RBI Annual Report Summary 2023-24 PDF

Summary Notes RBI Annual Report 2023-24 RBI Annual Report 2023-24 Serial Chapter Page No. No- Unit-1 1 Assessment and Prospects...

Summary Notes RBI Annual Report 2023-24 RBI Annual Report 2023-24 Serial Chapter Page No. No- Unit-1 1 Assessment and Prospects 3 2 Economic Review 4 Unit-2 3 Monetary Policy Operations 9 4 Credit Delivery and Financial Inclusion 11 5 Financial Markets and Foreign Exchange Management 13 6 Regulation, Supervision and Financial Stability 15 7 Public Debt Management 16 8 Currency Management 18 8 Payment and Settlement Systems and Information Technology 20 9 Communication, International Relations, Research and Statistics 21 10 RBI’s Accounts for 2023-24 23 Assessment and Prospects Global Economy Overview 2 RBI Annual Report 2023-24 Global Growth and Challenges: The global economy displayed resilience amidst multiple challenges, including high inflation, tight monetary conditions, geopolitical tensions, and financial stability risks. Global growth is projected to weaken below its historical average in 2024. Inflation Dynamics: While inflation is easing, it remains above target in major economies, impeded by core and services inflation and tight labor markets. Some emerging market economies have begun cutting rates while major advanced economies shift from negative policy rates. Financial Market Volatility: Global financial markets experienced volatility due to uncertainty around monetary policies. The US dollar remained strong, impacting emerging market currencies. Global equity markets rose, driven by technology and AI-related stocks. Assessment of the 2023-24 Experience Global Economy Growth and Inflation: Global growth decelerated to 3.2% in 2023 from 3.5% in 2022. Inflation decreased to 6.8% from 8.7%, but core inflation remained persistent due to tight labor markets. Trade Dynamics: Global merchandise trade volume contracted by 1.2% in 2023, while services trade showed resilience. Financial conditions tightened with rising sovereign bond yields and a strong US dollar. Domestic Economy GDP Growth: India’s GDP grew by 7.6% in 2023-24, making it the fastest growing major economy. Investment, driven by government infrastructure spending, was the main driver of demand, while private consumption grew by 3.0%. Sectoral Performance: Agriculture growth slowed to 0.7% due to deficient monsoon rainfall. The industrial sector saw robust growth in manufacturing and mining. The services sector, accounting for over 63% of GVA, grew by 7.9%, driven by construction and financial services. Inflation and Monetary Policy: Headline inflation moderated to 5.4%, driven by a decline in core and fuel prices. Food inflation remained high at 7.0%. The Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 6.50% to ensure inflation aligns with the target. Fiscal Consolidation: The central government’s fiscal deficit reduced to 5.9% of GDP. Revenue spending grew by 2.5%, while capital expenditure increased significantly. State governments maintained fiscal discipline with increased capital spending. External Sector: Merchandise exports fell by 3.1%, while imports decreased by 5.7%, narrowing the trade deficit. The current account deficit (CAD) moderated to 1.2% of GDP. Foreign exchange reserves rose to an all-time high of $648.7 billion. Financial Sector Banking Sector: SCBs remained well-capitalized, with improved asset quality and robust credit growth. NBFCs also showed strong capital adequacy and profitability. Regulatory Measures: Various guidelines were issued to strengthen governance and risk management, including frameworks for digital lending and operational risk. 3 RBI Annual Report 2023-24 Digital Innovations: The Reserve Bank conducted pilots for central bank digital currency and developed platforms for frictionless credit and digital payments, achieving significant milestones in UPI transactions. Climate and Inclusion Climate Action: India’s performance improved in the Climate Change Performance Index, driven by reductions in emission intensity and increased non-fossil fuel energy capacity. Initiatives like the National Green Hydrogen Mission were launched. Financial Inclusion: The Financial Inclusion Index improved to 60.1, driven by usage and quality dimensions. The Reserve Bank launched the Financial Inclusion Dashboard - ANTARDRISHTI to monitor progress. Prospects for 2024-25 Global Economy Growth and Inflation Outlook: The global economy is projected to grow by 3.2% in 2024 and 2025. Global inflation is expected to moderate to 5.9% in 2024 and 4.5% in 2025, though persistent supply shocks pose risks. Trade and Public Debt: Global trade volumes are expected to recover with 3.0% growth in 2024. High levels of public debt in major economies raise concerns about financial stability and call for credible fiscal consolidation plans. Domestic Economy GDP Growth Outlook: India’s GDP is projected to grow by 7.0% in 2024-25, supported by strong investment and consumption demand. Favorable agricultural prospects and government initiatives in renewable energy and semiconductors will boost growth. Inflation Outlook: Inflation is projected at 4.5% for 2024-25. Supply chain improvements and a normal monsoon are expected to ease inflationary pressures, though climate shocks and geopolitical tensions pose risks. Fiscal and Monetary Policies: The government’s focus on capital expenditure and fiscal consolidation will support growth. The Reserve Bank will continue to manage liquidity to maintain financial stability. External Sector and Trade: Merchandise exports are expected to benefit from global trade recovery, though geopolitical risks remain. The CAD is projected to remain manageable, supported by robust services trade and capital inflows. The Indian economy demonstrated resilience amidst global challenges, driven by strong investment demand, robust banking and corporate sectors, and prudent fiscal and monetary policies. Inflation is expected to align with targets, supporting consumption demand. The external sector's strength and foreign exchange reserves provide a buffer against global risks. The Indian economy is well-positioned to sustain its growth trajectory and achieve its developmental goals over the next decade. Economic Review Global Economy Resilience and Challenges: The global economy showed resilience in 2023 with a 3.2% growth rate, despite restrictive monetary policies, geopolitical tensions, and 4 RBI Annual Report 2023-24 geoeconomic fragmentation. Inflation eased to 6.8% from 8.7% in 2022 due to monetary tightening and supply chain restoration. Trade and Financial Markets: Global merchandise trade volume contracted by 1.2% in 2023. Financial markets experienced