Annual Report of the RBI for the Year 2021-22

Report of the Central Board of Directors on the working of the Reserve Bank of India for the year ended March 31, 2022 submitted to the Central Government in terms of Section 53(2) of the Reserve Bank of India Act, 1934 RESERVE BANK OF INDIA ANNUAL REPORT 2021-22CENTRAL BOARD / LOCAL BOARDS GOVERNOR Shaktikanta Das DEPUTY GOVERNORS MEMBERS OF LOCAL BOARDS Mahesh Kumar Jain Michael Debabrata Patra WESTERN AREA M. Rajeshwar Rao T. Rabi Sankar EASTERN AREA DIRECTORS NOMINATED UNDER Sachin Chaturvedi SECTION 8 (1) (b) OF THE RBI ACT, 1934 Revathy Iyer Sachin Chaturvedi NORTHERN AREA DIRECTORS NOMINATED UNDER Revathy Iyer SECTION 8 (1) (c) OF THE RBI ACT, 1934 Raghvendra Narayan Dubey Satish Kashinath Marathe Swaminathan Gurumurthy DIRECTORS NOMINATED UNDER SOUTHERN AREA SECTION 8 (1) (d) OF THE RBI ACT, 1934 Ajay Seth Sanjay Malhotra (Position as on May 24, 2022)PRINCIPAL OFFICERS (As on May 24, 2022) EXECUTIVE DIRECTORS ....................................................................... Anil K. Sharma ....................................................................... S. C. Murmu ....................................................................... O. P. Mall ....................................................................... Saurav Sinha ....................................................................... Vivek Deep ....................................................................... Jayant Kumar Dash ....................................................................... R. Subramanian ....................................................................... Rohit Jain ....................................................................... R. S. Ratho ....................................................................... Jose J. Kattoor ....................................................................... Ajay Kumar ....................................................................... Ajay K. Choudhary ....................................................................... Deepak Kumar ....................................................................... Rajiv Ranjan ....................................................................... Sitikantha Pattanaik ....................................................................... Sudha Balakrishnan (Chief Financial Offi cer) CENTRAL OFFICE Central Vigilance Cell ............................................................................... Sadhana Varma, Chief General Manager & CVO Consumer Education and Protection Department .................................... Anupam Sonal, Chief General Manager Corporate Strategy and Budget Department ............................................ Rajani Prasad, Chief General Manager Department of Regulation ........................................................................ R. Lakshmi Kanth Rao, Chief General Manager-in-Charge Department of Supervision ....................................................................... A. K. Chowdhury, Chief General Manager-in-Charge Department of Communication ................................................................. Yogesh K. Dayal, Chief General Manager Department of Currency Management ..................................................... Suman Ray, Chief General Manager-in-Charge Department of Economic and Policy Research ........................................ D. P. Rath, Offi cer-in-Charge Department of External Investments and Operations ............................... Aditya Gaiha, Chief General Manager-in-Charge Department of Government and Bank Accounts ...................................... Charulatha S. Kar, Chief General Manager-in-Charge Department of Information Technology ..................................................... Arun Kumar Singh, Chief General Manager Department of Payment and Settlement Systems .................................... P. Vasudevan, Chief General Manager Department of Statistics and Information Management ........................... A. R. Joshi, Principal Adviser Enforcement Department ......................................................................... H. N. Iyer, Chief General Manager-in-Charge Financial Inclusion and Development Department ................................... Sonali Sengupta, Chief General Manager-in-Charge Financial Markets Operations Department ............................................... Seshsayee G., Chief General Manager Financial Markets Regulation Department ............................................... Dimple Bhandia, Chief General Manager FinTech Department ................................................................................. Suvendu Pati, Chief General Manager Foreign Exchange Department ................................................................. Ajay Kumar Misra, Chief General Manager-in-Charge Financial Stability Unit .............................................................................. Kaya Tripathi, Chief General Manager Human Resource Management Department ............................................ Subrata Das, Chief General Manager-in-Charge Inspection Department ............................................................................. G. P. Borah, Chief General Manager Internal Debt Management Department ................................................... Rakesh Tripathy, Chief General Manager International Department .......................................................................... Mohua Roy, Adviser-in-Charge Legal Department ..................................................................................... A. Unnikrishnan, Legal Adviser-in-Charge Monetary Policy Department .................................................................... Muneesh Kapur, Adviser-in-Charge Premises Department ............................................................................... Mala Sinha, Chief General Manager Rajbhasha Department ............................................................................ Sadhana Varma, Chief General Manager Risk Monitoring Department ..................................................................... Manoranjan Dash, Chief General Manager Secretary’s Department ............................................................................ Aviral Jain, Chief General Manager-in-Charge & Secretary COLLEGES PRINCIPALS College of Agricultural Banking, Pune ...................................................... V. G. Sekar Reserve Bank Staff College, Chennai ...................................................... K. Babuji OFFICES REGIONAL DIRECTORS Chennai .................................................................................................... S. M. Narasimha Swamy Kolkata ...................................................................................................... R. Kesavan Mumbai ..................................................................................................... Ajay Michyari New Delhi .................................................................................................. Vivek Aggarwal BRANCHES Ahmedabad .............................................................................................. Rajesh Kumar Bengaluru ................................................................................................. R. Gurumurthy Bhopal ...................................................................................................... Neeraj Nigam Bhubaneswar ............................................................................................ H. N. Panda Chandigarh ............................................................................................... M. K. Mall Dehradun .................................................................................................. Latha Vishwanath Guwahati .................................................................................................. Sanjeev Singha Hyderabad ................................................................................................ K. Nikhila Jaipur ........................................................................................................ Rohit P. Das Jammu ...................................................................................................... K. P. Patnaik Kanpur ...................................................................................................... Ishan Shukla Lucknow .................................................................................................... Balu Kenchappa Nagpur ...................................................................................................... Sangeeta Lalwani Panaji ........................................................................................................ Smita Chandramani Patna ........................................................................................................ Sanjiv Dayal Raipur ....................................................................................................... Reeny Ajith Shimla ....................................................................................................... R. S. Amar Thiruvananthapuram ................................................................................ Thomas Mathew OFFICERS-IN-CHARGE Agartala .................................................................................................... Satwant Singh Sahota, General Manager (O-i-C) Aizawl ....................................................................................................... P. Shimrah, General Manager (O-i-C) Belapur ..................................................................................................... Jaikish, Chief General Manager Gangtok .................................................................................................... Kishore Pariyar, General Manager (O-i-C) Imphal ....................................................................................................... Mary Lawm Ngaih Ching Gwite, General Manager (O-i-C) Kochi ......................................................................................................... V. K. Nayak, General Manager, (O-i-C) Ranchi ...................................................................................................... Sanjiv Sinha, General Manager (O-i-C) Shillong ..................................................................................................... Paoboi Gangte, General Manager (O-i-C) Srinagar .................................................................................................... Ruchir Sonkar, Assistant General ManagerCONTENTS Page No. PART ONE: THE ECONOMY- REVIEW AND PROSPECTS .................................................. 1 I. ASSESSMENT AND PROSPECTS............................................................................ 1 Lessons from the 2021-22 Experience ....................................................................... 1 Looking Ahead to 2022-23 .......................................................................................... 7 II. ECONOMIC REVIEW ................................................................................................ 13 The Real Economy ...................................................................................................... 13 Price Situation ............................................................................................................ 36 Money and Credit ....................................................................................................... 46 Financial Markets ....................................................................................................... 56 Government Finances ................................................................................................ 65 External Sector ........................................................................................................... 71 PART TWO: THE WORKING AND OPERATIONS OF THE RESERVE BANK OF INDIA ...... 89 III. MONETARY POLICY OPERATIONS ......................................................................... 89 Monetary Policy ........................................................................................................... 90 The Operating Framework: Liquidity Management ..................................................... 92 Monetary Policy Transmission ..................................................................................... 98 Sectoral Lending Rates .............................................................................................. 100 IV. CREDIT DELIVERY AND FINANCIAL INCLUSION ................................................. 103 Credit Delivery ............................................................................................................. 105 Financial Inclusion ....................................................................................................... 107 Financial Literacy ....................................................................................................... 108 V. FINANCIAL MARKETS AND FOREIGN EXCHANGE MANAGEMENT ................... 111 Financial Markets Regulation Department ................................................................. 111 Financial Markets Operations Department ................................................................. 115 Foreign Exchange Department ................................................................................... 116 VI. REGULATION, SUPERVISION AND FINANCIAL STABILITY .................................. 120 Financial Stability Unit ................................................................................................ 121 Department of Regulation ........................................................................................... 123 FinTech Department .................................................................................................... 137 iCONTENTS Page No. Department of Supervision ......................................................................................... 139 Enforcement Department ............................................................................................ 148 Consumer Education and Protection Department ...................................................... 150 Deposit Insurance and Credit Guarantee Corporation ................................................ 154 VII. PUBLIC DEBT MANAGEMENT ................................................................................ 156 Debt Management of the Central Government ........................................................... 160 Debt Management of State Governments .................................................................. 163 VIII. CURRENCY MANAGEMENT .................................................................................... 167 Developments in Currency in Circulation .................................................................... 167 Currency Management Infrastructure ......................................................................... 168 Expenditure on Security Printing ................................................................................. 170 Bharatiya Reserve Bank Note Mudran Private Limited .............................................. 172 IX. PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY ... 174 Department of Payment and Settlement Systems ..................................................... 174 Department of Information Technology ....................................................................... 184 X. COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS .................................................................................. 189 Communication Processes ........................................................................................ 190 International Relations ............................................................................................... 193 Government and Bank Accounts ............................................................................... 197 Managing Foreign Exchange Reserves ..................................................................... 199 Economic and Policy Research .................................................................................. 201 Statistics and Information Management ..................................................................... 204 Legal Issues ............................................................................................................... 207 XI. GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT .......................................................................................................... 210 Governance Structure ................................................................................................ 211 Human Resource Development Initiatives .................................................................. 212 Enterprise-Wide Risk Management ............................................................................ 218 iiCONTENTS Page No. Internal Audit/Inspection .............................................................................................. 219 Corporate Strategy and Budget Management ............................................................ 221 Rajbhasha .................................................................................................................. 222 Premises Department ................................................................................................ 225 Annex ......................................................................................................................... 228 XII. THE RESERVE BANK’S ACCOUNTS FOR 2021-22 ................................................ 232 Balance Sheet as on March 31, 2022 ......................................................................... 236 Income Statement for the year ended March 31, 2022 ............................................... 237 Schedules forming part of Balance Sheet and Income Statement.............................. 238 Statement of Signifi cant Accounting Policies for the year ended March 31, 2022 ..... 241 Notes to Accounts ...................................................................................................... 246 Annex I: Chronology of Major Policy Announcements: April 2021 to March 2022.......... 261 Annex II: Chronology of Major Policy Announcements to Mitigate the Impact of COVID-19: April 2021 to March 2022 ................................................................... 278 Appendix Tables ................................................................................................................... 286 iiiCONTENTS Page No. BOXES II.1.1 : Corporate Performance during the Pandemic: The Role of Corporate Tax Rate Cut ........................................................................ 20 II.1.2 : Role of Central Banks in Climate Change ................................................................ 25 II.1.3 : Impact of COVID-19 Relief Measures on Small Business Financing ....................... 28 II.1.4 : Impact of Supply Chain Disruptions on GDP Growth and Labour Markets amidst the COVID-19 Shock .......................................................... 30 II.2.1 : Sensitivity of Infl ation in India to Input Cost Pressures ............................................ 