PROJECT ON RBI GUIDE LINESS

• Name - Gulshan
• Course - B.Voc. Management Financial Services
 Covid-19

• Covid 19 has emerged as the swan event of the century , with the significant macroeconomics
and microeconomics impact both globally and India . Small loans specialists in India that typically cater
to people without bank account are facing a jump in pandemic related defaults that could force some of
them out of business , industry experts warn .

• While Indian microfinance sector has established itself as an effective model for financial , its
sustainability has been tested time and again , especially in recent years . Over just past decades , the
sector has weathered the Andhra Pradesh cricis of 2010 , the government demonetization drives of
2016 and the NBFC melt down of 2018.

• When a crises hits the financial system or economy at large , the microfinance sector is usually among
the worst impacted , since its carters to the most economically vulnerable segments of the country .
• These and other learning have come in handy during the Covid 19 pandemic that has ravaged the
country , along with so much of world.
 In 2020, the lockdown necessitated by the spread of covid 19 brought almost
every business to a halt , except essential services. The worst affected were
enterprises with little or no reserves and high liquidity turnover operations, which
was the case for typical micro and small business. This, in turn, adversely
impacted their lenders , prior to the lockdown , many MFIs still depends on
physical interaction with customers, and door step collections and disbursements.
Their liquidity framework depends on heavily on steady cashflow-i.e., a stream of
loan payments from customers for upstream payments to banks and financial
institution from whom they had borrowed. When these MFIs faced a shutdown ion
collection and disbursements due to restrictions in mobility in the early months of
the pandemic, the effect was devastating. By may 2020, nearly 98%of their were
under moratorium, confirming that the flow of funds for these borrowers would
not be forthcoming for the next months. As they were already under pressure
from their financiers to meet their obligations, these MFIs were crused under
liquidity issues.
 ASSESSMENT AND
PROSPECTS

• With the change in its accounting year to April-March (earlier July-

June), this Annual Report covers the working and functions of the
Reserve Bank for the transition period of nine months (July 2020 -
March 2021). Where available, the Report has been updated beyond
March 2021.
• 1 The World Health Organisation declared the outbreak a ‘Public Health
Emergency of International Concern’ on January 30, 2020, and a
‘Pandemic’ on March 11, 2020.

• 2 IMF (2021), ‘World Economic Outlook- Managing Divergent

Recoveries’, International Monetary Fund, Washington D.C., April.

• 3 IMF (2021), ‘Fiscal Monitor - A Fair Shot’, International Monetary

Fund, Washington D.C., April.
4. It is an initiative under the Ministry of Commerce and Industry, Government of India, envisaged as
a transformational step towards realising the true potential of a district, fuelling economic growth
and generating employment and rural entrepreneurship. The objective is to convert each district of
the country into an export hub by identifying products with export potential, addressing bottlenecks
for exports, supporting local exporters/manufacturers, and find potential buyers outside India with
the aim of promoting exports/manufacturing/services industry in the district and generate
employment.

5. The BC model was initiated by the Reserve Bank in 2006 to promote fi nancial inclusion

.
 II - ECONOMIC REVIEW
India joined the global economy in an unprecedented contraction in 2020-21,
dragged down by the COVID-19 pandemic. Headline inflation was elevated for
most part of the year led by supply chain disruptions due to the pandemic and
spikes in key food prices. Inflation, however, moderated subsequently due to
seasonal easing in food prices since December 2020, albeit with an upside push
from adverse base effects during February-March 2021. Monetary and credit
conditions remained expansionary and financial market conditions eased
considerably on the back of abundant liquidity. Public finances were impacted by
a cyclical slowdown in revenues, which was exacerbated by COVID-19, while
pandemic-induced fiscal measures pushed up expenditure. On the external front,
the sizeable contraction in imports relative to exports, under deep recessionary
conditions, led to a current account surplus; along with robust net capital inflows,
this led to a large build-up of foreign exchange reserves.
III- MONETARY POLICY OPERATIONS

Monetary policy and liquidity operations during 2020-21 were geared towards
mitigating the impact of COVID-19 pandemic. The monetary policy committee (MPC)
cut the policy repo rate by 115 basis points (bps) during March-May 2020, on top of
a cumulative reduction of 135 bps during February 2019 to February 2020. Backed
by conventional and unconventional liquidity measures, these actions bolstered
financial market sentiments while ensuring orderly market conditions. Interest rates
and bond yields declined across market segments and spreads narrowed, with a
distinct improvement in monetary transmission.

On October 5, 2020, the Government of India reconstituted the MPC, with the
expiry of the term of earlier external members of the MPC, by onboarding Prof.
Ashima Goyal, Professor, Indira Gandhi Institute of Development Research, Mumbai;
Prof. Jayanth R. Varma, Professor, Indian Institute of Management, Ahmedabad;
and Dr. Shashanka Bhide, Senior Adviser, National Council of Applied Economic
Research, Delhi. The October 2020 MPC meeting was the first meeting of these
external MPC members. Earlier, w.e.f. the August MPC meeting, Dr. Mridul K.
Saggar, Executive Director, Reserve Bank, joined the MPC on his nomination by the
5 The Reserve Bank mandated all scheduled commercial banks (excluding regional rural
banks) to link all new floating rate personal or retail loans and fl oating rate loans to micro
and small enterprises (MSEs) to the policy repo rate or 3-month T-bill rate or 6-month T-bill
rate or any other benchmark market interest rate published by Financial Benchmarks India
Private Ltd. (FBIL), effective October 1, 2019. It was extended to medium enterprises,
effective April 1, 2020.