volatility, and sovereign bond yields saw significant movements. The US dollar remained strong, impacting emerging market economies (EMEs). Indian Economy GDP Growth: India's real GDP growth improved to 7.6% in 2023-24 from 7.0% in the previous year, driven by robust fixed investment and manufacturing profitability. Inflation: Headline inflation moderated to 5.4%, and core inflation fell below 4% from December 2023. Food inflation remained high at 7.0% due to supply shocks. Fiscal Performance: The central government’s fiscal deficit reduced to 5.9% of GDP. Revenue spending grew by 2.5%, and capital expenditure increased significantly. State governments maintained fiscal discipline with increased capital spending. Financial Sector: SCBs remained well-capitalized, with improved asset quality and robust credit growth. NBFCs also showed strong capital adequacy and profitability. External Sector: Merchandise exports fell by 3.1%, while imports decreased by 5.7%, narrowing the trade deficit. The current account deficit (CAD) moderated to 1.2% of GDP. Foreign exchange reserves rose to an all-time high of $648.7 billion. Prospects for 2024-25 Global Economy Growth and Inflation Outlook: Global growth is projected at 3.2% for 2024 and 2025. Global inflation is expected to moderate to 5.9% in 2024 and 4.5% in 2025. Trade and Public Debt: Global trade volumes are expected to recover with 3.0% growth in 2024. High levels of public debt in major economies raise concerns about financial stability. Domestic Economy GDP Growth Outlook: India’s GDP is projected to grow by 7.0% in 2024-25, supported by strong investment and consumption demand. Favorable agricultural prospects and government initiatives in renewable energy and semiconductors will boost growth. Inflation Outlook: Inflation is projected at 4.5% for 2024-25. Supply chain improvements and a normal monsoon are expected to ease inflationary pressures, though climate shocks and geopolitical tensions pose risks. Fiscal and Monetary Policies: The government’s focus on capital expenditure and fiscal consolidation will support growth. The Reserve Bank will continue to manage liquidity to maintain financial stability. External Sector and Trade: Merchandise exports are expected to benefit from global trade recovery, though geopolitical risks remain. The CAD is projected to remain manageable, supported by robust services trade and capital inflows. Real Economy Aggregate Demand Private Final Consumption Expenditure (PFCE): Slowed to 3.0% due to deficient monsoon affecting agricultural production. Urban demand was supported by improved labor market conditions and higher disposable incomes. 5 RBI Annual Report 2023-24 Government Final Consumption Expenditure (GFCE): Displayed modest expansion, aligned with fiscal consolidation. Investment and Savings: The rate of gross domestic investment moderated slightly, but the gross fixed capital formation increased to 34.1% of GDP. Household financial saving dropped to 5.2% of GNDI from 7.2%. Aggregate Supply Agriculture: Growth slowed to 0.7% due to uneven and deficient monsoon rainfall. Production of foodgrains was 1.3% lower than the previous year. Industry: Strong growth with an 8.3% increase in real GVA. The manufacturing sector benefitted from the production-linked incentive (PLI) scheme. Services: Grew by 7.9%, driven by construction, financial services, and robust demand indicators like air traffic, railway freight, and automobile sales. Employment Labor Market Improvement: Unemployment rate declined to 3.2% in 2022-23. The labor force participation rate (LFPR) rose to 57.9%. Urban and rural employment conditions improved significantly. Price Situation Headline Inflation: Moderated to 5.4% due to monetary policy tightening and supply management measures. Food inflation remained volatile due to recurrent supply shocks. Global Inflation: Eased to 6.8% in 2023, though it remained above pre-pandemic levels. Commodity prices, especially energy, saw a significant decline. Price Situation Inflation in India Headline Inflation: Headline inflation in India moderated during 2023-24, remaining within the tolerance band due to anti-inflationary monetary policy, active supply management measures, and corrections in global commodity prices. The average headline inflation was 5.4% for 2023-24, down from 6.7% in the previous year. Volatility: Despite the moderation, inflation volatility increased due to extreme weather events causing intermittent spikes in food prices. Global Inflation Developments Global Inflation Trends: Globally, inflation eased in 2023 from its multi-decadal peak in 2022. The IMF reported a drop in global inflation to 6.8% from 8.7%. Contributing factors included aggressive monetary policy tightening, normalisation of supply chains, and softening of global energy and food prices. Commodity Prices: Energy prices decreased by around 28% during 2023-24, driven by subdued global demand and increased non-OPEC+ supply. Metal prices declined by 8%, and international food prices fell by 10% due to robust harvests, although rice and sugar prices increased due to supply-demand gaps. Inflation Dynamics in India Trends: India’s headline inflation saw fluctuations, peaking at 7.4% in July 2023 and easing to 4.9% by March 2024. The volatility was mainly due to food prices. 6 RBI Annual Report 2023-24 Supply Measures: The government implemented targeted interventions, stock limits, and active trade policy initiatives to mitigate price pressures on inflation-sensitive agricultural items. Core Inflation: Core inflation was tempered by monetary tightening, improved global supply chains, and corrections in input cost pressures, achieving the lowest print in March 2024 since the current CPI series began. Drivers of Inflation Food and Beverages: Food inflation remained the major driver of headline inflation, contributing significantly to overall price levels. Fuel and Light: The fuel and light group remained in deflation since September 2023, influenced by the global softening of energy prices. Other Indicators: Various other indicators of prices and costs showed mixed trends, reflecting the complex dynamics influencing inflation during the year. Monetary and Credit Conditions Evolution and Impact: Monetary and credit conditions in 2023-24 aligned with the monetary policy stance, supporting domestic economic activity. Key factors influencing their evolution included the withdrawal of ₹2000 banknotes in May 2023, the merger of a non-bank with a bank in July 2023, and the temporary imposition of the incremental cash reserve ratio (I-CRR) in August 2023. Reserve Money Trends and Composition: The expansion in reserve money (RM) and currency in circulation