India Digitization Fund

Technology giant Google will invest $10 billion (₹75,000 crore) in India over the next five-seven years with a focus on digitising the economy and building India-first products and services.
The investment will focus on four areas important to digitization including:

Enabling affordable access and information for every Indian in their own language,
Building products and services that are deeply relevant to India’s unique needs,
Empowering businesses in their digital transformation journey, and
Leveraging technology and AI for social good, in areas like health, education, and agriculture.

IRDAI Forms Steering Committee for Bima Sugam

Recently, the Insurance Regulatory and Development Authority of India (IRDAI) has established a steering committee to oversee the development of its ambitious Bima Sugam platform, signalling the forthcoming appointment of a project consultant through an issued Request for Proposal (RFP).

Key Points

Bima Sugam Platform Overview: The Bima Sugam platform, once implemented, will enable individuals to purchase life, health, motor, or property insurance policies online.
It aims to provide a centralized hub for insurance companies, agents, brokers, banks, and aggregators, streamlining access to insurance-related services.
Centralized Database for Queries: Bima Sugam will serve as a centralized database to assist consumers with various insurance-related inquiries.
Revised Implementation Deadline: The platform is described as a "game-changing" initiative and will serve as a comprehensive marketplace for insurance-related activities, including policy purchase, claims processing, insurance advice, and grievance resolution.
Extensive Range of Insurance Offerings: The platform aims to support personal and commercial/business insurance requirements, offering a wide range of insurance products.
End-to-End Digital Onboarding: The Bima Sugam platform is expected to provide a seamless end-to-end digital onboarding process for all insurance products, eliminating manual interventions.

US Tops List of Foreign Direct Investors in India in FY23

Recently, a census conducted by the Reserve Bank of India (RBI) revealed that the United States emerged as the leading source of foreign direct investment (FDI) in India during FY23.

Key Points

US Leads FDI Inflow: According to RBI data, the US brought in Rs 8.58 lakh crore ($103 billion) in FDI in FY23, representing 17.2% of the share. This marked an increase from the previous fiscal year's Rs 8.05 lakh crore.
Other Major Contributors: FDI from Mauritius was Rs 7.43 lakh crore, accounting for a share of 14.9%, while the UK contributed Rs 7.08 lakh crore, making up 14.2% of the total.
Data Source: The census data was based on foreign liabilities and assets (FLA), encompassing cross-border liabilities and assets of various entities, including companies, limited liability partnerships, alternative investment funds, and partnership firms, with inward/outward direct investment (DI).
Outward Direct Investment (ODI): Singapore, the US, the UK, and the Netherlands were among the top destinations for ODI by Indian entities, collectively receiving 60% of the Rs 9.1 lakh crore invested by Indian firms in FY23. Total ODI by Indian firms increased by 19.46% to Rs 9.11 lakh crore ($109 billion) in FY23.
Market Value Growth: The census highlighted a 6.9% increase in the market value of FDI in India in FY23, primarily attributed to the rise in FDI in unlisted companies.
Sector-wise Attraction: The manufacturing sector continued to attract the largest share of FDI equity, both at market value and face value.
In the services sector, "Information & Communication" and "financial & insurance activities" were the primary recipients of FDI.
Ownership: Non-financial companies retained the majority of FDI equity at face value, with the market value of FDI in unlisted firms surpassing that in listed companies.

NPCI Introduces Innovative Payment Options on UPI Platform

On 6^th Sept, the National Payments Corporation of India (NPCI) has unveiled a range of new payment features on the United Payments Interface (UPI) platform, including conversational transactions.

Key Points:

Inclusive Digital Ecosystem: The newly introduced services, including credit lines on UPI, UPI LITE X, Tap and Pay, Hello! UPI, and conversational bill payments, are designed to foster an inclusive, robust, and sustainable digital payments environment.
BillPay Connect for Bill Payments: Bharat BillPay has introduced a nationalized bill payment number across India, allowing customers to conveniently fetch and pay their bills by simply sending a 'Hi' on messaging apps.
Voice-Assisted Bill Payments: BillPay Connect offers a voice-assisted bill payment feature. Users can retrieve and settle bills through voice commands on their smart home devices, receiving instant voice confirmation.
Credit Line on UPI: NPCI has launched a credit line on UPI to broaden access to credit and promote financial inclusion and innovation.
This feature facilitates pre-sanctioned credit lines from banks through UPI, simplifying customer access to credit and promoting a streamlined digital banking ecosystem.
Key Features of Credit Line on UPI: The credit line on UPI includes several essential features, such as linking pre-sanctioned credit lines, developing digital credit products, offering interest-free credit periods, defining schedule of charges, enabling customer engagement channels for credit sanction requests, and allowing the linking of various pre-sanctioned credit lines via UPI-enabled apps for transactions.
Interoperability and Offline Transactions: To ensure seamless interoperability, all UPI apps, including those from banks and third-party providers, will be empowered to discover and link credit lines on UPI.

