Thread by @abhymurarka

RBI announced no change in policy rates in its meet today. But was this MPC a non-event then?

No. Infact, this was a very progressive policy.

RBI made 4 key announcements that further strengthen India's position as a Digital superpower.

A thread
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Summary:

RBI Allowed:
1. FLDG between Bank/ NBFC and Fintech partners - will deepen credit & Digital lending
2. Use of RuPay Forex Cards for overseas transactions
3. Issue of eRuPi vouchers by non-bank PPI holders
4. BBPS - membership rationalisation

I''ll explain below:

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RBI Meet 1: FLDG arrangement

FLDG stands for First Loan Default Guarantee. As the name suggests, it is a guarantee by Fintech (loan service provider) to compensate the Bank/NBFC up to a certain percentage of default in the loan portfolio that it originates for them.

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Context:
Banks & NBFCs, despite their branch reach, are not able to cater to a large chunk of Indian population due to insufficient KYC or credit history.

This is where Fintechs come in. Many of them have built a large base of alternate dataset that can be used for lending.

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So the Fintech sources the client (borrower) and Bank/ NBFC lends. To ensure quality of sourcing and skin-in-the-game, the Fintech guarantees a part of the loss to the bank, incase the loan goes bad. 

This is FLDG. It was banned an year back as there was some misuse of this.

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Now RBI has allowed FLDG arrangements again subject to some conditions
-Max FLDG default cover of 5% and
- To be invoked by Bank/NBFC within 120 days of loan going overdue.

Previously there were cases where some Fintechs gave FLDG upto 80% which could never be serviced.

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Summary (A): Banks/ NBFCs and Fintechs need each others support to deepen credit in India. With FLDG coming back, India's credit story is making a comeback.

Note: This is probably why Paytm stock has been bullish. It can be THE alternate lending player in India.

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# 2: RBI allowed issuance & use of RuPay Forex Cards for overseas transactions (ATMs, PoS & Online)

This will allow and acceptance of rupee cards globally and is a step towards making RuPay international 🇮🇳

Currently Visa is the largest issuer of Forex Cards in India.

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This allow offers us a new simple payment option when travelling abroad. Here is the Dr. Shaktikanta Das announcing it today:

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# 3: Issue of eRuPi by Non-bank PPI holders

What's #eRuPi?
It is a QR code voucher/SMS sent to beneficiary’s mobile phone. It's been a gamechanger in India's last mile delivery by ensuring Govt benefits reach the right recipient.

RBI has expanded scope of who can issue it.

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# 4: BBPS - membership rationalisation

BBPS stands for Bharat Bill Payment System.

It's a one-stop payment solution introduced by NPCI in 2017 that made "anytime" bill payments possible in any mode (IMPS, NEFT, UPI, cheques, wallets and even cash).

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It is quite popular in rural India as all bills can be paid in one place!
- Electricity & Gas
- Water
- Mobile recharge
- Insurance premiums
- Mutual funds
- Credit cards
- Fastag recharge, etc.

Do you remember your parents having to go for these payments? Now they don't!

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RBI had expanded scope of BBPS in Dec 2022 beyond just utility payments. Now users can raise a complaint on the portal and a resolution status is to be made available within 5 days of the complaint!

I feel these changes that are building blocks of a stronger India story.

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There might be more key changes in the fineprint of the policy. Some which we may not comprehend fully.

But one thing is for sure - we are very lucky to have a regular which is focused on both stability and innovation, two very difficult aspects to balance.

Kudos to RBI!

Link to the top of thread. Consider retweeting the first tweet in the thread if you found this useful:

https://twitter.com/abhymurarka/status/1666869103141715976?s=20