permitted banks to raise Additional Tier 1 capital in the form of perpetual non-cumulative preference shares and certain types of debt capital instruments that have principal loss absorption through either conversion into common shares at an objective pre-specified trigger point or a write-down mechanism, which allocates losses to the instrument at a pre-specified trigger point.

The Basel III framework prescribes two minimum liquidity standards: the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). While the LCR promotes short-term resilience of banks in dealing with potential liquidity disruptions lasting for 30 days, the NSFR requires banks to fund their activities with stable sources of funding over the time horizon extending to one year. The former has been implemented in India since 1 January 2015 and the latter – defined as the ratio of available stable funding to required stable funding – has been effective since 1 April 2020.

Other Basel-prescribed capital reserves required to be maintained include the cash reserve ratio, as a percentage of banks' demand and time liabilities (DTL), by way of a balance in an interest-free current account with the RBI, and the statutory liquidity ratio (SLR), a percentage of DTL to be maintained by way of liquid assets such as cash, gold or approved unencumbered securities, against which banks may avail funds from the RBI on an overnight basis under the marginal standing facility. Similar capital adequacy requirements or buffers also apply to WOS-model foreign banks.

iv Recovery and resolution

There is no separate resolution framework for failed banks in India. Even the IBC, which is a comprehensive reform of the legislative framework for insolvency and bankruptcy, does not directly cover bankruptcy of 'financial firms' such as banks, insurance companies and stock exchanges, and instead empowers the central government to notify the same.9 Further, for any winding-up petition against a bank, RBI approval would be required. Specifically, in terms of resolution of development or cooperative banks, the RBI's powers are further limited.

That being said, the BR Act confers significant powers on the RBI (with or without consultation with the central government) to exercise control over, or make changes to, the management of the board of a failed bank. The RBI may also be appointed as the liquidator for winding-up the bank or apply to courts to suspend a mismanaged bank's business.

Bank deposit insurance was introduced in India in 1962 pursuant to the Deposit Insurance and Credit Guarantee Corporation Act 1961. The Deposit Insurance and Credit Guarantee Corporation, a WOS of the RBI, insures deposits of up to 100,000 rupees of all commercial banks in India, including foreign banks, local area banks, RRBs and most cooperative banks. At present, each depositor in a bank is insured up to a maximum of 100,000 rupees for both principal and interest amount.

Bearing in mind the serious market disruption risks that may arise from the failure of any bank in India, interest in promulgating the Financial Resolution and Deposit Insurance Bill 2017 (FRDI) has rekindled. The FRDI proposes to create a unified framework for monitoring financial firms such as banks and to establish a 'resolution corporation' that would be responsible for supervising the resolution or liquidation processes of failed banks.

IV Conduct of Business

In recent years, the responsibility on banks to protect customer data has increased, whether as a result of the enhanced degree of care required under the Information Technology Act 2000, read with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011, or as a result of the global harmonisation required under the European Union's General Data Protection Regulation. In India, the Personal Data Protection Bill 2019 (the PDP Bill) has also been tabled before Parliament for consultation. If data relates to customers' identification, additional guidelines stipulated by the Unique Identification Authority of India, the National Payments Corporation of India and directives periodically issued by the RBI also apply.

Exceptions to such confidentiality arise with respect to disclosures and periodic reporting to be made to RBI by the banks, including with respect to any borrowers and promoters that are wilful defaulters, and reporting of any NPAs, fraud, suspicious transactions and cyber security failures.

The RBI has prescribed priority sector lending areas for all scheduled banks to include the agriculture, MSE, education, housing, social infrastructure, export credit and renewable energy sectors. Currently, the total priority sector lending target for domestic banks is 40 per cent of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher. ANBC is calculated as outstanding bank credit minus bills rediscounted with the RBI and other approved financial institutions plus permitted non-SLR bonds or debentures in the held-to-maturity category plus other eligible investments.

Banks are liable for multiple penalties under the RBI Act and the BR Act, for breach of any statutory provisions thereof or of any circulars and directions as periodically issued by the RBI. Criminal liability under corresponding provisions of the Indian Penal Code 1860 would also apply to such banks, for example, on the grounds of fraud, misappropriation of funds, cheating, forgery and criminal breach of trust. In addition, the RBI has the power to suspend, revoke or cancel banking licences or impose additional supervisory restrictions and limitations on the deviant bank.

V Funding

In addition to banking, the RBI permits scheduled commercial banks (SCBs) (other than RRBs) to engage in certain kinds of financial services, which include dealing in credit information, operation of payment systems, stock exchanges or depositories, securitisation or asset reconstruction, merchant banking, portfolio management, stock broking, investment advisory, business of credit rating agency, collective investment schemes, pension fund management and authorised dealing in foreign exchange. Such banks can also make equity investments in other companies undertaking such financial services, or the banks' subsidiaries.

