Page 8 - Banking Finance October 2024

RBI CORNER

RBI Releases Framework

for Financial Market Self-
Regulatory Organisations
(SROs)

The Reserve Bank of India (RBI) has
introduced a framework for recogniz-
ing self-regulatory organisations (SROs) Ò»©­
within the financial markets sector,
aimed at strengthening compliance
and fostering a consultative approach
in policymaking. These SROs will play
a crucial role in establishing industry
standards and best practices while
ensuring their members adhere to RBI Deputy Governor Calls for Periodic Review of De-
them.
posit Insurance
According to the RBI, the SROs will
complement the existing legislative RBI Deputy Governor M. Rajeshwar Rao has advocated for periodic upward
and regulatory frameworks, focusing revisions of the deposit insurance coverage, currently set at Rs. 5 lakh per
depositor per bank. Speaking at the International Association of Deposit
on the development of voluntary
codes, standards, and benchmarks Insurers (IADI) conference, Rao highlighted that as India's economy grows
within the prescribed regulatory guide- and formalisation increases, a gap may emerge between ideal insurance
lines. Although the SROs will set pro- reserves and available resources, necessitating updates to the coverage limit.
fessional conduct standards, these will Rao suggested that factors like economic growth, inflation, and rising in-
not replace formal regulations. They come levels should be considered for future revisions. He also mentioned
will also work closely with the RBI to the possibility of targeted deposit insurance for specific groups, such as small
promote compliance and identify early depositors and senior citizens, to ensure optimal protection while maintain-
warning signals for potential risks ing financial viability.
within the sector.
deposit products and services, leverag- deficiencies in statutory and regulatory
Rising Aspirations Driving
ing their branch networks to attract compliance. Axis Bank's penalties were
Shift in Deposits, Says RBI more savings. He also highlighted the related to violations of the Banking

Governor benefits of infrastructure bonds, which Regulation Act and non-compliance
help banks raise funds at lower costs with directives on interest rates on
RBI Governor Shaktikanta Das noted without reserve requirements. Addi- deposits, Know Your Customer (KYC)
that rising aspirations among younger tionally, he reaffirmed that while infla- norms, and collateral-free agricultural
Indians, driven by education and tion is not expected to dip below 4%, loans.
internet exposure, are causing a shift it remains aligned with the central HDFC Bank was penalized for non-
from traditional bank deposits to alter- bank's long-term target of around 4%. compliance with directions regarding
native investment markets like stocks, deposit interest rates, recovery
insurance, and mutual funds. In an in- RBI Imposes Rs. 2.91 Crore agents, and customer service. The RBI
terview, Das emphasized that while clarified that these penalties reflect
this trend is positive, banks must pre- Penalty on Axis and HDFC regulatory shortcomings and do not
pare by managing liquidity and balanc- Bank affect the validity of transactions or
ing credit and deposit growth. The RBI has fined Axis Bank Rs. 1.91 agreements made between the banks
Das encouraged banks to innovate in crore and HDFC Bank Rs. 1 crore for and their customers.

8 | 2024 | OCTOBER | BANKING FINANCE