45 II.6.1 : Role of Global Value Chains (GVCs) in Enhancing Exports Competitiveness ......... 74 III.1 : Extraordinary Central Bank Lending Facilities during the Pandemic ....................... 93 IV.1 : Expanding the Reach of CFL Project Across the Country ....................................... 110 V.1 : Roadmap for LIBOR Transition ................................................................................. 114 VI.1 : Regulatory Framework for Microfi nance Loans ........................................................ 135 VI.2 : Facilitating the FinTech Innovation: The Reserve Bank’s Approach ......................... 138 VI.3 : Supervisory Skilling and Empowerment .................................................................. 146 VI.4 : New Initiatives towards Strengthening of Grievance Redress Mechanism for Customers of Regulated Entities......................................................................... 152 VI.5 : Salient Features of Amendments to the DICGC Act, 1961 ...................................... 155 VII.1 : RBI Retail Direct Scheme ........................................................................................ 159 VIII.1 : Banknote Survey of Consumers: Major Findings ..................................................... 172 IX.1 : India and Singapore to Link their Fast Payment Systems - UPI and PayNow .......... 175 IX.2 : Household Choice of Digital Payments amidst COVID-19 Pandemic ...................... 177 X.1 : Central Bank Outreach and Public Awareness ........................................................ 191 X.2 : BRICS Chair 2021 - RBI Achievements ................................................................... 195 X.3 : NGFS’ Glasgow Declaration and Reserve Bank’s Commitment .............................. 196 X.4 : Gold as a Financial Asset in Different Phases of Financial Cycles .......................... 199 X.5 : Satellite Images and Remote Sensing Data for Assessment of Agricultural Commodities ..................................................................................... 205 XI.1 : Setting up of Employee Interface and Analytics Division (EIAD).............................. 215 XII.1 : Form of Presentation of the Balance Sheet and Income Statement ....................... 232 ivCONTENTS Page No. APPENDIX TABLES 1. Macroeconomic and Financial Indicators ................................................................. 286 2. Growth Rates and Composition of Real Gross Domestic Product (At 2011-12 prices) ................................................................................................... 288 3. Gross Savings .......................................................................................................... 289 4. Infl ation, Money and Credit ...................................................................................... 290 5. Capital Market – Primary and Secondary ................................................................ 291 6. Key Fiscal Indicators ................................................................................................ 292 7. Combined Receipts and Disbursements of the Central and State Governments .... 293 8. India’s Overall Balance of Payments ........................................................................ 294 9. Foreign Direct Investment Flows to India: Country-wise and Industry-wise ............. 295 The accounting year for the Reserve Bank was changed to April-March (earlier July-June) from the fi nancial year 2020-21 onwards. vSELECT ABBREVIATIONS AAC - Academic Advisory Council BBPOUs - Bharat Bill Payment Operating Units AACS - As Applicable to Cooperative BBPS - Bharat Bill Payment System Societies BCs - Business Correspondents ACU - Asian Clearing Union BCBS - Basel Committee of Banking AD - Authorised Dealer Supervision ADF - Asset Development Fund BC-ICT - Business Correspondents - ADs - Aggregate Deposits Information and Communication AD Cat-I - Authorised Dealer Category-I Technology ADSCR - Average Debt Service Coverage Ratio BCM - Business Continuity Management AEs - Advanced Economies BCP - Business Continuity Plan AePS - Aadhaar Enabled Payment System BD - Banking Department AI - Artifi cial Intelligence BE - Budget Estimates AID - All-Inclusive Directions BFS - Board for Financial Supervision AIDC - Agriculture Infrastructure and BFSI - Banking, Financial Services and Development Cess Insurance AIFs - Alternative Investment Funds BIS - Bank for International Settlements AIFIs - All India Financial Institutions BoJ - Bank of Japan AML - Anti-Money Laundering bps - Basis Points ANBC - Adjusted Net Bank Credit BPSS - Board for Regulation and Supervision AP - Authorised Person of Payment and Settlement Systems APBS - Aadhaar Payment Bridge System BQR - Bharat Quick Response API - Application Programming Interface BRBNMPL - Bharatiya Reserve Bank Note Mudran Private Limited APLMA - Asia Pacifi c Loan Markets Association BRICS - Brazil, Russia, India, China and South ARCs - Asset Reconstruction Companies Africa AREAER - Annual Report on Exchange B-SC - Building Sub-Committee Arrangements and Exchange Restrictions BTFP - BRICS Task Force on Payments ARMS - Audit and Risk Management Sub- BUs - Business Units Committee CA - Concurrent Audit ARR - Alternative Reference Rate CAFRAL - Centre for Advanced Financial ASEAN - Association of Southeast Asian Research and Learning Nations CAGR - Compound Annual Growth Rate ASISO - Automated Sweep-In and Sweep-Out CBDC - Central Bank Digital Currency ASM - Asia Small and Medium-Sized CBDT - Central Board of Direct Taxes Enterprise Monitor CBIC - Central Board of Indirect Taxes and ATBs - Auction Treasury Bills Customs ATM - Automated Teller Machines CC - Cash Credit AUM - Assets Under Management CCB - Committee of the Central Board viSELECT ABBREVIATIONS CCBs - Central Cooperative Banks CO - Central Offi ce CCIL - Clearing Corporation of India Limited CoC - Committee of Creditors CCO - Chief Compliance Offi cer CODs - Central Offi ce Departments CCP - Central Counterparty CoFT - Card-on-File Tokenisation CDES - Currency Distribution and Exchange ConPI - Customer Protection Index Scheme CoS - College of Supervisors CDs - Certifi cates of Deposit CP - Consumer Pyramid CDS - Credit Default Swaps CPFIR - Central Payments Fraud Information CEOBE - Credit Equivalent of Off-Balance Registry Sheet Exposure CPI - Consumer Price Index CEPCs - Consumer Education and Protection CPI-AL - CPI for Agricultural Labourers Cells CPI-IW - CPI for Industrial Workers CEPD - Consumer Education and Protection CPI-RL - CPI for Rural Labourers Department CPMI-IOSCO - Committee on Payments and CF - Contingency Fund Market Infrastructures-International CFLs - Centres for Financial Literacy Organisation of Securities CFR - Central Fraud Registry Commissions CFSL - Centrum Financial Services Limited CPs - Commercial Papers CGA - Controller General of Accounts CPS - Centralised Payment System CGD - Comprehensive Guidelines on CPWD - Central Public Works Department Derivatives CP-NBFCs - Commercial Paper Issuances by Non- CGFS - Committee on the Global Financial Banking Financial Companies System CRILC - Central Repository of Information on CGRA - Currency and Gold Revaluation Large Credits Account CRM - Credit Risk Mitigation CICs - Credit Information Companies CRPC - Centralised Receipt and Processing CiC - Currency in Circulation Centre CIMS - Centralised Information Management CRR - Cash Reserve Ratio System CSAA - Control Self-Assessment Audit CIRP - Corporate Insolvency Resolution CSBD - Corporate Strategy and Budget Process Department CIT - Cash in Transit CSF - Consolidated Sinking Fund CLS - Continuous Linked Settlement CSGL - Centralised Subsidiary General CMBs - Cash Management Bills Ledger CMGs - Crisis Management Groups CSII - Colour Shift Intaglio Ink CMIE - Centre for Monitoring Indian Economy CwP - Currency with the Public CMS - Complaint Management System DAP - Di Ammonium Phosphate CMT - Crisis Management Team DBIE - Database on Indian Economy viiSELECT ABBREVIATIONS DBT - Direct Benefi t Transfer EDSP - Electronic Data Submission Portal DCCBs - District Central Cooperative Banks EFD - Enforcement Department DDs - Demand Drafts EFI - External Funded Institutions DEA - Depositor Education and Awareness EIAD - Employee Interface and Analytics DEIO - Department of External Investments Division and Operations EMDEs - Emerging Market and Developing DEPR - Department of Economic and Policy Economies Research EMEs - Emerging Market Economies DGBA - Department of Government and Bank eNWRs - Electronic Negotiable Warehouse Accounts Receipts DHFL - Dewan Housing Finance Ltd. EoI - Expression of Interest DICGC - Deposit Insurance and Credit EPFO - Employees’ Provident Fund Guarantee Corporation Organisation DIF - Deposit Insurance Fund ERM - Enterprise-wide Risk Management DIT - Department of Information Technology ESIC - Employees’ State Insurance DMS - Document Management Software Corporation DoC - Department of Communication ETCD - Exchange Traded Currency DoR - Department of Regulation Derivatives DoS - Department of Supervision ETR - Effective Corporate Tax Rate DoT - Department of Telecommunications EWI - Early Warning Indicator DPI - Digital Payments Index EWS - Early Warning Signals DPSS - Department of Payment and EXIM - Export Import Bank of India Settlement Systems FAQs - Frequently Asked Questions DR - Disaster Recovery FAR - Fully Accessible Route DSCR - Debt Service Coverage Ratio FASAL - Forecasting Agricultural Output using DSIM - Department of Statistics and Space, Agro-Meteorology and Land- Information Management based Observations e-BAAT - Electronic Banking Awareness and FATF - Financial Action Task Force Training FBIL - Financial