Single QR Code for Digital Rupee Payments

Recently, banks in India have introduced interoperability between Unified Payments Interface (UPI) QR codes and central bank digital currency (CBDC) applications, enabling users of the retail digital rupee to make transactions by scanning any UPI QR code at merchant outlets.

This integration simplifies the process of using digital rupees for everyday transactions.

Key Points:

Definition: Interoperability is the technical compatibility that allows a payment system to work seamlessly with other payment systems, as defined by the Reserve Bank of India (RBI).
Benefits: Interoperability facilitates payment transactions across systems without requiring users to engage with multiple platforms. It enhances adoption, coexistence, innovation, and efficiency for users.
Integration: The interoperability of UPI and CBDC means that all UPI QR codes are compatible with CBDC applications.
Previous Process: Initially, retail digital rupee users needed to scan a specific QR code for transactions. Now, they can use a single QR code for payments.

Benefits to Merchants

Seamless Transactions: UPI and CBDC interoperability ensures smooth transactions between customers and merchants without the need to switch between multiple digital platforms.
Daily Needs Payments: Users can make payments for daily necessities like groceries and medicines by scanning any UPI QR code at merchant outlets.
Merchant Convenience: Merchants do not need a separate QR code to accept digital rupee payments; they can accept CBDC payments using their existing QR code.

Increasing CBDC Adoption

Current UPI Usage: UPI is a widely used payment method in India, with over 70 mobile apps and more than 50 million merchants accepting UPI payments.
Retail Digital Rupee Adoption: In July, RBI Deputy Governor mentioned that there were 1.3 million customers and 0.3 million merchants using the retail digital rupee.
Game Changer: The integration of CBDC with UPI is expected to boost the acceptance and use of digital currencies in everyday transactions, making it a game changer for the digital currency ecosystem.

What is a QR Code?

Description: A QR code is a pattern of black squares on a white background, readable by imaging devices like cameras. It contains information related to the item it represents.
Contactless Payments: QR codes enable contactless payments, allowing businesses to accept payments directly into their bank accounts.

Digital Rupee Overview

The digital rupee represents a form of currency similar to traditional banknotes but exists solely in virtual form, lacking physical tangible characteristics.
Its primary purpose is to enhance the efficiency, cost-effectiveness, and speed of the payment system by facilitating seamless digital transactions.
Users can make direct payments using digital rupees, reducing transaction costs and streamlining electronic transactions.

Central Bank Digital Currency (CBDC) Definition

The Reserve Bank of India (RBI) defines CBDC as a digital representation of legal tender issued by a central bank. It holds the same value as fiat currency and can be exchanged on a one-to-one basis with physical currency.
Transactions involving CBDC are executed using blockchain-backed wallets, ensuring the finality of payments and minimizing settlement risk.
CBDC is freely convertible to physical currency, allowing the exchange of digital currency for cash, akin to paper notes.
Unlike UPI (Unified Payments Interface), e-rupees transactions do not necessitate a bank account.

Regulation and Decentralization

The e-Rupee, unlike cryptocurrencies, will have legal status and will not operate in a decentralized manner. It will be subject to regulatory oversight by the RBI.
On the central bank's balance sheet, the digital rupee will be recorded as a liability under the category of currency in circulation.
The digital rupee system will complement existing financial transaction methods, providing users with an additional payment alternative.

Benefits of Digital Rupee

Strengthening India's Digital Economy: The RBI anticipates that the digital rupee will enhance India's digital economy, foster financial inclusion, and improve the efficiency of monetary and payment systems.
Cost Reduction: By minimizing the need for physical cash management, the digital rupee will lower associated costs. It is expected to streamline cross-border transactions, simplifying bank cash management and operations.
Sustainability: The digital currency's virtual nature eliminates physical damage and loss risks, offering an unlimited lifeline. Additionally, it helps mitigate the volatility associated with cryptocurrencies like Bitcoin.
Environmental Impact: Reduced reliance on paper currency translates to lower printing, distribution, and storage costs. The e-rupee can contribute significantly to environmental conservation by advancing a cashless economy.

India's First UPI-ATM, "Hitachi Money Spot UPI ATM"

Recently, Hitachi Payment Services, a subsidiary of Japan's Hitachi Ltd, unveiled India's inaugural UPI-ATM, called the Hitachi Money Spot UPI ATM, in collaboration with the National Payments Corporation of India (NPCI).

