While keeping its ‘accommodative’ stance, the RBI once again kept the policy prices unchanged in its very first bi-month-to-month monetary policy for FY22 on Wednesday, which was on anticipated lines. The move is most likely to help the fiscal efforts created by the government to increase financial revival.
“We also welcome the announcements made by the Governor to boost financial inclusion and credit flow to the housing and MSME sectors,” stated business professionals, commenting on the policy announcement.
For instance, the apex bank has created a slew of alterations to the scope of payment systems in case of prepaid payment instruments (PPI) for which complete KYC has been completed. The alterations are aimed at rising interoperability involving complete-KYC PPIs across bank and non-bank issuers.
“The RBI has now made interoperability mandatory for full-KYC PPIs and for all acceptance infrastructures. This means that providers will have to ensure that going forward, PPIs such as e-wallets, pre-paid cards, etc., and acceptance infrastructure such as PoS devices, ATMs, QR codes, bill-payment touch points, etc. are agnostic and any KYC-compliant PPI instrument can be used to make the payment using any payment infrastructure,” stated Adhil Shetty, CEO, BankBazaar.com.
In addition, shoppers with complete-KYC PPIs of non-bank PPI issuers can also now withdraw money via ATMs and PoS terminals. Until now, this facility was out there only to complete-KYC PPIs issued by banks.
At the identical time, customers can now park up to Rs 2 lakh in their accounts, enabling them access to more funds. Taken collectively with the mandate for interoperability and money withdrawal, it will imply more seamless services for shoppers and will be a sturdy incentive for migration to complete-KYC PPIs.
With a view to encourage participation of non-banks across payment systems, the RBI has expanded the RBI-operated Centralised Payment Systems (CPSs) that facilitate NEFT and RTGS payments to include things like RBI-regulated payment technique operators. Until now, NEFT and RTGS have been restricted to banks alone, and this move by the RBI opens up a safe on-line payments technique to a huge quantity of regulated entities.
“While these non-bank payment operators – which include PPIs, card issuers, etc., – will not be eligible for any liquidity facility from the RBI to facilitate settlement of their transactions via the CPSs, they will still be able to leverage the NEFT and RTGS infrastructure for fund transfer. This move can help them minimise settlement risk significantly and at the same time, give a big boost to online payments,” stated Shetty.
Naveen Kukreja, CEO & Co-founder, Paisabazaar.com, stated, “The enhancement of maximum balance of accounts maintained with payment banks from Rs 1 lakh to Rs 2 lakh per individual customer should help in deepening financial inclusion and address the growing banking needs of account holders of payment banks. The proposals to make full-KYC Prepaid Payment Instruments (PPIs) mandatorily interoperable, increase their maximum balance to Rs 2 lakh and allow cash withdrawals through these instruments will further deepen the adoption of digital payment systems, especially in the smaller urban and rural centres. These steps will also create a level playing field for bank and non-bank PPI issuers.”
Besides, the extension of specific refinance facilities to NABARD, SIDBI and NHB for up to 1 year must assistance credit flow and development in the rural economy, housing sector and MSMEs. Similarly, the choice to extend the Priority Sector Loan (PSL) classification to loans lent by banks to NBFCs for on-lending to agriculture, MSME and housing segments till September 30, 2021 must boost credit flow to these segments and thereby, nurture the nascent development impulses in these segments.
Moreover, the very first monetary policy of this economic year is also positive from a bond market place sentiment point of view. “It will also help reduce some volatility in an environment where market views around the broader macro trends of growth and inflation are still evolving. The current steepness in the yield curve along with this RBI policy makes the risk return tradeoff attractive for most debt funds,” says Amit Triphati, CIO-Fixed Income, Nippon India Mutual Fund.
In reality, in today’s monetary policy the RBI Governor has pleasantly shocked bond market place participants with proposed Government Securities Acquisition Program 1. (GSAP 1.) which will acquire government securities worth Rs 1 trillion in Q1FY22.
According to Edelweiss Mutual Fund, a right execution of this system will obtain the following twin objectives:
1. It will provide certainty to the bond market place participants with regard to the RBI’s commitment of assistance to bond market place in FY22.
2. It will also enable decrease term premiums on the lengthy-finish.
Taken collectively, these two measures will most likely outcome in flattening of the IGB yield curve with revenue market place yields (up to 1Y) trending larger and lengthy-finish of the yield curve benefitting from the RBI’s GSAP 1. system. To that extent, this must enable decrease term premiums in a gradual manner.
The second positive trigger for the bond market place could potentially come from India’s entry into Emerging Market Bond Indices in FY22. This must enable reverse continuous FPI outflows from the bond market place given that FY19 and enable develop an further & sustained supply of demand for IGBs in FY22 and beyond. This must also enable decrease term premiums steadily.
What must investors do?
According to Edelweiss Mutual Fund, the RBI policy has reiterated its earlier view that investors must anticipate low single-digit return from the bond market place in FY22 and will have to boost their typical maturity in order to optimize their threat-adjusted returns. So, investors at the brief-finish (up to 2Y) will possibly earn zero or unfavorable true return (inflation-adjusted) in FY22, comparable to FY21. Prudent investors must take into consideration investing in higher-high-quality bonds maturing in 5Y or larger via passively-managed target-maturity bond index funds as properly as bond ETFs to advantage from diversification, transparency, basic & clear investment objectives and predictability of returns for hold-to-maturity investors.
“Based on hardening of yields in Jan & Feb 2021, a number of investors were concerned with regard to their existing or potential fresh investments in the bond market and wanted to adopt a wait-and-watch approach for higher yields. “While our stance on this approach is well documented, today’s policy has reiterated our view that the worst is possibly behind us as far as movement in yields are concerned. Based on that, investors are requested to get invested at the earliest and not wait for an opportune time,” it says.