6 The median saving deposit rate was 3 per cent for domestic banks in March 2021.
IV - CREDIT DELIVERY AND FINANCIAL INCLUSION
In the face of challenges due to COVID-19 pandemic, ensuring effective credit delivery and expanding the
reach of financial inclusion remained a priority for the Reserve Bank. The ongoing efforts under the
financial inclusion plans were intensified, including review of priority sector lending guidelines and
introduction of co-lending model. The implementation of the recommendations made by the Expert
Committee on MSMEs and Internal Working Group to Review Agricultural Credit were the notable
developments during the year. Efforts towards financial literacy are being sustained by expanding the
reach of Centres for Financial Literacy (CFL) to all blocks in the country and also revising the Financial
Awareness Messages Booklet.
 V- FINANCIAL MARKETS AND FOREIGN
EXCHANGE MANAGEMENT

The Reserve Bank continued its efforts to further develop and deepen various
segments of the financial markets by broadening participation, easing access,
improving financial market infrastructure and creating integrated surveillance systems
for maintaining market integrity. In response to the pandemic, adequate liquidity in
the system remained a dominant objective during the year. Concurrently, measures
were undertaken to streamline regulations relating to foreign exchange to align them
with the evolving business and economic environment, encompassing liberalisation of
the capital account and rationalisation of reporting requirements.
 VI- REGULATION, SUPERVISION AND FINANCIAL
STABILITY
Preserving financial stability while continuing to build a resilient and stable financial system took a
centre stage in the year 2020-21, even as alleviating stress in various sectors of the economy and
segments of the financial sector assumed importance as the year was marked with ravages of the
COVID-19 pandemic. Accordingly, while several regulatory and supervisory measures were
undertaken in response to the outbreak of the pandemic to address transient issues, in alignment
with the long-term objective, the regulatory and supervisory framework was streamlined across
regulated/supervised entities and strengthened, to maintain conformity with global best practices.
Harnessing technology for customer services, strengthening fraud detection and consumer protection
were also pursued as concurrent objectives. Capacity building of the personnel dealing with
supervision, regulation, financial stability and enforcement functions was prioritised.
 VII- PUBLIC DEBT MANAGEMENT
During the year, a major challenge in the aftermath of COVID-19 pandemic
was the management of debt both for the central and state governments. In
this milieu, the Reserve Bank took conventional and unconventional measures
in order to maintain the orderly market conditions along with ensuring that
the financial needs of the governments are met, while keeping in mind the
major objectives of cost minimisation, risk mitigation and market
development. Supported by these measures, the weighted average cost of
government borrowings through primary issuances of central government
dated securities during 2020-21 was at 17-year low of 5.79 per cent despite a
141.2 per cent jump in net market borrowings of the central government.
VIII- CURRENCY MANAGEMENT
The thrust of currency management during the year was to make available
adequate quantity of clean notes in circulation. The year witnessed a higher than
average increase in banknotes in circulation primarily due to precautionary
holding of cash by the public induced by the COVID-19 pandemic, and its
prolonged continuance. The Reserve Bank continued its efforts towards upgrading
the infrastructure for currency management.
IX- PAYMENT AND SETTLEMENT SYSTEMS AND
INFORMATION TECHNOLOGY
With rapid advancement of technology and advent of new developments and innovations in the
payments ecosystem, the Reserve Bank enhanced its focus on safety and security of payment
systems. In addition, the Reserve Bank continued its efforts to nurture efficiency, innovation,
competition, customer protection and financial inclusion. Implementation of round-the-clock RTGS
within a short timeline was a momentous milestone in this journey. Going ahead, the Reserve
Bank’s endeavour would be to promote innovation in the financial sector by leveraging on
technology for a sustainable Information and Communication Technology (ICT) infrastructure
designed for operational excellence with focus on resilience, reliability, security, integrity and
cost efficiency
X- COMMUNICATION, INTERNATIONAL
RELATIONS, RESEARCH AND STATISTICS
During the year, the Reserve Bank adopted innovative means of communication, virtual meetings,
web-conferencing and social media in response to the logistical constraints imposed by the
pandemic. Economic and statistical policy analysis and research were reoriented, and information
management systems were fortified. In the international arena, India took over the Chair of the
BRICS, completed the SAARCFINANCE Chair and co-chaired the G-20’s Framework Working Group
(FWG). Effective cash management and sound management of foreign exchange reserves in
pandemic conditions were concurrent priorities. Several legislative initiatives/ amendments were
undertaken to ensure a sound and efficient financial system.
XI- GOVERNANCE, HUMAN RESOURCES AND
ORGANISATIONAL MANAGEMENT
The Reserve Bank continued its endeavour to enhance the human resources skillset even during the
pandemic through various innovative in-house and external training programmes conducted via
virtual mode using cloudbased video applications. Several measures were initiated during the year
for strengthening the risk monitoring and internal audit mechanism in the Reserve Bank. In
response to the COVID-19 pandemic, the critical business processes were secured to ensure
business continuity and smooth functioning of the Reserve Bank’s time-sensitive critical activities,
while ensuring the safety and health of its human resources.
XII- THE RESERVE BANK’S ACCOUNTS FOR 2020-21
The year 2020-21 is significant for the change in the accounting year of the Reserve Bank to April - March
(earlier July - June). Due to this transition, the accounting year 2020-21 was of nine months only, i.e., July
2020 - March 2021. Thus, data presented in the chapter are for a period of nine months for 2020-21 as
compared to twelve months for the previous year(s). The Balance Sheet size of the Reserve Bank,
nevertheless, increased by 6.99 per cent for the year ended March 31, 2021, mainly reflecting its liquidity
and foreign exchange operations. While income for the year decreased by 10.96 per cent, the expenditure
decreased by 63.10 per cent. The year ended with an overall surplus of `99,122 crore as against `57,127.53
crore in the previous year, representing an increase of 73.51 per cent.