moderated as most ₹2000 banknotes returned to the banking system as deposits. This, along with higher term deposit rates, accelerated aggregate deposits and broad money (M3). Balance Sheet: The size of the Reserve Bank’s balance sheet increased to 24.1% of GDP at end-March 2024 from 23.5% at end-March 2023. RM growth decelerated to 6.7% from 9.7% in the previous year, reflecting the withdrawal of ₹2000 banknotes and increased government cash balances. Components: RM comprises currency in circulation, bankers’ deposits with the Reserve Bank, and other deposits. The currency-deposit ratio fell to 15.9% from 17.3% in the previous year, showing the impact of the return of ₹2000 banknotes. Money Supply Broad Money (M3): M3 growth accelerated to 11.2% as on March 22, 2024, from 9.0% a year ago, driven mainly by time deposits benefitting from higher deposit rates. The ratio of M3 to GDP reverted to pre-pandemic levels. Key Ratios: The money multiplier was 5.4, slightly higher than the decennial average. The reserve-deposit ratio remained stable due to no change in the CRR. Bank Credit Credit Growth: Bank credit exhibited sustained double-digit growth, expanding by 16.3% as of March 22, 2024, up from 15.0% in the previous year. Private sector banks (PVBs) showed higher growth than public sector banks (PSBs), with PVBs' credit growth accelerating to 19.2%. 7 RBI Annual Report 2023-24 Sectoral Distribution: Credit to agriculture grew by 20.1%, to micro, small, and medium enterprises (MSMEs) by 14.1%, and to the services sector by 20.2%, driven by demand from NBFCs and trade. Personal loans grew by 17.7%, supported by housing loans. Financial Conditions Deposit Growth: SCBs' deposit growth remained below that of bank credit, resulting in an incremental credit-deposit ratio above 100% during June 2022-May 2023. Banks bridged the funding gap through increased issuances of certificates of deposit (CDs), which rose to ₹8.3 lakh crore during 2023-24. Liquidity and Rates: The transactions velocity of money remained stable. The average daily spread of CD and commercial paper (CP) rates over T-bill rates increased, reflecting tight liquidity conditions and regulatory measures on consumer credit and bank credit to NBFCs. Conclusion The withdrawal of ₹2000 banknotes and their return as bank deposits led to a deceleration in currency in circulation and reserve money, while contributing to accelerated deposit growth. Attractive deposit rates further boosted bank deposits, supporting sustained demand for bank credit. Financial Markets Global Financial Markets Volatility and Uncertainty: Global financial markets remained volatile in 2023-24, influenced by uncertainties surrounding disinflation in major economies, the monetary policy trajectory of central banks, and intensifying geopolitical tensions. Market sentiment was highly sensitive to forward guidance and incoming data, leading to significant two-way movements. Domestic Financial Markets Orderly Evolution: Domestic financial markets in India evolved in an orderly manner during 2023-24, supported by resilient economic activity and strengthening macroeconomic fundamentals. Key developments included firming money market rates, range-bound sovereign bond yields, strong equity market performance, and a stable Indian rupee. Money Market Rates and Liquidity: Money market rates oscillated around the policy corridor in tune with evolving liquidity conditions. The weighted average call rate (WACR) moved within a range, reflecting tightening liquidity conditions due to increased government cash balances and festival-related expansion in currency in circulation. The WACR averaged 13 basis points above the policy repo rate in 2023-24. Volume and Volatility: Volatility in the call money segment decreased significantly, and average daily volumes in the money market declined slightly from the previous year. The share of triparty repo transactions increased, while the share of market repo transactions fell. Government Securities (G-secs) Market Yield Movements: G-sec yields exhibited two-way movements. In the first half of the year, yields softened due to favorable inflation readings and lower crude oil prices. The 8 RBI Annual Report 2023-24 10-year G-sec yield closed at 7.12% at the end of Q1. However, yields hardened later in the year due to tight liquidity conditions and regulatory measures. Inclusion in Global Indices: The announcement of the inclusion of Indian sovereign bonds in major global bond indices positively impacted the market, leading to a softening of yields in the second half of the year. Corporate Debt Market Bond Yields and Issuances: Corporate bond yields generally mirrored G-sec yields, with softening in the first half and hardening in the second half of the year. The monthly average yield on AAA-rated 3-year bonds for PSUs, financial institutions, and corporates declined slightly by the end of the year. Primary corporate bond issuances increased by 12.2% to ₹8.6 lakh crore. FPI Investments: Foreign portfolio investments in corporate bonds increased marginally, with the utilization of approved limits rising slightly. Equity Market Strong Performance: The Indian equity market remained buoyant, with the BSE Sensex touching new highs and gaining 24.9% to close at 73,651 at the end of March 2024. The equity market's exuberance was driven by strong macroeconomic fundamentals and robust corporate profitability. Primary Market Mobilization: Resource mobilization through IPOs, FPOs, and rights issues increased, with the SME segment showing significant growth. Net resources mobilized by mutual funds more than quadrupled to ₹3.5 lakh crore from the previous year. Foreign Exchange Market INR Stability: The Indian rupee displayed stability, supported by improving domestic growth prospects and higher FPI inflows. The INR depreciated by 1.4% during the year, making it one of the best-performing major EME currencies. Effective Exchange Rates: The nominal effective exchange rate (NEER) depreciated by 0.6% y-o-y, while the real effective exchange rate (REER) appreciated by 0.9% y-o-y. Conclusion Indian financial markets demonstrated resilience and stability during 2023-24, despite global spillovers from tightening financial conditions and geopolitical tensions. Reduced volatility in money market rates, orderly movements in G-sec yields, a stable INR, and a robust equity market performance characterized the year. Monetary Policy Operations Global Financial Markets Volatility and Uncertainty: Global financial markets remained volatile in 2023-24, influenced by uncertainties surrounding disinflation in major economies, the monetary policy trajectory of central banks, and intensifying geopolitical