Benchmark India Pvt. Ltd EBITDA - Earnings Before Interest, Taxes, FCA - Foreign Currency Asset Depreciation and Amortisation FCBD - Finance and Central Bank Deputies EBR - Element-Based Repository FCBs - Foreign Central Bank ECB - External Commercial Borrowings FCNR(B) - Foreign Currency Non-Resident ECCS - Express Cheque Clearing System Account (Bank) ECLGS - Emergency Credit Line Guarantee FCS-OIS - Foreign Currency Settled Overnight Scheme Indexed Swap ECS - Electronic Clearing Service FCVA - Foreign Exchange Forward Contracts EDC - Executive Directors’ Committee Valuation Account viiiSELECT ABBREVIATIONS FC-XV - 15th Finance Commission FSR - Financial Stability Report FCY ECB - Foreign Currency External FSU - Financial Stability Unit Commercial Borrowings G-20 - Group of Twenty FDI - Foreign Direct Investment GC - Governing Council FE - Final Estimate GCCs - General Credit Cards FED - Foreign Exchange Department GCF - Gross Capital Formation FEMA - Foreign Exchange Management Act GDAL - Granular Data Access Lab FFMCs - Full-Fledged Money Changers GDP - Gross Domestic Product FER - Foreign Exchange Reserves GFC - Global Financial Crisis FETERS - Foreign Exchange Transactions GFCF - Gross Fixed Capital Formation Electronic Reporting System GFD - Gross Fiscal Defi cit FIs - Financial Institutions GFSN - Global Financial Safety Net FICNs - Fake Indian Currency Notes GML - Gold (Metal) Loans FIDD - Financial Inclusion and Development GMS - Gold Monetisation Scheme Department GNDI - Gross National Disposable Income FIF - Financial Inclusion Fund GNPA - Gross Non-Performing Asset FI-Index - Financial Inclusion Index GoI - Government of India FinTech - Financial Technology GRF - Guarantee Redemption Fund FIPs - Financial Inclusion Plans GRIHA - Green Rating for Integrated Habitat FLA - Foreign Liabilities and Assets Assessment FLCs - Financial Literacy Centres GRQ - General Review of Quotas FLW - Financial Literacy Week G-SAP - G-sec Acquisition Programme FMCBG - Finance Ministers and Central Bank GSCDCI - Global Supply Chain Disruption Cost Governors Index FMCG - Fast Moving Consumer Goods GSDP - Gross State Domestic Product FMOD - Financial Markets Operations Department G-sec - Government Securities FMRD - Financial Markets Regulation GSLBM - Government Security Lending and Department Borrowing Mechanism FPI - Foreign Portfolio Investment GST - Goods and Services Taxes FPOs - Follow-on Public Offers GUARD - Governance Oversight, Utile FRB - Floating Rate Bonds Technology Investment, FRSB - Floating Rate Savings Bonds Appropriate Regulation and FSB - Financial Stability Board Supervision, Robust Collaboration, FSDC - Financial Stability and Development and Developing necessary IT, cyber Council security skills set FSDC-SC - Financial Stability and Development GVA - Gross Value Added Council - Sub-Committee GVCs - Global Value Chains ixSELECT ABBREVIATIONS HFCs - Housing Finance Companies IIFC - India Infrastructure Finance Company HO - Head Offi ce IIP - Index of Industrial Production HRMD - Human Resource Management IMF - International Monetary Fund Department IMFC - International Monetary and Financial HRM-SC - Human Resource Management Sub- Committee Committee IMPS - Immediate Payment Service IADI - International Association of Deposit Ind-AS - Indian Accounting Standards Insurers InvITS - Infrastructure Investment Trusts IAMs - Integrated Assessment Models IO - Internal Ombudsman IBA - Indian Banks’ Association IOS - Industrial Outlook Survey IBS - International Banking Statistics IoT - Internet of Things ICAI - Institute of Chartered Accountants of IPL - Indian Premier League India IPO - Initial Public Offering ICAR - Indian Council of Agricultural IPP - Intellectual Property Products Research IRA - Investment Revaluation Accounts ICEGATE - Indian Customs Electronic Gateway IRACP - Income Recognition, Asset ICT - Information and Communication Classifi cation and Provisioning Technology IRA-FS - Investment Revaluation Account- ID - International Department Foreign Securities IDMD - Internal Debt Management IRA-RS - Investment Revaluation Account- Department Rupee Securities IEO - Independent Evaluation Offi ce IRD - Interest Rate Derivatives IESH - Infl ation Expectation Survey of IRIS - Integrated Risk Monitoring and Households Incident Reporting System IFA - International Financial Architecture IRRS - Integrated Rajbhasha Reporting IFA WG - International Financial Architecture System Working Group ISDA - International Swaps and Derivatives IFSC - Indian Financial System Code Association IFSCs - International Financial Services IT - Information Technology Centres ITES - Information Technology-Enabled IFTAS - Indian Financial Technologies and Services Allied Services IT-SC - Information Technology Sub- IGBC - Indian Green Building Council Committee IGIDR - Indira Gandhi Institute of Development Research ITBs - Intermediate Treasury Bills IIASA - International Institute for Applied IVR - Inter-active Voice Response Systems Analysis IWG - Infrastructure Working Group IIBM - Indian Institute of Bank Management IWG - Internal Working Group xSELECT ABBREVIATIONS JTCC - Joint Technical Coordination MIS - Management Information System Committee ML - Machine Learning KBC - Kaun Banega Crorepati MLTGD - Medium- and Long-Term Government KLEMS - Capital(K), Labour(L), Energy(E), Deposit Material(M) and Services(S) MoE - Memorandum of Error KCC - Kisan Credit Card MoF - Ministry of Finance KPI - Key Performance Indicators MoSPI - Ministry of Statistics and Programme KRIs - Key Risk Indicators Implementation kWp - Kilowatts Peak MoU - Memorandum of Understanding KYC - Know Your Customer MPC - Monetary Policy Committee MPOR - Margin Period of Risk LAB - Local Area Banks MSEs - Micro and Small Enterprises LAF - Liquidity Adjustment Facility MSF - Marginal Standing Facility LAI - Leaf Area Index MSPs - Minimum Support Prices LBMA - London Bullion Market Association MTDS - Medium-Term Debt Management LEF - Large Exposure Framework Strategy LEI - Legal Entity Identifi er MTF - Medium Term Framework LEIL - Legal Entity Identifi er India Ltd. MTSS - Money Transfer Service Schemes LEs - Legal Entities NABARD - National Bank for Agriculture and LIBOR - London Inter-Bank Offered Rate Rural Development LMS - Learning Management System NACH - National Automated Clearing House LPA - Long Period Average NAFCUB - National Federation of Urban LPG - Liquefi ed Petroleum Gas Cooperative Banks and Credit LRS - Liberalised Remittance Scheme Societies Ltd. M - Money Supply 3 NARCL - National Asset Reconstruction MAF - Medical Assistance Fund Company MANI - Mobile Aided Note Identifi er NBFC - Non-Banking Financial Company MAS - Monetary Authority of Singapore NBFC-D - Deposit taking NBFCs MA-SAAR - Moving Average of Seasonally NBFC-MFIs - Non-Banking Financial Company- Adjusted Annualised Growth Rate Microfi nance Institutions MCLR - Marginal Cost of Funds-based NBFC-ND - Non-Deposit taking NBFCs Lending Rate NBFI - Non-Banking Financial Institutions MD - Managing Director NCCDs - Non-Centrally Cleared Derivatives MEM - Marginal Effect at Means NCDs - Non-Convertible Debentures MFIs - Microfi nance Institutions NCFE - National Centre for Financial MI - Market Intelligence Education MIFOR - Mumbai Interbank Forward Outright NCLT - National Company Law Tribunal Rate NDA - Net Domestic Assets xiSELECT ABBREVIATIONS NDCs - Nationally Determined Contributions NWRs - Negotiable Warehouse Receipts NDF - Non-Deliverable Forward OBC - Other Backward Classes NDI - Non-Debt Instrument OBICUS - Order Books, Inventories and NDTL - Net Demand and Time Liabilities Capacity Utilisation Survey NDS-OM - Negotiated Dealing System-Order OD - Overdraft Matching ODI - Overseas Direct Investment NDVI - Normalised Difference Vegetation OECD - Organisation for Economic Co- Index operation and Development NEER - Nominal Effective Exchange Rate OFC - Optical Fibre Cable NEFT - National Electronic Funds Transfer OLIC - Offi cial Language Implementation NEM - North-east Monsoon Committee NeTC - National Electronic Toll Collection OLS - Ordinary Least Squares NETS - Network for Electronic Transfers OMBs - Open Market Borrowings NFA - Net Foreign Assets OMOs - Open Market Operations NFC - Non-Food Credit OPEC - Organisation of Petroleum Exporting NFC - Near Field Communication Countries NFS - National Financial Switch OPEC+ - Organisation of Petroleum Exporting NFSA - National Food Security Act Countries and allies NGFS - Network for Greening of the Financial ORBIOs - Offi ces of the Reserve Bank of India System Ombudsmen NHB - National Housing Bank OT - Operation Twist NIBM - National Institute of Bank OTC - Over the Counter Management PA - Provisional Accounts NIM - Net Interest Margin PADO - Public Administration, Defence and NIPL - NPCI International Private Limited Other Services NOF - Net Owned Funds PAT - Profi t After Tax NPA - Note Purchase Agreement PBs - Payments Banks NPA - Non-Performing Assets PBDIT - Profi t Before Depreciation, Interest NPCI - National Payments Corporation of and Tax India PCA - Prompt Corrective Action NPS - National Pension Scheme PDs - Primary Dealers NSFE - National Strategy for Financial PDL - Polynomial Distributed Lag Education PDS - Public Distribution System NSFI - National Strategy for Financial PFCE - Private Final Consumption Inclusion Expenditure NSSF - National Small Savings Fund PFCVA - Provision for Forward Contracts NSO - National Statistical Offi ce Valuation Account xiiSELECT ABBREVIATIONS PFMIs - Principles for Financial Market RBA - Risk-Based Approach Infrastructure RBI - Reserve Bank of India PFMS - Public Financial Management System RBIA - Risk Based Internal Audit PIDF - Payments Infrastructure