Page 9 - Banking Finance March 2022

RBI CORNER

close watch on the unfolding develop- value and could even be worse than plans to launch their own digital cur-
ments and act proactively to ensure Ponzi schemes, RBI deputy governor T rencies to promote financial inclusion.
that financial institutions and financial Rabi Sankar said, advocating a ban
markets remain resilient amidst the even while India is undecided on regu- Growth worries keep RBI
challenges posed by the resurgence of lating them.
the pandemic," the RBI said in a re- "We have seen that crypto-technology on long rate pause
lease. The Reserve Bank of India (RBI) held
is underpinned by a philosophy to evade
The sub-committee reviewed the ma- government controls," Sankar said at its key lending rates steady at record
jor developments in the global and the 17th Annual Banking Technology low levels for the 10th straight meet-
domestic economy. Conference and Awards of the Indian ing to support a durable recovery of
Banks' Association (IBA). the economy from the COVID-19 pan-
demic.
Reserve Bank paper pro- "Cryptocurrencies have specifically
been developed to bypass the regu- RBI Governor Shaktikanta Das said the
poses new investment
lated financial system. These should be Monetary Policy Committee (MPC)
category for banks reason enough to treat them with cau- decided to hold the lending rate, or the
The Reserve Bank of India proposed a tion." repo rate, steady at 4 per cent, and the
new investment category for banks- According to Sankar, cryptocurrencies reverse repo, or the rate at which it
fair value through profit and loss are not amenable to definition as a absorbs excess cash from lenders, un-
(FVTPL) account-as part of its initiatives currency, asset or commodity and changed at 3.35 per cent.
to align lenders' investment portfolio these should be reason enough to keep The six-member MPC, which has been
regulations with the global accounting them away from the formal financial on pause since August 2020, voted
standards. system. That apart, cryptos also under- unanimously to maintain the status quo
In a discussion paper released, RBI said mine financial integrity, especially the on the repo rate and by a majority of
the investment portfolio of banks shall KYC regime and Anti-Money Launder- 5-1 to retain the accommodative policy
now be divided into three categories- ing and Combating of Financing of Ter- stance as long as necessary, he said.
held to maturity (HTM), available for rorism regulations and at least poten- "Monetary policy actions will be cali-
sale (AFS) and FVTPL. tially facilitate anti-social activities, he brated and well telegraphed," he said,
said. indicating that there will not be any
The existing held-for-trading (HFT) cat-
egory will now come under the FVTPL That apart, he said that if allowed surprises.
category, according to the proposed cryptos can wreck the currency system, "Overall, taking into consideration the
rules. The HFT category was for debt the monetary authority, the banking outlook for inflation and growth, in
securities purchased by banks with the system, and in general the particular the comfort provided by
intent of selling them within a short government's ability to control the improving inflation outlook, the uncer-
period of time. Under FVTPL, debt in- economy. tainties related to Omicron and global
struments are measured at fair value "All these factors lead to the conclu- spillovers, the MPC was of the view
through a profit and loss account. sion that banning cryptocurrency is that continued policy support is war-
The new bank portfolio classification perhaps the most advisable choice ranted for a durable and broad-based
norms will come into effect from 1 April open to India. We have examined the recovery," he noted.
2023, the paper said, while inviting arguments proffered by those advo- While a status quo on repo rate was
comments on a discussion paper from cating that cryptocurrencies should be expected, some economists had ex-
stakeholders by 15 February. regulated and found that none of them pected a hike in the reverse repo to re-
stand up to basic scrutiny," said Sankar. align it with short-term money market
Banning crypto most ad- Central banks worldwide have warned rates.
visable choice, says RBI against the risks of privately issued MPC continuing with the accommoda-
cryptocurrencies for reasons ranging tive policy stance was one of the prime
Deputy Gov from the volatility in their value to risks reasons Das cited for not hiking the
Cryptocurrencies have no intrinsic to financial stability while working on reverse repo rate.

BANKING FINANCE | MARCH | 2022 | 9