tensions. Market sentiment was highly sensitive to forward guidance and incoming data, leading to significant two-way movements. Domestic Financial Markets 9 RBI Annual Report 2023-24 Orderly Evolution: Domestic financial markets in India evolved in an orderly manner during 2023-24, supported by resilient economic activity and strengthening macroeconomic fundamentals. Key developments included firming money market rates, range-bound sovereign bond yields, strong equity market performance, and a stable Indian rupee. Money Market Rates and Liquidity: Money market rates oscillated around the policy corridor in tune with evolving liquidity conditions. The weighted average call rate (WACR) moved within a range, reflecting tightening liquidity conditions due to increased government cash balances and festival-related expansion in currency in circulation. The WACR averaged 13 basis points above the policy repo rate in 2023-24. Volume and Volatility: Volatility in the call money segment decreased significantly, and average daily volumes in the money market declined slightly from the previous year. The share of triparty repo transactions increased, while the share of market repo transactions fell. Government Securities (G-secs) Market Yield Movements: G-sec yields exhibited two-way movements. In the first half of the year, yields softened due to favorable inflation readings and lower crude oil prices. The 10-year G-sec yield closed at 7.12% at the end of Q1. However, yields hardened later in the year due to tight liquidity conditions and regulatory measures. Inclusion in Global Indices: The announcement of the inclusion of Indian sovereign bonds in major global bond indices positively impacted the market, leading to a softening of yields in the second half of the year. Corporate Debt Market Bond Yields and Issuances: Corporate bond yields generally mirrored G-sec yields, with softening in the first half and hardening in the second half of the year. The monthly average yield on AAA-rated 3-year bonds for PSUs, financial institutions, and corporates declined slightly by the end of the year. Primary corporate bond issuances increased by 12.2% to ₹8.6 lakh crore. FPI Investments: Foreign portfolio investments in corporate bonds increased marginally, with the utilization of approved limits rising slightly. Equity Market Strong Performance: The Indian equity market remained buoyant, with the BSE Sensex touching new highs and gaining 24.9% to close at 73,651 at the end of March 2024. The equity market's exuberance was driven by strong macroeconomic fundamentals and robust corporate profitability. Primary Market Mobilization: Resource mobilization through IPOs, FPOs, and rights issues increased, with the SME segment showing significant growth. Net resources mobilized by mutual funds more than quadrupled to ₹3.5 lakh crore from the previous year. Foreign Exchange Market INR Stability: The Indian rupee displayed stability, supported by improving domestic growth prospects and higher FPI inflows. The INR depreciated by 1.4% during the year, making it one of the best-performing major EME currencies. 10 RBI Annual Report 2023-24 Effective Exchange Rates: The nominal effective exchange rate (NEER) depreciated by 0.6% y-o-y, while the real effective exchange rate (REER) appreciated by 0.9% y-o-y. Conclusion Indian financial markets demonstrated resilience and stability during 2023-24, despite global spillovers from tightening financial conditions and geopolitical tensions. Reduced volatility in money market rates, orderly movements in G-sec yields, a stable INR, and a robust equity market performance characterized the year. Credit Delivery and Financial Inclusion Overview Initiatives and Progress: During 2023-24, the Reserve Bank focused on deepening financial inclusion and enhancing credit delivery to agriculture, MSMEs, and other priority sectors. The Financial Inclusion Index (FI-Index) grew by 6.6% to 60.1, reflecting progress across all sub- indices. The Financial Inclusion Dashboard - ANTARDRISHTI was launched to monitor and assess financial inclusion efforts. Agenda for 2023-24 Goals: o Expand Centre for Financial Literacy (CFL) coverage to the entire country. o Contribute to G20 Global Partnership for Financial Inclusion (GPFI) deliverables. Implementation Status Centre for Financial Literacy (CFL): The CFL project, initiated in 2017, was scaled up to 2,421 CFLs covering 7,225 blocks by March 31, 2024. The project is funded by the Depositor Education Awareness Fund (DEAF), the Financial Inclusion Fund (FIF) of NABARD, and sponsor banks. G20 Presidency: The Reserve Bank contributed to the G20 Policy Recommendations report on advancing financial inclusion and productivity gains through digital public infrastructure. Major Developments Priority Sector Lending (PSL) Achievements: SCBs’ PSL stood at 45.1% of adjusted net bank credit (ANBC) as of March 31, 2024. Each bank group met the prescribed 40% PSL target. Flow of Credit to Agriculture Kisan Credit Card (KCC): The number of operative KCCs rose by 5.4%, and the outstanding amount increased by 10.9% by end-March 2024. Bank Credit to the MSME Sector Growth: Outstanding credit to MSMEs by SCBs expanded by 20.9% on a y-o-y basis as of December 2023. Measures for the MSME Sector 11 RBI Annual Report 2023-24 Udyam Assist Platform (UAP): To formalize informal micro enterprises (IMEs), the Ministry of MSME launched UAP. Certificates issued on UAP are treated on par with Udyam Registration Certificates for PSL classification. NAMCABS: A capacity-building program for bankers, with 3,950 participants in 2023-24, focusing on credit-related issues in the MSME sector. Financial Inclusion Lead Bank Responsibility: Assignment: 12 public sector banks and two private sector banks cover 779 districts as lead banks as of March 31, 2024. Universal Access to Financial Services: Achievement: Banking access was provided to every village within a 5 km radius/hamlet of 500 households, covering 99.99% of identified villages/hamlets. Digital Payments Ecosystem: Expansion: 179 districts were 100% digitally enabled by March 31, 2024. Financial Inclusion Plan (FIP): Progress: Significant increases in the number of banking outlets, Basic Savings Bank Deposit Accounts (BSBDA), and Kisan Credit Cards (KCC). Financial Inclusion Index (FI-Index): Growth: The FI-Index rose to 60.1 in March 2023 from 56.4 in March 2022. Financial Inclusion Dashboard – ANTARDRISHTI: Launch: Introduced to monitor financial inclusion progress and address regional disparities in banking facilities and credit flow. Financial Literacy National Strategy for Financial Education (NSFE): Implementation: Various programs for adults, teachers, students, and