Key Highlights of Recent RBI Announcements
07-12-2024
06:33 AM
1 min read

What’s in today’s article?
- Why in the News?
- Key Highlights of Recent RBI Announcements
- Key Economic Terms

Why in the News?
- In line with expectations, the Reserve Bank of India (RBI) has lowered the cash reserve ratio (CRR) by 50 basis points (bps) to 4 per cent to boost liquidity in the financial system.
Key Highlights of Recent RBI Announcements
- Cash Reserve Ratio (CRR) Reduction and Monetary Policy Updates:
- The RBI has reduced the CRR by 50 basis points in two tranches, bringing it to 4%.
- This move aims to inject ₹1.16 lakh crore into the banking system, addressing liquidity stress caused by factors like tax outflows and increased currency in circulation.
- The repo rate remains unchanged at 6.5% for the 11th consecutive time, aligning with the neutral monetary policy stance amidst rising inflation and economic uncertainties.
- Inflation forecast for FY2025 has been revised to 4.8% (from 4.5%), while GDP growth estimates were lowered to 6.6% (from 7.2%), reflecting slower economic activity and high inflation's impact on consumer demand.
- Introduction of MuleHunter:
- RBI introduced MuleHunter, an Artificial Intelligence and Machine Learning-based infrastructure developed by the Reserve Bank Innovation Hub (RBIH) to combat digital fraud through mule bank accounts.
- The system aggregates data from banks and payment operators, using AI to identify and mitigate frauds effectively.
- It offers small banks without advanced fraud detection systems a robust tool to prevent financial crimes.
- Enhancements in FCNR(B) Deposits:
- Interest rate ceilings on Foreign Currency Non-Resident Bank [FCNR(B)] deposits have been increased to attract higher capital inflows. New ceilings:
- For 1–3 years maturity: Overnight ARR + 400 basis points.
- For 3–5 years maturity: Overnight ARR + 500 basis points.
- This measure aims to strengthen foreign currency inflows and is effective until March 31, 2025.
- UPI-Based Credit Lines:
- RBI now allows Small Finance Banks (SFBs) to offer pre-sanctioned credit lines via UPI, following its introduction by Scheduled Commercial Banks in September 2023.
- This initiative is expected to boost financial inclusion and formal credit access, particularly for first-time borrowers.
Key Economic Terms
- Cash Reserve Ratio (CRR):
- The percentage of a bank’s net demand and time liabilities (NDTL) that it must hold as reserves with the RBI.
- Lowering the CRR releases liquidity into the banking system, enabling more lending.
- Repo Rate:
- The interest rate at which the RBI lends short-term funds to banks. It influences borrowing costs across the economy.
- Net Demand and Time Liabilities (NDTL):
- The total deposits held by a bank, including savings, current, and fixed deposits, minus liabilities like loans and advances.
- Consumer Price Index (CPI):
- Measures changes in retail prices of goods and services, indicating inflation levels.
- Mule Bank Accounts:
- Fraudulent accounts used to transfer illicit funds, often involving unsuspecting account holders.
- Foreign Currency Non-Resident Bank [FCNR(B)] Deposits:
- Bank accounts where NRIs can deposit earnings in foreign currencies, protecting them from currency fluctuations.
- Alternative Reference Rate (ARR):
- A benchmark interest rate used globally to set loan and deposit rates in various currencies.
- Basis Points (bps):
- A unit equal to 0.01%. For example, 100 bps equals 1%.
Q1 What is United Payments Interface (UPI)?
Unified Payments Interface (UPI) is a real-time payment system in India. It allows users to transfer money between bank accounts instantly and for free using a mobile device. UPI was designed and launched by the National Payments Corporation of India (NPCI) in 2016.
Q2 What is the repo rate?
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks and financial institutions.
News: RBI raises interest rate ceiling on FCNR deposits | Hindu