51st Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) was chaired by the RBI Governor.
Key Decisions Taken at the 51st MPC Meeting
- Unchanged Repo Rate: Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.5% for the 10th consecutive time.
- Change in Monetary Policy Stance: The MPC changed the policy stance to ‘Neutral’ from ‘withdrawal of accommodation’. Neutral stance allows the MPC greater flexibility to adjust monetary policy as needed while “withdrawal of accommodation” means restrictive monetary policy stance where the RBI aims to reduce the money supply in the economy (curb inflationary pressures). When the RBI withdraws accommodation, it signals that it is less inclined to support economic growth through lower rates, focusing instead on stabilising prices.
- Inflation Targets: The RBI has retained its Consumer Price Index (CPI) inflation forecast for FY2025 at 4.5%. Flexible Inflation Targeting (FIT) was introduced in 2015 to control inflation with a target of 4% (±2%) while allowing temporary deviations to support economic growth.
- Real GDP Growth Projections: The RBI kept its real GDP growth projection for FY25 at 7.2%. India’s growth story remains strong, driven by private consumption and investment demand.
- Hike in UPI123PAY Transaction Limit: The RBI has hiked the UPI 123PAY per transaction limit to Rs 10,000 from Rs 5,000. RBI announced a hike in the UPI lite per transaction limit to Rs 1,000 from Rs 500. RBI also hiked the UPI lite wallet limit to Rs 5,000 from currently Rs 2,000. UPI 123PAY is a payment system mainly for non-smart phone/feature phone users by which they can make payment using UPI without internet connectivity.
- Reserve Bank-Climate Risk Information System (RB-CRIS): RBI has proposed to create a data repository namely RB-CRIS to bridge the gap in climate-related data that is currently available in a fragmented manner. It will undertake climate risk assessments for ensuring stability of balance sheets of financial entities and that of the financial system. It will be in two parts. The first part will be a web-based directory listing various publicly accessible meteorological and geospatial data sources on the RBI’s website. The second part will be a data portal with standardised datasets, accessible only to regulated entities in a phased manner.
- Direction of NBFCs: RBI issued a strong advisory to non-banking financial companies (NBFCs), microfinance institutions (MFIs) and housing finance companies (HFCs), to follow a ‘compliance first’ culture and take a sincere approach to customer grievances.Compliance first culture prioritises adherence to laws, regulations, and internal policies above other business considerations.
RBI’s Stance on NBFCs in the 51st meeting of RBI MPC
- Growth at Any Cost Approach: RBI Governor expressed concerns regarding the “growth at any cost” mentality prevalent among some NBFCs while ignoring sustainable business practices and robust risk management frameworks.
- Review of Compensation Practices: RBI has directed NBFCs to reassess how they structure their employee compensation, especially regarding bonuses and incentives linked to short-term performance goals. The RBI is concerned that such practices may encourage risky or unsustainable behaviours focused solely on immediate results.
- Usurious Practices: Concerns were raised about NBFCs charging high-interest rates and imposing unreasonably high processing fees and penalties.
- Push Effect of Growth Targets: RBI Governor highlighted that aggressive growth targets could lead to retail credit growth that does not align with actual demand. It could potentially lead to high indebtedness posing financial stability risks.
- Investor Pressure: Some NBFCs, including MFIs and HFCs are driven by investor pressure to achieve excessive returns on equity (RoE). RBI urged NBFCs to adopt sustainable business goals and asked not to compromise long-term sustainability for short-term gains.