young graduates. Monitoring by the Technical Group on Financial Inclusion and Financial Literacy (TGFIFL). Financial Literacy Week 2024: Theme: ‘Make a Right Start: Become Financially Smart’, targeting students and young adults with sub-themes on saving, banking essentials, and digital hygiene. All-India Quiz on Financial Literacy: Participation: Conducted for students of government and municipal schools with over 1 lakh participants. Agenda for 2024-25 Goals: o Formulate the next iteration of the NSFI for 2025-30. o Review priority sector lending guidelines. o Achieve 100% digital payment coverage in 50% of districts. o Enhance the Lead Bank Scheme for greater financial inclusion. o Strengthen the regulatory framework for MSME credit availability. Conclusion The Reserve Bank emphasized ensuring the availability of banking services across all sections of society and strengthening the credit delivery system. Key initiatives included the Financial Inclusion Dashboard and ongoing efforts to deepen financial inclusion and enhance credit availability. Financial Markets and Foreign Exchange Management 12 RBI Annual Report 2023-24 Overview Development and Regulation: In 2023-24, the Reserve Bank focused on developing and deepening financial markets by expanding participation, easing access, enhancing the regulatory framework, and fostering innovations. Efforts also included the transition away from LIBOR, introducing securities lending in G-secs, and including sovereign green bonds under the Fully Accessible Route (FAR). Financial Markets Regulation Department (FMRD) Initial Margin for Non-Centrally Cleared Derivatives (NCCDs): Issued final directions mandating the exchange of initial margin for NCCDs. Foreign Exchange (FX) Derivative Market: Reviewed and issued new directions to enhance operational efficiencies and ease access for users with small FX exposures. Trade Repositories (TRs): Consolidated and rationalized directions for reporting OTC derivative transactions to enhance market transparency. Major Initiatives LIBOR Transition: Issued a final advisory for transitioning away from LIBOR and MIFOR to alternative benchmarks. Borrowing Limits for SCBs: Allowed SCBs to set their own borrowing limits in call and notice money markets within prudential limits. Non-Deliverable Derivative Contract (NDDC) Market: Permitted AD Category-I banks in IFSCs to offer INR NDDCs to resident non-retail users. Sovereign Green Bonds: Included sovereign green bonds issued by the GoI under the FAR for non-residents. Unauthorised Forex Trading Platforms: Updated the ‘Alert List’ of unauthorized entities offering/promoting unauthorized forex trading platforms. Securities Lending in G-secs: Permitted securities lending and borrowing in G-secs to enhance portfolio returns and deepen the market. Financial Benchmark Administrators (FBAs): Implemented a comprehensive risk-based regulatory framework for FBAs to ensure accuracy and integrity of benchmarks. Commercial Paper (CP) and Non-Convertible Debentures (NCDs): Reviewed and issued revised directions for consistency across products. Bond Forwards on G-secs: Issued draft directions to expand interest rate derivatives and enable better risk management. Hedging of FX Risks: Issued revised directions consolidating previous rules and expanding the suite of permitted FX derivative products. Inclusion in Global Bond Index: Announced the inclusion of Indian Government Bonds (IGBs) in major global bond indices, expected to boost demand and liquidity. Goals for 2024-25 Legal Entity Identifier (LEI) Requirements: Enhance aggregation and transparency for OTC derivative transactions. ETP Authorisation Framework: Review and update the regulatory framework for electronic trading platforms. Self-Regulatory Organisations (SROs): Develop a framework for SROs in financial markets. Financial Markets Operations Department (FMOD) 13 RBI Annual Report 2023-24 Liquidity Management: Conducted liquidity management through VRRR and VRR auctions in response to evolving liquidity conditions. Forex Market Operations: Intervened in forex markets to maintain orderly conditions and curb undue volatility in the USD/INR exchange rate. Policy-Oriented Research: Conducted research on financial markets to guide market operations strategies. Goals for 2024-25 Technological Upgradation: Enhance technology for smoother liquidity management operations. Consolidated Liquidity Instructions: Issue consolidated instructions on liquidity adjustment facility. Enhanced Intervention Toolkit: Enhance tools for focused forex operations. Ongoing Policy Research: Continue policy-oriented research to guide market operations strategies. Foreign Exchange Department (FED) Compounding Proceedings Rules: Review and update rules to enhance monetary ceilings and streamline procedures. Authorisation Framework for Authorised Persons (APs): Rationalise and simplify the licensing framework. Liberalised Remittance Scheme (LRS): Comprehensive review to address various issues, including legal framework and annual limits. Manner of Receipt and Payment Regulations: Issued revised regulations to support INR internationalization and local currency settlements. Supervisory Framework for FFMCs and Non-Bank AD Category-II: Comprehensive review in progress. Guarantee Regulations: Review to reflect changing macroeconomic conditions and business needs. Trade Guidelines: Simplification and rationalisation to improve ease of doing business. Major Initiatives APConnect: Implemented a new software for licensing and authorisation processes, enhancing operational efficiency. Online Form A2 Submission: Permitted AD Category-II entities to allow online submission of Form A2 for remittances. LRS Remittances to IFSCs: Aligned LRS for IFSCs with other foreign jurisdictions, enhancing operational flexibility. Forex Prepaid Cards: Issued instructions for charges/fees to be denominated and settled in INR only. Import of Silver by Qualified Jewellers: Permitted qualified jewellers to remit advance payment for importing silver through IIBX. International Trade Settlement in INR: Allowed AD Category-I banks to open additional current accounts for export proceeds settlement. CIMS Project Implementation: Shifted submission of certain returns to the CIMS platform. Import of Gold under India-UAE CEPA: Permitted advance payment for gold import by valid TRQ holders through IIBX. 14 RBI Annual Report 2023-24 Awareness Programmes: Conducted workshops and townhall events for APs and users of foreign exchange. Goals for 2024-25 APs Authorisation Framework: Review and update framework under FEMA. ECB Framework: Liberalise the external commercial borrowing framework. SPECTRA Project: Launch phase I