Development RBIEPF - Reserve Bank of India Employees Fund Provident Fund PIRP - Pre-Packaged Insolvency Resolution RBIH - Reserve Bank Innovation Hub Process RB-IOS - Reserve Bank-Integrated PLFS - Periodic Labour Force Survey Ombudsman Scheme PLI - Production-Linked Incentive RBI-RD - Reserve Bank of India-Retail Direct PMC - Punjab and Maharashtra Cooperative RBP - Risk Based Premium Bank RBR - Return-Based Repository PMGKAY - Pradhan Mantri Garib Kalyan Anna RBS - Risk-Based Supervision Yojana RCA - Root Cause Analysis PMI - Purchasing Managers’ Index RCG-Asia - Regional Consultative Group, Asia PML - Prevention of Money Laundering RCL - Reliance Capital Ltd PM SVANidhi - Prime Minister Street Vendor’s RDG - Retail Direct Gilt AatmaNirbhar Nidhi RE - Revised Estimates PPAC - Petroleum Planning and Analysis Cell ReBIT - Reserve Bank Information Technology PO - Project Offi ce Private Limited POs - Payment Orders RECO - Revenue Expenditure to Capital POS - Point of Sale Outlay PPIs - Prepaid Payment Instruments REER - Real Effective Exchange Rate PRAKALP - Pratayaksh Kar Lekhankan Pranali REIT - Real Estate Investment Trusts PSBs - Public Sector Banks REs - Regulated Entities PSL - Priority Sector Lending RFCA - Revaluation of Forward Contracts PSLCs - Priority Sector Lending Certifi cates Account PSOs - Payment System Operators RFID - Radio Frequency Identifi cation PSPs - Payment Service Providers RIDF - Rural Infrastructure Development Fund PSS - Payment and Settlement Systems RM - Reserve Money PSUs - Public Sector Undertakings RMC - Risk Monitoring Committee PWBD - Persons with Benchmark Disabilities RMD - Risk Monitoring Department QAD - Quality Assurance Division ROs - Regional Offi ces QIP - Qualifi ed Institutional Placement RPA - Robotic Process Automation QPM - Quarterly Projection Model RRBs - Regional Rural Banks QR - Quick Response RTGS - Real Time Gross Settlement RAM-OR - Risk Assessment Methodology for RTI - Right to Information Operational Risk RTL - Risk Tolerance Limits xiiiSELECT ABBREVIATIONS RTO - Recovery Time Objective SIDBI - Small Industries Development Bank RTP - Reserve Tranche Position of India RT-PCR - Reverse Transcription - Polymerase SIFL - SREI Infrastructure Finance Limited Chain Reaction SIOS - Services and Infrastructure Outlook SAA - Swap Amortisation Account Survey SAP - Systems Applications and Products SIP - Systematic Investment Plan SAs - Statutory Auditors SLBC - State Level Bankers Committee SAAR - Seasonally Adjusted Annualised SLCCs - State Level Coordination Committees Growth Rate SLD - Senior Level Dialogue SAARC - South Asian Association of Regional SLR - Statutory Liquidity Ratio Cooperation SLTRO - Special Long Term Repo Operation SARFAESI Act - Securitisation and Reconstruction of SMA - Special Mention Account Financial Assets and Enforcement of SMEs - Small and Medium Enterprises Security Interest Act SOFR - Secured Overnight Financing Rate SARTTAC - South Asian Regional Training and SONIA - Sterling Overnight Index Average Technical Assistance Centre SOP - Standard Operating Procedure SBR - Scale-Based Regulation SPARSH - System of Pension Administration SBS - Shredding and Briquetting Systems (Raksha) SCAs - Statutory Central Auditors SPDs - Standalone Primary Dealers SCBs - Scheduled Commercial Banks SPECTRA - Software Platform for External SDF - Special Drawing Facility Commercial Borrowings and Trade SDG - Sustainable Development Goals Credits Reporting and Approval SDLs - State Development Loans SPMCIL - Security Printing and Minting SDMX - Statistical Data and Metadata Corporation of India Limited Exchange SRO - Self-Regulatory Organisation SDRs - Special Drawing Rights SRS - System Requirement Study SEs - Supervised Entities S-SC - Strategy Sub-Committee SEACEN - South East Asian Central Banks SSCI - Services Sector Composite Index SEBI - Securities and Exchange Board of India StCBs - State Cooperative Banks SEFL - SREI Equipment Finance Limited STRIPS - Separate Trading of Registered SEZ - Special Economic Zone Interest and Principal Securities SFBs - Small Finance Banks SWIFT - Society for Worldwide Interbank SFG - Sustainable Finance Group Financial Telecommunication SFMS - Structured Financial Messaging SWM - South-West Monsoon System TACS - Technical Advisory Committee in SGB - Sovereign Gold Bond Surveys SGL - Subsidiary General Ledger T-Bills - Treasury Bills SHGs - Self-Help Groups TCs - Trade Credits xivSELECT ABBREVIATIONS TEs - Training Establishments V-CIP - Video-based Customer Identifi cation TIN - Tax Information System Process TLTROs - Targeted Long Term Repo Operations VFT - Value Free Transfer TOL/ATNW - Total Outside Liabilities-Adjusted VIR - Visually Impaired Respondents Ratio Tangible Net Worth Ratio VM - Variation Margin TOP - Tomatoes, Onions and Potatoes VRR - Voluntary Retention Route TReDS - Trade Receivables Discounting VRRR - Variable Rate Reverse Repo System VTAs - Voluntary Trading Arrangements TSA - Treasury Single Account WACR - Weighted Average Call Rate TSCAs - Time-Sensitive Critical Activities WAM - Weighted Average Maturity UAM - Udyog Aadhaar Memorandum WAS - Weighted Average Spread UAT - User Acceptance Testing WAY - Weighted Average Yield UCBs - Urban Cooperative Banks WLA - White Label ATM UDAY - Ujwal DISCOM Assurance Yojana WMA - Ways and Means Advances UN - United Nations WPI - Wholesale Price Index UO - Umbrella Organisation WTD - Whole-Time Director UPI - Unifi ed Payment Interface WTO - World Trade Organisation USFB - Unity Small Finance Bank Limited WWF - World-Wide Fund for Nature UTs - Union Territories XBRL - eXtensible Business Reporting UTI - Unique Transaction Identifi er Language VaR/ES - Value at Risk/Expected Shortfall ZCYC - Zero Coupon Yield Curve VAT - Value Added Tax ZTCs - Zonal Training Centres This Report can be accessed on Internet URL: www.rbi.org.in xvTHE ANNUAL REPORT ONAS TSHEESS WMEONRTK AINNDG P ROOFS TPHECET SRESERVE BANK OF INDIA FoFro trh teh eY Yeeaar rA Jpurliyl 11,, 22002116 ttoo MJuanrceh 3 301, ,2 2001272* * PART ONE: THE ECONOMY - REVIEW AND PROSPECTS I ASSESSMENT AND PROSPECTS I.1 The escalation of geopolitical tensions into shock that has widened trade and current account war from late February 2022 has delivered a brutal defi cits. High frequency indicators already point to blow to the world economy, battered as it has been some loss of momentum in the recovery that has through 2021 by multiple waves of the pandemic, been gaining traction from the second quarter of supply chain and logistics disruptions, elevated 2021-22, with 86.8 per cent of the adult population infl ation and bouts of fi nancial market turbulence, fully vaccinated and 3.5 per cent having received triggered by diverging paths of monetary policy booster doses.1 Furthermore, steadfast policy normalisation. The global macroeconomic outlook support put a fl oor underneath aggregate demand is overcast with the economic costs of the war and and economic activity. Fiscal policy focused on sanctions. mitigating the hardships and loss of livelihood imposed by the pandemic, even as an impetus I.2 Emerging market and developing to growth was unleashed through reprioritising economies (EMDEs) are bearing the brunt of fi scal spending. Monetary policy remained global spillovers, despite being bystanders. Capital accommodative and fostered congenial fi nancial outfl ows and sizeable currency depreciations conditions for the recovery to take root, while being have tightened external funding costs, pushed up vigilant that infl ation remains within the target debt levels and put their hesitant and incomplete going forward. Thus, the experience of 2021-22 recoveries in danger. has yielded valuable lessons that will illuminate I.3 Turning to the domestic economy, the the path of the Indian economy in the year ahead. immediate impact of geopolitical aftershocks Lessons from the 2021-22 Experience is on infl ation, with close to three-fourth of the consumer price index at risk. The elevation I.4 Over the fi rst half of 2021, an uneven and in international prices of crude, metals, and divergent global recovery began to take shape with fertilisers has translated into a terms of trade the ebbing of the “Delta” variant-driven infections2 * The accounting year for the Reserve Bank of India was changed to April-March (earlier July-June) from the fi nancial year 2020-21 onwards. Where available, this chapter has been updated beyond March 2022. 1 The vaccination programme, which commenced on January 16, 2021 for health care workers and frontline workers as the fi rst priority, progressed impressively, with around 96.4 per cent of the adult population (above 18 years of age, assuming around 95 crore people) inoculated with the fi rst dose as on May 24, 2022, while 86.8 per cent received both the fi rst and the second dose. So far, 5.9 crore people have been administered with the fi rst dose in the 15-18 year age group and 3.3 crore in the age group of 12-14 years. As on May 24, 2022, around 3.2 crore people in the 60 plus age group and frontline workers have been inoculated with a precaution dose over and above two doses. 2 There were multiple peaks at the global level in terms of daily confi rmed new cases. First peak was on January 7, 2021 (8.7 lakh cases), followed by another peak on April 23, 2021 (9.1 lakh cases), and yet another on August 13, 2021 (8.0 lakh cases). The highest per day spike was registered on January 19, 2022 with 40.9 lakh daily cases, led by the Omicron variant. As on May 24, 2022, the daily new cases were at 6.1 lakh. Total mortalities due to COVID-19 were around 63 lakh (52.7 crore confi rmed infections) [Source: Ourworldindata.com]. 1ANNUAL REPORT 2021-22 and the gathering pace and scale of vaccination. 