Banks must maintain tiered capital compliant with Basel III. Further, SCBs (excluding RRBs), most cooperative banks and authorised dealers in foreign exchange are permitted to participate in call or notice money markets, both as borrowers and lenders, and to obtain funding from the money market through instruments such as commercial paper, certificates of deposit and non-convertible debentures of original or initial maturity of up to one year.

The liquidity adjustment facility (LAF) is a facility extended by the RBI to SCBs (excluding RRBs) and authorised dealers in foreign exchange to avail of liquidity if required or to park excess funds with the RBI in the operation of LAF conducted by way of repurchase agreements, with the RBI being the counterparty to all the transactions.

VI Control of Banks and Transfers of Banking Business

i Control regime

In November 2015, the RBI issued regulations for prior approval for acquisition of shares or voting rights in PVBs, except urban cooperative banks, foreign banks and banks licensed under specific statutes. Prior RBI approval is required by any person seeking to acquire, directly or indirectly, shares or voting rights of a bank, directly or with persons acting in concert, wherein such acquisition results in aggregate shareholding or voting rights of such person (along with holdings of relatives, associate entities and persons acting in concert) of 5 per cent or more. In certain cases of fresh acquisition by an existing major shareholder (i.e., with shareholding above 5 per cent), the aggregate limit may be increased to 10 per cent.

The proposed acquirer must also be a 'fit and proper' person as per RBI norms. Further, recently, increased scrutiny into beneficial ownership of shareholders has been allowed under the CA, which allows piercing the corporate veil to several levels above existing capital structure of banks (including their holding companies).

Overall, the shareholding limits for banks are as follows:

  1. for individuals and non-financial entities (other than promoters or promoter groups), the limit is 10 per cent of the paid-up capital; however, if promoters are individuals or non-financial entities in existing banks, the shareholding limit is 15 per cent of the paid-up capital;
  2. for entities in the financial sector, other than regulated or diversified or listed entities, the limit is 15 per cent of the paid-up capital;
  3. for 'regulated, well diversified, listed entities from the financial sector' and shareholdings by supranational institutions or public sector undertakings or government, a limit of 40 per cent of the paid-up capital is prescribed; and
  4. a higher stake or strategic investment by promoters or non-promoters through capital infusion by domestic or foreign entities or institutions shall be permitted on a case-by-case basis under circumstances such as relinquishment by existing promoters, rehabilitation or restructuring of problematic or weak banks, entrenchment of existing promoters or in the interest of the bank or consolidation in the banking sector, etc.

Finally, pursuant to Section 12(2) of the BR Act, no shareholder in a bank can exercise voting rights in a poll in excess of 26 per cent of total voting rights of all the shareholders of the bank. At all times, at least 26 per cent of the paid-up capital will have to be held by residents (except in the case of WOS-model foreign banks).

Investments in Indian companies can be made by both non-resident and resident Indian entities. Under the Foreign Direct Investment Policy 2017, the total foreign ownership in an Indian PVB cannot exceed 74 per cent of paid-up capital under the approval route, and 49 per cent of paid-up capital under the automatic route. Foreign ownership beyond 24 per cent of paid-up capital will also require shareholders' approval. Similarly, the aggregate shareholding of an Indian non-resident individual cannot exceed 10 per cent of the paid-up capital of a bank, unless approved by the shareholders.

ii Transfers of banking business

In 2005, the RBI issued its first guidelines on mergers and amalgamation of two PVBs and of a bank with a non-banking financial company. For both types, RBI approval is required for the scheme of amalgamation, before the said scheme is finally approved by a local high court. Schemes of amalgamation will also require approval of the Competition Commission of India, from an antitrust perspective.

There is no specific duty on banks to seek customer consent for amalgamations; however, as best practice, intimations are circulated to all customers well in advance, and corporate and regulatory approvals of the merger are also announced in the public domain. Continuity of customer service is also one of the considerations for the approval of the amalgamation scheme.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, and related RBI guidelines issued periodically, provide for the sale or assignment of financial assets by banks and financial institutions to securitisation or asset reconstruction companies. Banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation, and the sale is non-recourse after careful due diligence by the assignee or purchaser. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Consideration for the sale may be in the form of cash, bonds or debentures, security receipts or pass-through-certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.

The contractual provisions of the agreement with customers determine whether customers only have to be advised of changes in lender or service provider, or whether customer consent also has to be obtained.

VII The Year in Review

Conventional bricks-and-mortar banking has given way to digital banking as technological innovations and regulatory developments have encouraged alternative cost-effective models of extensive lending and capital raising. In this regard, real-time payment systems, digital wallets, mobile banking, invoice financing (i.e., the trade receivables discounting system (TReDS)) and digital lending have been the most significant recent developments in the sector.10 The main developments have been as follows.