for ECBs and trade credits reporting and approval. Export Regulations: Rationalise regulations for export of goods and services. Supervisory Framework for APs: Review and update guidelines. Guarantee Regulations: Rationalise regulations under FEMA. Mode of Payment and Reporting: Review and update non-debt instruments regulations. INR Internationalisation: Enable INR accounts outside India, INR lending, and special account investments. Forex Transactions Reporting: Develop a framework for integrated reporting. GIFT City Development: Enhance trading of FCY-INR pairs and review IFSC regulations. Compounding Proceedings Rules: Review and update under FEMA. LRS Rationalisation: Simplify and rationalise the LRS. Inward Remittance Schemes: Rationalise MTSS and RDA schemes. Conclusion The Reserve Bank undertook several measures to enhance transparency, expand the investor base, and strengthen the regulatory framework in financial markets. Efforts towards internationalizing the INR and the inclusion of Indian government bonds in global indices are expected to enhance liquidity and diversity in participation. Going forward, liquidity operations and forex market interventions will align with the monetary policy stance and aim to maintain orderly market conditions. Regulation, Supervision and Financial Stability Financial Stability and Regulation Overview The domestic financial system remained robust and resilient throughout 2023-24, with the Reserve Bank focusing on fortifying the financial system and promoting responsible innovations. Key initiatives aimed at aligning the regulatory/supervisory framework with global best practices were undertaken, particularly in risk management, regulatory compliance, enforcement, and consumer education and protection. Department of Regulation (DoR) Issued guidelines covering various areas including digital lending, investment in alternative investment funds, and minimum capital requirements for operational risk. Focused on a comprehensive review of credit management instructions and liquidity management framework for Urban Cooperative Banks (UCBs). Enhanced regulations on 'Income Recognition, Asset Classification and Provisioning Pertaining to Advances' and reviewed guidelines for non-fund based contingent facilities. Implementation Status Undertook extensive consultations on statutory and credit management restrictions. 15 RBI Annual Report 2023-24 Prohibited deposit acceptance by miscellaneous non-banking companies (MNBCs) except from shareholders. Developed an omnibus framework for recognizing Self-Regulatory Organizations (SROs) for various regulated entities (REs). FinTech Department Expanded the scope of Central Bank Digital Currency (CBDC) pilots and launched a pilot for a public tech platform for frictionless credit. Focused on enhancing the account aggregator (AA) framework and implementing a fraud vulnerability matrix using machine learning. Financial Stability Department (FSD) Conducted a peer review of the stress testing framework and participated in a global stress testing exercise. Published half-yearly Financial Stability Reports (FSRs) and conducted meetings of the Financial Stability and Development Council Sub-Committee (FSDC-SC). Agenda for 2024-25 Implement recommendations of the peer review and develop a non-banking stability map/index. Enhance single-factor stress tests and focus on regulatory initiatives related to climate risk and sustainable finance. Consumer Protection and Financial Inclusion Strengthened the grievance redress mechanism and enhanced customer protection measures. Promoted financial inclusion and literacy through various initiatives, including the Financial Literacy Week and an all-India quiz on financial literacy. Conclusion The Reserve Bank continued its efforts to build a resilient financial system and improve customer services. Going forward, it aims to further enhance regulatory frameworks, promote financial stability, and foster responsible innovations. Public Debt Management The Internal Debt Management Department (IDMD) of the Reserve Bank of India (RBI) is responsible for managing the domestic debt of the central government, state governments, and two union territories. The RBI's responsibilities are defined under the RBI Act, 1934, which includes providing short-term credit through ways and means advances (WMA) to bridge temporary cash flow mismatches. Fiscal Developments Fiscal Deficit: The gross fiscal deficit (as a percentage of GDP) for the central government in 2023-24 was budgeted lower than the previous year. Market Borrowings: Elevated market borrowings by central and state governments due to increased financing requirements. 16 RBI Annual Report 2023-24 Yield Management: Weighted average yield of market borrowing for the central government decreased by 8 basis points (bps) during the year. Key Initiatives for 2023-24 Debt Consolidation: Conducted through auction-based switch operations and reissuance of securities. Mobile Application: Development for retail investors under the 'RBI Retail Direct Scheme.' SWIFT Implementation: For transactions of foreign central banks. Data Warehouse Expansion: Inclusion of government debt statistics in RBI’s data warehouse. Capacity Building: Programs for state governments on cash and debt management. Performance Highlights Borrowings: Combined gross market borrowings of central and state governments amounted to ₹25.5 lakh crore, a 17% increase from the previous year. Reissuances and Switches: Conducted 135 reissuances out of 149 issuances of G-secs and completed switches amounting to ₹1.03 lakh crore. Sovereign Green Bonds: Issued ₹20,000 crore in sovereign green bonds. Retail Direct Scheme: Enhanced accessibility through technological upgrades and increased investor awareness. Debt Management Operations Yields and Coupons: Weighted average yield of G-secs issued decreased by 8 bps, while the weighted average coupon on the entire debt stock increased by 3 bps. Maturities: Issuances ranged from 3 to 50 years, including a new 50-year G-sec. Treasury Bills Short-term Borrowing: Net short-term market borrowing through T-Bills declined to ₹48,349 crore from ₹66,114 crore in the previous year. Ownership and Primary Dealers Commercial Banks: Largest holders of government securities, accounting for 37.6% of total holdings. Primary Dealers: 21 primary dealers achieved an average success ratio of 59.3% in H1:2023-24 and 62.2% in H2:2023-24. Sovereign Gold Bond (SGB) Scheme Issuance: Raised ₹27,031 crore through four tranches of SGBs. Cash Management WMA Limits: Central government resorted to WMA/overdraft for 24 days during 2023-24. The cash balance remained in surplus for most of the year. State Government Debt Management Market Borrowings: Gross market borrowings of states in 2023-24 stood at 93% of the quarterly indicative calendar amount. 