1.0 percentage points to global core infl ation In its April 2021 World Economic Outlook (WEO), in 2021.5 Emerging markets were hit hard by the IMF estimated world GDP to grow by 6.0 per infl ationary pressures, including from rising global cent in 2021 and world trade by 8.4 per cent.3 commodity prices, shipping costs and shortages Emerging market and developing economies of key intermediates. Hence, they embarked upon (EMDEs) were seen as lagging in view of limited withdrawal of policy support6 and tightening of monetary policy ahead of advanced economies space for maintaining policy stimulus and uneven (AEs). As AEs joined them and systemically access to vaccines.4 important central banks began signalling intent to I.5 In the second half of 2021, the global normalise policy stances in response to surging recovery became hostage to the “Omicron” infl ation, emerging market economies (EMEs) variant. This wave turned out to be short-lived and had to brace up to tighter fi nancial conditions as global trade recovered amidst supply and logistics fi nancial markets turned volatile in anticipation. bottlenecks to grow by 10.1 per cent over the The second half of 2021 saw many policy rate year as a whole. Underpinning this upturn, global hikes globally. manufacturing accelerated to 9.4 per cent in 2021 I.7 Global equity markets remained bullish from 4.2 per cent a year ago. The IMF’s April 2022 during 2021 as strong earnings expectations WEO has placed global GDP growth for the year lifted sentiments in spite of sporadic bouts of at 6.1 per cent, a shade higher than its projection volatility and brief sell-offs. Bond markets, on the made a year ago. This experience refl ects the other hand, turned bearish during the year, with innate resilience that has built up in the global treasuries delivering losses, but spreads between economy as it contended with the pandemic, government and corporate bonds narrowed. the shortages, and supply chain disruptions that Commodities markets sizzled as surging energy unravelled in its wake. and food prices crossed multi-year highs. The US I.6 Globally, infl ation broadened and acquired dollar rallied strongly, supported by an improving US economy as well as fl ights to safe haven persistence during 2021 under the impact of and a hawkish pivot by the US Fed. Most EME repetitive shocks which severely constrained the currencies depreciated, barring a few. supply response to the release of pent-up demand and pushed up costs and prices. It is estimated that I.8 In India, fi rst the Delta-driven and then supply chain pressures by themselves contributed the Omicron-induced waves of the pandemic 3 In October 2021, the IMF adjusted these forecasts to 5.9 per cent and 9.7 per cent, respectively. In April 2022, these forecasts were revised upwards to 6.1 per cent and 10.1 per cent, respectively. 4 While 74.8 per cent of the population in high income economies are fully vaccinated and 49.7 per cent have received booster shots (May 23, 2022); only 12.8 per cent of the population in low-income countries got fully vaccinated (May 15, 2022). 5 WEO, IMF, January 2022. 6 Since January 2020, fi scal measures in response to COVID-19 pandemic (including additional spending, foregone revenues and liquidity support) amount to US$16.9 trillion or 16.4 per cent of world GDP. The large fi scal packages announced or approved by the European Union and the United States could add a cumulative US$ 4.6 trillion to global GDP between 2021 and 2026. Global government debt is expected to remain at record-high levels - close to, but below, 100 per cent of GDP - in 2021 and to decrease slightly through 2026 (Fiscal Monitor, October 2021, IMF). 2ASSESSMENT AND PROSPECTS unsettled the recovery in domestic economic work in progress, having barely exceeded their activity. That the third wave turned out to be pre-pandemic levels. shorter-lived and less debilitating in terms of I.9 From the supply side, agriculture impact on economic activity than the fi rst two exhibited pandemic-proofi ng and benefi ted waves attests to the effi cacy of the nationwide from exemption from containment measures. vaccination drive and no less to learning and Foodgrains production surged to new highs adaptation. The success in navigating two waves of as did buffer stocks of rice and wheat. Various the pandemic owes a lot to the coordinated efforts initiatives, including Krishi Udan 2.0, launch of 35 with central and state governments and third tiers climate resilient and nutrient rich crop varieties, of administration, running multiple awareness cluster-based Horticulture Cluster Development campaigns to quell vaccination hesitancy and Programme and National Mission on Edible Oils the selfl ess, courageous and determined efforts - Oil Palm (NMEO-OP), boosted agricultural of various stakeholders which imparted speed to productivity. The distribution of free essential food the vaccination drive. In spite of the severity of the items through the Pradhan Mantri Garib Kalyan second wave, the loss of output in Q1:2021-22 Anna Yojana (PMGKAY) was extended in phases was about one-third of what was suffered during to ensure food security of poor households in Q1:2020-21 when measured from the level of both urban and rural areas, besides increase in GDP recorded in Q1:2019-20 (pre-pandemic). the outlay of the Mahatma Gandhi National Rural This resilience and the underlying strengthening Employment Guarantee Scheme (MGNREGS). of the impulses of growth were evident in the recommencement of the recovery from I.10 In the industrial sector, manufacturing Q2:2021-22 onwards. In fact, the third wave7 showed an uptick despite headwinds from starting end-December 2021 was fl attened in a persisting global supply bottlenecks and muted month’s time, with infections back to levels seen at discretionary consumption and investment the start of the pandemic. The National Statistical spending. Within services, the recovery was Offi ce (NSO) has placed real GDP growth at 8.9 per heterogeneous, with fi nancial, real estate and cent in 2021-22, surpassing its pre-pandemic level professional services and public administration, (of 2019-20) by 1.8 per cent. Fiscal reprioritisation defence and other services gaining traction, of expenditure towards infrastructure, robust whereas construction and trade, hotels, crop production, ebullient export growth in the transport, communication and services related face of hostile international conditions, and to broadcasting remained sluggish, being largely congenial monetary and fi nancial conditions contact-intensive in nature. Even though labour engendered by the Reserve Bank underpinned market conditions have started normalising along this macroeconomic performance. Nevertheless, with the return of the migrant labour force, labour private fi nal consumption expenditure (PFCE) participation remains incomplete and reskilling and gross fi xed capital formation (GFCF) remain assumes priority. 7 India’s fi rst wave peak, in terms of daily confi rmed new cases of COVID-19, occurred on September 16, 2020 with 97,894 infections. During the second wave, the daily spike reached the peak of 4.1 lakh infections on May 6, 2021. In the Omicron-led third wave, the peak was on January 20, 2022 with 3.5 lakh cases. Since then, the daily cases have fallen signifi cantly and currently stand at 2,124 as on May 24, 2022. Total mortalities due to COVID-19 were 5.2 lakh (around 4.3 crore confi rmed infections). 3ANNUAL REPORT 2021-22 I.11 An important takeaway from the target going forward. Forward guidance gained experience of 2021-22 is India’s tryst with prominence in 2021-22 as the MPC shifted away infl ation. Supply shocks impacted food infl ation from explicit time-contingent to state-contingent intermittently, exacerbated by imported price guidance since the start of the year. In keeping pressures, especially from global edible oil prices. with this guidance, congenial fi nancial conditions Crude oil prices pushed up core infl ation later in were maintained for sustaining the recovery. the year. This experience also highlighted the Ample liquidity bolstered market sentiment. important role of supply-side measures by the The Reserve Bank also continued with targeted government in relieving price pressures in the measures to meet sectoral credit needs, including case of edible oils and pulses, and in softening special refi nance facilities for all-India fi nancial the pass-through of the sharp increase in global institutions (AIFIs); a term liquidity facility to crude oil prices to domestic pump prices of petrol support COVID-related healthcare infrastructure and diesel through timely reductions in excise and services; special long-term repo operations duties and state-level value added taxes (VATs). (SLTRO) for small fi nance banks (SFBs); and an Furthermore, the presence of considerable slack on-tap liquidity window to mitigate the adverse in the economy tempered the pass-through of impact of the pandemic on certain contact- input cost pressures into fi rms’ selling prices. The intensive sectors. resurgence in global commodity prices (prices of I.13 In H2:2021-22, the Reserve Bank energy increased by 102.1 per cent; metals and refrained from providing any additional liquidity minerals by 28.2 per cent; precious metals by 10.3 and focused on management of the liquidity per cent; and agricultural commodities by 28.0 per overhang by rebalancing absorption under the cent year-on-year in March 2022) renewed supply overnight fi xed rate reverse repo window towards chain pressures and heightened fi nancial market variable rate reverse repo (VRRRs) auctions of volatility in Q4:2021-22, shifted the trajectory of varying maturities. By end-March 2022, VRRR infl ation sharply to the upside. Overall, headline auctions absorbed 70 per cent of the overhang. infl ation averaged 5.5 per cent in 2021-22 These shifts were refl ected in the effective reverse as against 6.2 per cent a year ago. Headline repo rate (ERRR)8 moving closer to the policy infl ation breached the upper tolerance band in repo rate and pulling up money market rates from Q4:2021-22 and rendered the conduct of monetary pandemic lows. During the year, an amount of `2.2 policy challenging. lakh crore was also withdrawn from the system I.12 The monetary policy committee (MPC) through restoration of cash reserve ratio (CRR) to decided to look through the supply shocks and pre-pandemic levels, repayment of targeted long maintained status quo on the policy repo rate, term repo operations (TLTRO) and open market persevering with an accommodative stance to operations (OMO) sales. A collateral benefi t revive and sustain growth on a durable basis of these liquidity operations and the external while ensuring that infl ation remains within the benchmark system was a signifi cant improvement 8 The weighted average of the fi xed rate reverse repo rate and the VRRR auctions of varying maturities with the weights being the amounts absorbed under the respective windows. 