Key Takeaways For Banking, Insurance Sectors From MPC Meeting

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has raised its growth projection for Gross Domestic Product (GDP) to seven per cent for the financial year 2023-24 (FY24).

Governor Shaktikanta Das said this while also confirming the decision to keep the key interest rates unchanged on December 8, 2023.

He also mentioned in his speech, “It is now proposed to enhance the UPI transaction limit for payment to hospitals and educational institutions from Rs one lakh to Rs five lakh per transaction.” He added that this will help the consumers to make UPI payments of higher amounts for education and healthcare purposes.

The RBI has maintained the repo rate, the benchmark policy rate, at the same level for the past four bi-monthly monetary policies. The last change happened in February 2023, resulting in an increase that set it at 6.5 per cent.

This change marked the end of a series of interest rate hikes initiated in May 2022 due to the repercussions of the Russia-Ukraine war and subsequent disruptions in the global supply chain. These factors led to elevated inflation within the country.

“The RBI policy announcement is a clear affirmation that the Indian economy is poised for a stable inflation and high growth regime with the possibility of growth breaching 7 per cent for the 3rd successive year. The measures regarding liquidity will facilitate better fund management by banks. The enhancement of limits under UPI for education and healthcare will ensure that UPI truly emerges as a public good. Furthermore, moving towards a unified regulatory framework for connected lending and a regulatory framework for web-aggregation of loan products will ensure better pricing, transparency, and enhanced customer centricity,” said Dinesh Khara, Chairman, State Bank Of India.

Further e-mandates for making payments of a recurring nature have been raised to Rs 1 lakh for mutual fund subscriptions, insurance premium subscriptions and credit card repayments.

“Given the actual prints for FY24 are much higher than what the market expected at the start of the year (& much closer to RBI’s forecast), the market would give the benefit of the doubt to RBI. What is also proving to be a tailwind is that the wider global growth estimates have also been revised upwards,” said Rahul Bhuskute, Chief Investment Officer, Bharti AXA Life Insurance.

Standard Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates have been left unchanged at 6.25 and 6.75 per cent respectively.

The Governor noted that there has been a higher utilisation of both SDF and MSF facilities by the banks and to address the situation, the central bank has proposed to allow the reversal of liquidity facilities in both SDF as well as MSF during weekends and holidays with effect from 30 December 2023.

“It's a very prudent move to not change the policy stance when the steps taken in the past are still being absorbed. The move to create a Fintech repository and increasing limits of UPI for specified categories helps growth and shows the increasing confidence of the regulator in the UPI framework. Reversal of SDF and MSF on holidays shows regulator’s intent to manage and keep liquidity efficient for the bank,” said Pralay Mondal, MD & CEO, CSB Bank.

The MPC's main responsibility is to determine the policy repo rate, to achieve the targeted inflation rate while considering growth objectives.

Madan Sabnavis, Chief Economist, Bank of Baroda commented on today’s RBI Monetary Policy outcomes and said, “The RBI’s forecast of inflation for the quarters of next year is important as the number goes less than 5 per cent only in the second quarter which means that given the importance placed by MPC on inflation, it looks unlikely that there can be a rate cut before August of next year. Also, the RBI is satisfied with the liquidity situation and has not unveiled any measures to augment the same. It is assumed that in the general course of activity, this equilibrium will be achieved.”