UPI-ATM Functionality: The UPI-ATM enables cash withdrawals from multiple accounts using the United Payments Interface (UPI) app.
Non-Banking Entity Operation: White Label ATMs (WLAs), like the Hitachi Money Spot UPI ATM, are operated by non-banking entities.
Enhanced Access to Banking Services: The UPI-ATM aims to boost financial inclusion by offering convenient access to banking services in regions with limited traditional banking infrastructure and card usage.
NPCI's Perspective: NPCI stated that the UPI ATM integration into traditional ATMs represents a significant advancement in banking services, providing quick cash access even in remote areas without physical cards.
Unique Offering by Hitachi Payment Services: Hitachi Payment Services is the sole White Label ATM operator offering cash deposit services, available at 3,000 locations in India.

CVC Reconstitutes Advisory Board on Banking and Financial Frauds

Recently, the Central Vigilance Commission (CVC) took steps to reconstitute the advisory board responsible for conducting preliminary examinations of bank frauds, before passing on recommendations to investigative agencies like the Central Bureau of Investigation (CBI).

Key Points:

Reconstitution of ABBFF: The reconstituted Advisory Board on Banking and Financial Frauds (ABBFF) will now be led by Suresh N Patel, former Central Vigilance Commissioner.
Alongside the Chairman, there are four Members, all serving a two-year tenure starting from August 21, as stated in the CVC's official order.
Mandatory Referral to ABBFF: All matters of fraud involving Rs. 3 crore and above must be referred to the advisory board for advice by public sector banks, public sector insurance companies, and public sector financial institutions.
This is to be done before initiating criminal investigation, and the advice provided by ABBFF should be considered by the competent authority.
Additional Referral Authority: CVC or CBI can also seek advice from ABBFF for any case or technical matter related to fraud.
Frauds Analysis and Policy Input: ABBFF is empowered to conduct periodic analysis of frauds within the financial system and provide inputs for policy formulation regarding frauds to RBI and CVC.
Location and Timelines: Headquartered in New Delhi, ABBFF is expected to provide requested advice within a month of receiving the initial reference from the Ministry/Department/CVC or the investigation agency, including the Delhi Special Police Establishment.
Sunset Clause Not Implemented: CVC did not implement the Indian Banks Association's (IBA) suggestion of a sunset clause, which would have limited action against bankers for credit decisions after a certain period.

RBI Revises Guidelines for Infrastructure Debt Funds (IDF-NBFCs)

On 18^th August, 2023, the Reserve Bank of India (RBI) introduced new requirements for Infrastructure Debt Fund-NBFCs (IDF-NBFCs), including a minimum net owned fund (NOF) of Rs 300 crore and a capital-to-risk weighted assets ratio (CRAR) of at least 15%, with a minimum Tier 1 capital of 10%.

Key Points

New Requirements for IDF-NBFCs: RBI has issued revised guidelines for Infrastructure Debt Funds - Non-Banking Financial Companies (IDF-NBFCs).
IDF-NBFCs are now required to maintain a minimum Net Owned Fund of Rs 300 crore and a CRAR of at least 15%, with a minimum Tier 1 capital of 10%.
Definition of IDF-NBFC Revised: The revised definition of an IDF-NBFC specifies that it is a non-deposit-taking NBFC authorized to refinance infrastructure projects that have completed at least one year of satisfactory commercial operations.
Additionally, IDF-NBFCs can directly finance toll-operate-transfer (TOT) projects.
Fundraising and ALM: IDF-NBFCs are permitted to raise funds through rupee or dollar-denominated bonds with a minimum maturity of five years.
They can also use shorter tenor bonds and commercial papers (CPs) up to 10% of their total outstanding borrowings for better asset-liability management (ALM).
External commercial borrowings (ECBs) with a minimum tenure of five years, not sourced from foreign branches of Indian banks, can also be utilized.
Exposure Limits and Risk Weights: IDF-NBFCs are subject to exposure limits, allowing up to 30% of their Tier 1 capital for a single borrower or party and up to 50% for a single group of borrowers or parties.
Changes in Sponsorship Requirements: The requirement for sponsorship of IDF-NBFCs by banks or NBFC-Infrastructure Finance Companies (NBFC-IFCs) has been removed.
The need for a tripartite agreement with concessionaires and project authorities for investments in Public-Private Partnership (PPP) infrastructure projects is now optional.
Eligibility Criteria for NBFCs to Sponsor IDF-MFs: RBI has outlined eligibility criteria for NBFCs to sponsor Infrastructure Debt Funds-Mutual Funds (IDF-MFs).
These criteria include factors such as net owned funds, net NPAs, years of existence, profitability, and other supervisory concerns.