17 RBI Annual Report 2023-24 Special Drawing Facility: 15 states/UTs availed SDF, and 14 states/UTs resorted to WMA. Major Developments and Recommendations Working Group on State Government Guarantees: Recommendations include risk assessment, guarantee fee structures, and establishing buffers for guarantees. Future Agenda (2024-25) Debt Consolidation: Continue through auction-based switch operations and reissuance of securities. API Development: For value-free transfer of government securities. Review of Schemes: Floating rate savings bonds and sovereign gold bond schemes. Retail Direct Portal: Further improve the user interface with additional payment options. Conclusion The RBI successfully managed the market borrowing program amidst global financial market volatility and geopolitical tensions. The borrowing program for 2024-25 aims to be conducted smoothly, considering the budgeted fiscal deficit and evolving market conditions. Currency Management In 2023-24, the Reserve Bank of India (RBI) focused on ensuring an adequate supply of clean banknotes and coins, managing the withdrawal of soiled banknotes, and modernizing the currency management infrastructure. A significant development was the withdrawal of ₹2000 denomination banknotes, which were initially introduced in 2016. Key Goals for 2023-24 Modernization of Currency Management: Implementation of a program based on recommendations to enhance efficiency through mechanization, automation, and improved scheduling and inventory management. Research on Banknotes: Establishment of a facility for conducting advanced research on banknotes. Quality Survey: Conducting surveys to assess the quality of banknotes in circulation. Cash Usage Indicators: Development of indicators to track cash usage trends. ATM Ecosystem Review: Implementation of recommendations to improve cash dispensation through ATMs. Certification of Note Sorting Machines: Standardizing and certifying note sorting machines to ensure uniformity across banks. Implementation Status An action plan was formulated for modernizing currency management using technological solutions. An adversarial analysis laboratory was operationalized for advanced banknote research. Public perception surveys on banknote quality were conducted, leading to policy adjustments. Analysis of household cash usage trends was carried out to better estimate future demand for banknotes. 18 RBI Annual Report 2023-24 Recommendations for ATM cash dispensation improvements were in various stages of implementation. Certification standards for note sorting machines were established and published. Currency in Circulation Banknotes: Circulation increased by 3.9% in value and 7.8% in volume during 2023-24. The ₹500 denomination had the highest share, while the ₹2000 denomination saw a sharp decline due to its withdrawal. Coins: The total value and volume of coins in circulation also increased, with ₹1, ₹2, and ₹5 coins constituting the majority. Digital Currency: The live pilot of Digital Rupee-Retail (e₹-R) gained momentum, with specific denominations in circulation. Withdrawal of ₹2000 Denomination Banknotes Introduced in November 2016, the ₹2000 notes were withdrawn due to their reduced usage and nearing the end of their life span. By March 31, 2024, 97.7% of the ₹2000 notes had returned to the banking system. Currency Management Infrastructure The RBI operates 19 issue offices, 2,794 currency chests, and 2,460 small coin depots. Indent and supply of banknotes and coins increased in 2023-24. Counterfeit Notes The number of counterfeit notes detected in lower denominations decreased, while those in ₹200 denomination increased slightly. Expenditure on security printing rose to ₹5,101.4 crore from ₹4,682.8 crore in the previous year. Survey on Usage of Coins and Banknotes A survey involving 22,725 respondents highlighted the continued preference for cash, especially in rural areas, despite the rise in digital payments. Other Initiatives Procurement of new shredding and briquetting systems for soiled banknotes. Expansion of Mobile Coin Vans (MCVs) for wider distribution of coins and banknotes. Awareness campaigns on the MANI app for visually impaired individuals and to counter misinformation about coins. Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) BRBNMPL played a crucial role in banknote production and logistics, supporting the RBI’s indigenization efforts. Establishing a Currency Research and Development Centre at its Mysuru campus. Agenda for 2024-25 Continued modernization of currency management infrastructure. Replacement of existing shredding and briquetting systems. Exploring sustainable disposal methods for currency note briquettes. Enhancing delivery of banknotes and coins to the public. Implementing technical standards for note sorting machines across banks. 19 RBI Annual Report 2023-24 Conclusion In 2023-24, the RBI focused on enhancing the efficiency of banknote distribution, increasing public awareness, and ensuring the availability of clean banknotes and coins. The RBI also planned for further modernization and self-sufficiency in banknote production while continuing analytical research to understand public preference for cash and other payment modes. Payment and Settlement Systems and Information Technology Efficient payment and settlement systems are crucial for economic development, financial stability, and inclusion. The Reserve Bank of India (RBI) has focused on providing secure, accessible, affordable, and efficient payment systems, expanding the global outreach of UPI and RuPay cards, and ensuring robust ICT infrastructure. Key Developments in Payment Systems Transaction Growth: Payment systems saw a 44% growth in transaction volume and a 15.8% growth in value in 2023-24. Digital transactions constituted 99.8% of non-cash retail payments. Digital Payments: o RTGS: Increased by 11.3% in volume and 14% in value. o Retail Transactions: Increased by 44.1% in volume and 20.1% in value. o UPI: UPI became the largest retail payment system by volume, with several new features added, including conversational payments, UPI Lite, and transfer to/from pre-sanctioned credit lines. Payment Infrastructure Development Fund (PIDF): Supported the growth of digital payments by subsidizing the deployment of PoS terminals, QR codes, and biometric devices. Authorisation and Regulation Payment System Operators: The RBI authorized 22 online Payment Aggregators (PAs), two non-bank Prepaid Payment Instrument (PPI) issuers, and one Trade Receivables Discounting System (TReDS) platform operator. It also granted in-principle authorization to others. Cross-Border Payments: Guidelines were issued to regulate Payment Aggregators (PAs) handling cross-border transactions. Card-on-File Tokenization (CoFT): Allowed tokenization directly through card issuing banks, enhancing security. Major Enhancements and Innovations Interoperable Payment System for Internet Banking: Approved an interoperable payment system to facilitate quicker settlement of funds for merchants. UPI Enhancements: Introduced features like UPI Lite for offline transactions and expanded the scope to include pre-sanctioned credit lines. Financial Inclusion: o TReDS: Expanded scope to include insurance for transactions and increased pool of financiers. o e-RUPI Vouchers: Permitted non-bank PPI issuers to issue e-RUPI vouchers and expanded their usage. 