4ASSESSMENT AND PROSPECTS in monetary transmission to the credit market of India’s export performance in 2021-22 was the during the year. robust growth of services sector exports, with software exports scaling new highs on the back of I.14 The gross fi scal defi cit (GFD) for the strong revenues of major information technology central government declined by 2.5 percentage (IT) exporters. points of GDP in 2021-22 (revised estimates) in response to a calibrated withdrawal of pandemic I.16 These distinctive features of the experience related fi scal stimulus and robust tax and of 2021-22 endowed the Indian economy with non-tax collections. Despite the consolidation, external viability. Consequently, even though a the net fi scal impulse remained positive with massive increase in imports swung the current a focus on capital expenditure and welfare account from a surplus in the fi rst quarter to defi cits measures9 to mitigate the second wave of the in subsequent quarters, the current account defi cit pandemic. Under the disinvestment programme, remained modest at 1.2 per cent of GDP during the privatisation of Air India was an important April-December 2021-22. This was comfortably milestone. States’ revenue and capital receipts fi nanced alongside a sizeable accretion to posted strong recoveries and central tax international reserves. Furthermore, low external devolution exceeded the Centre’s budget debt turned out to be a mitigant against external estimates. Notably, the surge in states’ capital sector risks. expenditure improved the quality of spending. I.17 The banking sector was cushioned against Key sub-national defi cit indicators also showed the disruptions caused by the pandemic by improvement during the year. adequate liquidity support and various regulatory I.15 In spite of formidable headwinds, India’s dispensations provided by the Reserve Bank. merchandise exports touched a record of Banks bolstered their capital to augment risk US$ 421.9 billion during 2021-22, with a volume absorbing capacity, aided by recapitalisation10 expansion of 16.6 per cent over pre-pandemic by the government in case of public sector banks level. Increasingly, hi-tech goods such as (PSBs) along with capital raising from the market electronics provided the cutting edge to India’s and retention of profi ts by both PSBs and private export performance, refl ecting the strengthening sector banks. The gross non-performing assets of domestic manufacturing capabilities. Labour- (GNPA) ratio of all scheduled commercial banks intensive exports as well as agricultural items (SCBs) moderated to its lowest level in six years, imparted vigour to the export drive. Furthermore, aided by due efforts towards recoveries and a diversifi ed export portfolio in terms of products technical write-offs. Bank credit growth has begun and destinations imparted resilience, refl ecting to pick up to track nominal GDP growth and banks conscious policy initiatives. A noteworthy feature are regaining bottom lines. 9 Central government announced a fi scal package amounting to `6.3 lakh crore during Q1:2021-22 (second wave), which included, inter alia, extension of the Pradhan Mantri Garib Kalyan Anna Yojana, measures to strengthen public health, extension of the AatmaNirbhar Bharat Rozgar Yojana, loan guarantee scheme for COVID-19 affected sectors, provision of broadband connectivity to villages and boost for project exports through the National Export Insurance Account. 10 The Government has infused `2.9 lakh crore in the last fi ve years in PSBs, including the recapitalisation of `4,600 crore in 2021-22. 5ANNUAL REPORT 2021-22 I.18 The balance sheet of non-banking fi nancial evaluate the effi cacy of efforts towards fi nancial companies (NBFCs) expanded in 2021-22 (up to inclusion. The Reserve Bank’s Financial Inclusion December 2021) but asset quality in the sector Index (FI-Index)11 draws on 97 indicators, deteriorated. Nevertheless, capital cushions refl ecting ease of access, availability and usage showed an improvement. Given the growing of services, and quality of services. B y end-March interconnectedness of NBFCs with other segments 2021, the value of the index reached 53.9 (43.4 at of the fi nancial system, the Reserve Bank has end-March 2017), indicating the road traversed so issued guidelines on scale based regulations far and the miles to go. for NBFCs on October 22, 2021. The Reserve I.21 On the technological front, the focus Bank has also issued guidelines on December during the year was on leveraging technology 14, 2021 to extend the prompt corrective action to facilitate digital penetration, innovative (PCA) framework to NBFCs. The framework will payment options and consumer orientation be applicable to all non-government NBFCs in the towards a “less cash” dependent society. The middle, upper and top layers excluding primary Digital Payments Index (DPI), constructed to dealers, housing fi nance companies and those capture the extent of digitisation of payments NBFCs which are not accepting public funds. across the country, indicated rising growth in These measures will strengthen the fi nancial adoption and deepening of the digital payments. health of the NBFCs. The UPI system was leveraged to introduce I.19 Review of regulation of the microfi nance UPI123Pay to facilitate digital enablement sector also engaged the Reserve Bank’s attention of over 40 crore feature phone users in the in 2021-22. Directions issued on March 14, 2022 country. The operationalisation of the Payments were aimed at enhancing customer protection Infrastructure Development Fund (PIDF) for microfi nance borrowers and harmonising helped expand the digital payment acceptance the regulation of microfi nance loans provided footprint across the country, with over 85 lakh by different regulated entities like commercial payment touch points deployed in 2021 alone. banks, NBFC-microfi nance institutions (NBFC- Round the clock availability of Centralised MFIs) and other NBFCs. The Reserve Bank also Payment Systems (CPS), introduction of directed these entities to put in place Board- additional settlement cycles, extension of approved policies for assessment of household cut-off timings for some segments operated by income, limits on loan repayment obligations of a the Clearing Corporation of India Limited (CCIL) household as a percentage of household income, and operationalisation of the National Automated and pricing of microfi nance loans. Details of major Clearing House (NACH) on all days helped reduce policy measures for banks and NBFCs announced credit and settlement risks in the payment space. by the Reserve Bank during the year are covered I.22 In response to the expanding horizon of in Annex I and II of this Report. FinTech, the Reserve Bank set up a full-fl edged I.20 A noteworthy development during the year FinTech Department effective January 4, 2022. was the establishment of a quantifi able metric to The Reserve Bank Innovation Hub (RBIH) was 11 The FI-Index will be published annually in July every year. 6ASSESSMENT AND PROSPECTS also set up during the year to build an ecosystem Looking Ahead to 2022-23 for development of prototypes, patents and I.25 The geopolitical confl ict in Europe proofs of concept while promoting cross-thinking which started in February 2022 has imparted spanning regulatory domains and national a strong shock that threatens to overwhelm the boundaries. global economy and its constituents. Negative I.23 In order to build public confi dence in the externalities are already rippling through fi nancial fi nancial system and also to protect the interests and commodity markets, the international trade of customers of regulated entities by making the and fi nancial systems, supply chains and the alternate dispute redress mechanism simpler, global geopolitical order. Surging food and fuel more effi cient and responsive, the Reserve prices, in particular, and shortages of essential Bank rolled out an Integrated Ombudsman items are impacting the disadvantaged adversely. Scheme, 2021 by adopting a ‘One Nation One These forces are superimposed upon tightening Ombudsman’ approach in November 2021. The fi nancial conditions as countries across the world Reserve Bank set up a Centralised Receipt and adopt more hawkish monetary policy stances in Processing Centre (CRPC) for initial processing response to elevated and diffused