  1. To give impetus to small value digital payments, a new type of prepaid payment instrument with a monthly rechargable limit of 10,000 rupees was introduced in 2017.
  2. Banks that are licensed, supervised and with a physical presence in India and that have implemented core banking solutions are permitted to offer mobile banking services to registered customers after obtaining one-off RBI approval. In December 2019, the 24x7x365 NEFT facility and liquidity support facility for banks on a 24/7 basis was rolled out, for ease of fund settlements.11
  3. The launch and operability of Unified Payments Interface (UPI) has boosted mobile banking, as it allows inter-bank account money transfers, using only a single virtual address identifier of the user, instead of the tedious supply of sensitive personal information each time. The biggest advantage of UPI is its interoperability among various banking platforms, even including overdraft accounts.
  4. In 2018, the RBI overhauled the guidelines on TReDS, an online mechanism for facilitating the financing of micro, small and medium-sized enterprises (MSMEs) through multiple financiers. It enables discounting of invoices of MSME sellers raised against corporate or other buyers, allowing them to reduce working capital needs. At present, the RBI has given TReDS licences to only three entities, including the development bank Small Industries Development Bank of India, but this number is expected to grow.

There has also been major focus on customer protection, including introducing two-factor authentication, more stringent rules on electronic signatures and prevention of personal data leakage. As an enhanced complaint redressal mechanism, a digital ombudsman scheme was introduced. The liability of customers for unauthorised transactions, or transactions that are unsuccessful or 'failed' due to reasons not directly assignable to the customer, was limited, including under the RBI's September 2019 framework on turnaround time for resolution of customer complaints and compensation across all authorised payment systems. The new PDP Bill will also be an important turning point in the ways in which Indian banks handle data privacy, cloud computing and data localisation.

In the coming years, digital transformation in the Indian banking space is anticipated to ride on three pillars: blockchain, artificial intelligence and the internet of things. To give room to banks for live testing of innovative products using such technologies, the RBI enabled a regulatory sandbox (RS) system in August 2019. The RS allows the regulator, innovators, banks and customers to conduct field tests on technological applications in various banking segments (such as retail payments, digital KYC and wealth management), to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks or providing limited relaxations.

VIII Outlook and Conclusions

In recent years, the banking policy focus areas for the RBI have been in strengthening stressed asset resolution, modernising payment and settlement systems, and calibrating macroprudential regulations to the best international norms. The RBI's recent National Strategy for Financial Inclusion (2019–2024) has also set forth the vision, key objectives and methodologies for increasing access to broad-based, formal and affordable financial services and promoting financial literacy and consumer protection.

Further, following the global financial crisis, financial stability has also emerged as a key priority for the RBI. It has taken several policy actions in recent months encompassing monetary and liquidity measures as well as macroprudential measures to reinvigorate domestic demand and accelerate the pace of economic growth.

It is also expected that the RBI will continue to introduce structural reforms for inflation control by maintaining price stability and lowering capital costs, and increasing accountability in and regulatory harmonisation across banks and non-banking financial companies, in the coming years.


Footnotes

1 Vineetha M G and Aparna Ravi are partners and Sitara Pillai is a senior associate at Samvad: Partners.

2 RBI Report on Trend and Progress of Banking in India 2018–19 (24 December 2019), www.rbi.org.in/Scripts/AnnualPublications.aspx?head=Trend%20and%20Progress%20of%20Banking%20in%20India (RBI Trends Report).

3 Chapter 1, The Global Findex Database 2017 (World Bank), www.globalfindex.worldbank.org/.

4 RBI Statistical Tables Relating to Banks in India, Time-Series Publications (2018–19).

5 RBI Trends Report; see footnote 2.

6 'Indian banking at crossroads: some reflections', speech by Shaktikanta Das, Governor of the RBI at the First Annual Economics Conference, Amrut Mody School of Management, Ahmedabad University, 16 November 2019 (Indian Crossroads Speech).

7 RBI Trends Report; see footnote 2.

8 The tier system relates to an area's population (e.g., Tier 1 centres have a population of 100,000 and above, while Tier 6 centres have a population of less than 5,000).

9 On 15 November 2019, the central government introduced the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules 2019 to bring specific categories of financial service providers within the ambit of the IBC. So far, the central government has only included non-banking financial companies with an asset size of at least 5 billion rupees as one category of financial service providers to which these rules will apply.

10 Indian Crossroads Speech; see footnote 6. See also Report of the Steering Committee on Fintech Related Issues (2019), Department of Economic Affairs, Ministry of Finance, Government of India, www.dea.gov.in/sites/default/files/Report%20of%20the%20Steering%20Committee%20on%20Fintech_1.pdf.

11 'Journey towards inclusive growth in India', opening remarks by Shaktikanta Das, Governor of the RBI at the Third Suresh Tendulkar Memorial Lecture, Singapore, 7 January 2020.