20 RBI Annual Report 2023-24 o Pradhan Mantri Vishwakarma Scheme: Included beneficiaries under the PIDF scheme, increasing the subsidy for deployment in special focus areas. Cybersecurity and IT Infrastructure Cyber Resilience: Draft Master Direction on cyber resilience for PSOs, focusing on robust governance and baseline security measures. Private Cloud Infrastructure: Augmented to increase capacity and host next-generation applications. Centralized Digital Application Receipts and Tracking System (PRAVAAH): Streamlined submission of applications for regulatory approvals. Global Outreach MoU with UAE: Signed for interlinking payment systems and card switches. UPI and RuPay in Mauritius: Enabled UPI and RuPay card transactions between India and Mauritius. UPI in Sri Lanka: Launched QR code-based UPI payments in Sri Lanka. Nepal: Exploring linkage of UPI with Nepal's payment system. Future Agenda for 2024-25 Fraud Reporting Extension: Extend Central Payments Fraud Information Registry to more banks. Real-Time Payee Name Validation: Implement to enhance payment security. Data Centre: Construct a new state-of-the-art data centre to address capacity constraints. Global SFMS Hub: Extend India's domestic messaging system for cross-border payment messaging. Conclusion The RBI sustained efforts to enhance payment systems' efficiency, security, and inclusiveness while also fostering innovation and expanding global outreach. The focus remains on modernizing infrastructure, enhancing digital payments, and ensuring robust cybersecurity measures. Communication, International Relations, Research and Statistics Communication Policy and Processes Communication Strategy: Emphasized relevance, transparency, clarity, and timeliness to enhance policy effectiveness. Public Awareness Campaigns: Conducted under 'RBI Kehta Hai' and 'RBI Says' to educate the public on new initiatives, financial literacy, and fraud prevention in 14 languages. Impact Assessment: Completed for public awareness campaigns, leading to strategy refinements. Website Redesign: Launched a revamped website and mobile application on April 5, 2024, to improve stakeholder communication. RBI Museum: Phase II of 'The RBI Museum' in Kolkata, featuring 75 innovative exhibits, was completed and inaugurated. International Relations 21 RBI Annual Report 2023-24 G20 Presidency: Successfully concluded with a focus on digitalization, global south concerns, and climate change. IMF-World Bank Financial Sector Assessment: Ongoing preparations for the 2024 assessment. SAARC Currency Swap: Framework for 2023-26 implemented with the Royal Monetary Authority of Bhutan. BRICS Contingent Reserve Arrangement: Conducted a successful test run involving alternative currency payments. Government and Bank Accounts CSS Payments: Implemented SNA-SPARSH for efficient fund flow in centrally sponsored schemes, integrating e-Kuber and government systems. Agency Banks: Increased the number of agency banks to 33, including a foreign bank working as a wholly-owned subsidiary in India. Government Payment Systems: Three state governments adopted XML format for clearance memo reports through Secure File Transfer Protocol. Managing Foreign Exchange Reserves Reserve Management: Increased FER by 11.7% during 2023-24, with a focus on safety, liquidity, and returns. Next Generation Treasury Application (NGTA): Progress made towards implementation. Internationalisation of INR: Achievements included export incentives for INR trade settlements, inclusion in JP Morgan GBI-EM Global Index, and MoUs with UAE and Indonesia. Economic and Policy Research Research Publications: Published 102 research papers on macroeconomic and financial issues, including the impact of reverting to the old pension scheme, oil price trajectories, and machine learning in inflation forecasting. Data Collection: Developed dashboards for global monetary policy, supply chain monitoring, and spillover indices. Events and Seminars: Hosted several lectures and conferences, including the Eighteenth L. K. Jha Memorial Lecture and the Sixth Asia KLEMS International Conference. Statistics and Information Management Centralised Information Management System (CIMS): Launched for data submission by SCBs, extended to other regulated entities. Household Surveys: Extended to rural and semi-urban areas on a pilot basis. Big Data and AI/ML Techniques: Used for refining data quality, media sentiment analysis, and crop production assessments. Legal Issues Legislative Amendments: Enacted Digital Personal Data Protection Act, Jan Vishwas Act for decriminalizing offenses, and amendments to Multi-State Co-operative Societies Act. Case Management System (CaMS): Upgraded to CaMS 2.0 for better integration with judicial websites and remote access. Agenda for 2024-25 22 RBI Annual Report 2023-24 Communication: Conduct media workshops, continue public awareness campaigns, and commence RBI Sunta Hai (RBI Listens) program. International Relations: Implement SAARC currency swap framework and prepare for FSAP 2024. Government Payments: Expand SNA-SPARSH to more states. Foreign Exchange: Further internationalise INR and adopt global reserve management processes. Research: Publish 100 research papers, study the digital economy, and collaborate on food inflation projection frameworks. Statistics: Implement standard data query engines, develop high-frequency economic indicators, and enhance data governance frameworks. Legal: Digitize court case files, organize regulation drafting training, and harmonize statutory regulations. The Reserve Bank of India focused on maintaining transparency, managing foreign exchange reserves, enhancing public communication, and strengthening international relations while undertaking significant research and legislative initiatives to support a stable financial sector. RBI’s Accounts for 2023-24 23 RBI Annual Report 2023-24 24 RBI Annual Report 2023-24 25