RBI Offers Flexibility in Personal Loan Interest Rate Reset

On 18^th August, The Reserve Bank of India (RBI) introduced a significant policy shift by directing all regulated entities, including banks and NBFCs, to provide personal loan borrowers with the option to switch from floating interest rates to fixed rates during interest rate resets.

Key Points:

Borrower-Centric Regulations: This initiative, outlined in a circular titled 'Reset of floating interest rate on equated monthly instalments (EMI) based personal loans,' aims to empower borrowers with greater control over their loan structures.
Change of Tenure: Additionally, borrowers can opt for EMI enhancements or tenor elongation, further customizing their loan experience.
Switch to Fixed Rates: At interest rate resets, borrowers now have the choice to switch to fixed interest rates in accordance with the lender's board-approved policy.
Disclosure of Charges: Lenders are mandated to disclose all applicable charges for switching loans from floating to fixed rates, as well as any service charges or administrative costs.
These details must be presented in the sanction letter and communicated when changes in charges occur.
Enhanced Transparency: To enhance transparency, lenders are required to provide borrowers with quarterly statements through appropriate channels.
These statements will include information on principal and interest payments, EMI amounts, remaining EMIs, and annualized interest rates.
Implementation Deadline: The RBI has mandated that these instructions must be extended to both existing and new loans by December 31, 2023.
Rationale behind RBI's Move: The RBI's decision to implement these regulations stems from supervisory reviews and feedback from the public, which highlighted instances of lenders significantly elongating tenors for floating rate loans without proper consent.

RBI Launches UDGAM Portal for Locating Unclaimed Deposits

On 17^th August, 2023, the Reserve Bank of India (RBI) introduced the UDGAM (Unclaimed Deposits – Gateway to Access inforMation) portal, simplifying the process for citizens to locate their unclaimed deposits across multiple banks.

Key Points:

Addressing the Issue of Unclaimed Deposits: Minister of State for Finance disclosed that as of February 2023, unclaimed deposits worth Rs. 35,012 crores from public sector banks (PSBs), inactive for a decade or more, have been transferred to RBI.
UDGAM Portal Overview: The UDGAM portal, conceptualized by RBI, aims to create an accessible way for the public to identify and recover their unclaimed deposits from various banks.
Response to the Rise in Unclaimed Deposits: This initiative is a response to the concerning increase in unclaimed deposits, accompanied by RBI's efforts to raise awareness through public campaigns.
How the UDGAM Portal Functions: The portal empowers users to identify their own unclaimed deposit accounts or those of their parents that may have been neglected and forgotten. It allows users to reclaim the funds or reactivate dormant deposit accounts with their respective banks.
Collaborative Development and Initial Bank Inclusions: The portal's development has been a collaborative effort involving Reserve Bank Information Technology Pvt Ltd (ReBIT), Indian Financial Technology & Allied Services (IFTAS), and participating banks. Currently, the UDGAM portal covers seven banks, including State Bank of India, Punjab National Bank, South Indian Bank, Central Bank of India, Dhanlaxmi Bank, DBS Bank India, and CitiBank N.A.
Future Expansion and Accessibility: The UDGAM portal's accessibility is set to expand further, with additional banks to be included in the search facility by October 15, 2023.

"Vivad se Vishwas 2" Scheme

On 2^nd August, 2023, the Ministry of Finance's Department of Expenditure introduced the "Vivad se Vishwas 2" scheme, a strategic move to accelerate the resolution of contractual conflicts involving government entities.

Key Points

Scope and Coverage: The scheme's scope extends to disputes arising until September 30, 2022, emphasizing its applicability to a wide range of cases involving government entities.
Graded Settlement Approach: The scheme embraces a graded approach to settlement, considering the degree of dispute pendency.
Applicability: The scheme's ambit encompasses all domestic contractual disputes involving either the Government of India or organizations operating under its jurisdiction.
Settlement Amounts: Under the scheme, contractors dealing with court awards issued on or before April 30, 2023, could receive settlement amounts up to 85% of the net award upheld by the court.
Similarly, for arbitral awards passed on or before January 31, 2023, a settlement offer of up to 65% of the net awarded sum is extended.
Streamlined Process: To facilitate a transparent and efficient process, the government e-marketplace (GeM) has launched a dedicated web page for the scheme's implementation.
Eligible claims will undergo processing solely through the GeM platform, ensuring a streamlined resolution process.
Enhancing Dispute Resolution: The scheme is designed to provide a significant boost to the timely settlement of contractual disputes between the government and government undertakings.