infl ationary of physical and e-mail complaints. Furthermore, pressures. As pointed out earlier, EMDEs are the Reserve Bank set up the fi rst ever Contact likely to bear the brunt of this vortex of factors: Centre to provide information/assistance their fragile recoveries at risk, their populations to complainants on its alternate grievance enfeebled by high prices and supply bottlenecks, redress mechanism. The Internal Ombudsman their currencies under downward pressures and mechanism was extended to eligible NBFCs. exodus of capital, and their debt profi les rendered I.24 In a landmark legislation in pursuance of vulnerable. Scarring effects are larger for EMDEs the announcement made in the Union Budget due to human capital and investment losses which 2021-22, the Deposit Insurance and Credit may keep economic activity and employment Guarantee Corporation (DICGC) Act 1961 was below pre-pandemic trends right up to 2023. The amended on August 13, 2021. The amendments, near-term outlook is fl uid, rapidly evolving and which came into force on September 1, 2021 extremely uncertain. It will likely have a bearing on empowered the DICGC to make payment to longer-term prospects, including by exacerbating depositors up to the amount insured, in the the scars of the pandemic, by deglobalisation, case of banks with restrictions on withdrawal of fi nancial fragmentation and by setting back the deposits imposed by the Reserve Bank, within initiatives towards climate change. 90 days from the date of imposition of such I.26 The global recovery is expected to suffer directions. Such up-front payment to depositors a signifi cant loss of momentum in 2022. Risks is not observed in the cross-country experience. are large and to the downside - war escalation; As of March 31, 2022, the DICGC sanctioned shortages; resurgence of the pandemic; slowdown claims amounting to `3,457.4 crore to 2,64,142 in China; and climate stress overshooting the depositors in respect of 22 urban co-operative Paris agreement goals. In its April 2022 WEO, banks placed under all-inclusive directions by the the IMF has marked down global growth for the Reserve Bank. year sharply to 3.6 per cent from 6.1 per cent in 7ANNUAL REPORT 2021-22 2021. AEs may decelerate to 3.3 per cent from 5.2 I.29 In response to the evolving per cent a year ago and EMDEs to 3.8 per cent challenges, the following policy priorities at from 6.8 per cent. Both groups are expected to the global level will condition the way forward: experience infl ation that is higher by 2.6 and 2.8 (a) calibrate monetary policy to fi ght infl ation percentage points, respectively. The expansion of while safeguarding economic recovery; global trade volume is expected to halve from 10.1 (b) prioritise fi scal support to the most vulnerable per cent in 2021, mainly because of moderation within the consolidation envelope; (c) tighten in merchandise trade as services are expected to macroprudential policy in step with monetary remain subdued, and slow even further in 2023. policy; (d) focus on health and structural I.27 The persistence of high infl ation is forcing reforms (viz., digitalisation, reskilling workers, countervailing monetary policy action at a time reconfi guring supply chains, climate resilience, when supporting the economic recovery should debt resolution, and trade cooperation), and have been assigned priority. During 2022 so far (e) prevent economic fragmentation and support (up to May 24, 2022), more than 40 central banks the poorest countries through coordinated actions across AEs and EMEs have raised policy interest of the international institutions. These priorities rates and/or scaled back liquidity. Policy trade-offs call for country specifi c as well as multilateral are becoming increasingly complex going forward actions. and tail risks, including stagfl ation, loom large in I.30 Amidst these adverse international several countries. developments, the Indian economy is relatively I.28 Nervous fi nancial markets are already better placed to strengthen the recovery that is refl ecting these strains. In the fi rst quarter of underway and improve macroeconomic prospects 2022, major stock benchmarks suffered losses. going forward. In recognition of the knock-on Expectations of faster and larger than earlier effects from geopolitical spillovers, the MPC anticipated monetary tightening contributed to a revised downwards real GDP growth for 2022-23 rally in the US dollar - with associated depreciation to 7.2 per cent in its April resolution - a decline in emerging market currencies - and hardening of 60 basis points from its pre-war projection, of benchmark bonds yields. Yield spreads are mainly due to higher oil prices weighing on private compressing and even turning negative, with consumption and higher imports reducing net the yield curve inverting in segments. In fact, the exports. Infl ation was projected higher by 120 fi rst quarter of 2022 has already seen an episode basis points at 5.7 per cent in April 2022. Monetary of yield curve inversion in the US. With growing policy remains accommodative but focused on anticipation of sharp monetary tightening in the withdrawal of accommodation. Priority has been US, bond yields have hardened further along assigned to containing infl ation within the target with strengthening of the US dollar in Q2:2022 going forward, while supporting growth. so far. Equity indices in major economies have corrected further as uncertainties around I.31 The prospects for agriculture and allied geopolitical tensions, infl ationary pressures activities are brightening at this juncture on the emanating from continued volatility in commodity prediction of a normal monsoon [at 99 per cent prices and fresh COVID-19 related restrictions in ±5 per cent of long period average (LPA)], with China have dampened investors’ sentiments. terms of trade gains anticipated from exports. The 8ASSESSMENT AND PROSPECTS government has set the target for total foodgrains infl ation dynamics in India. Though record production at 328 million tonnes for 2022-23. The foodgrains production and forecast of a normal launch of nano-urea in liquid form augurs well south-west monsoon augurs well for food infl ation, for the upcoming kharif season. Raising farm heightened uncertainty around global food productivity remains a key concern, however. prices arising from geopolitical risks might offset It should be driven by agricultural research and these positive domestic impulses, especially via development, next-generation technological elevated prices of wheat, edible oil, feed costs and advancements and an atmosphere of innovation key agriculture inputs like fertilisers. Moreover, and entrepreneurship for agri-tech start-ups to volatility in the prices of international crude oil and thrive. key raw materials and intermediates, together with global supply chain disruptions, may push up I.32 Early indicators point to revival of input cost pressures. In particular, a scenario in economic activity across other sectors that which crude prices persist above US$ 100/barrel needs to be assiduously nurtured in order to poses a major upside risk in terms of re-igniting boost consumer and business confi dence and second-round effects across manufacturing and private investment. Capacity utilisation in several services prices. Supply side policy interventions industries is moving closer to normal levels, such as removing customs duty on import of raw although rising input costs and persisting supply cotton, prohibiting wheat exports, reducing road bottlenecks, as for instance in semiconductors and infrastructure cess (RIC) on petrol by `8 per for the automobile sector, may impede or litre and diesel by `6 per litre, increasing exports delay a fuller recovery. With the lessons of the duty on certain steel products, reducing imports experience of 2021-22, contact-intensive sectors duty on certain raw materials for steel and plastic are expected to rebound over the year ahead, manufacturing, restricting sugar exports, removing with positive implications for the workforce and customs duty and agriculture infrastructure and for consumption demand. The thrust given development cess (AIDC) on import of 20 lakh to infrastructure and investment in the Union tonnes of crude sunfl ower oil and crude soybean Budget 2022-23 will play a major role in shaping oil per fi nancial year till March 31, 2024 and other the post COVID-19 recovery. The Pradhan measures as may be taken could, however, provide Mantri Gati Shakti, which brings together some offset. A faster resolution of the geopolitical infrastructure plans under various ministries confl ict and no further severe COVID-19 waves under a common digital platform, is expected could subdue and even reverse these pressures to improve effi ciency in execution and reduce and help contain core infl ation. logistic costs. Similarly, policy support for the I.34 Against the background of the risks to the digital economy, FinTech, and climate transition near-term infl ation outlook rapidly materialising would enable India to participate and benefi t from as refl ected in the infl ation print for March and the fourth industrial revolution. the developments thereafter, the MPC held I.33 The infl ation trajectory going forward is an off-cycle meeting on May 2 and 4, 2022. subject to considerable uncertainty and would While noting that domestic economic activity is primarily depend on the evolving geopolitical navigating the vortex of forces confronting the situation. Sharp movements in global commodity world with resilience on the strength of underlying prices are having a signifi cant bearing on food fundamentals and buffers, the MPC expected 9ANNUAL REPORT 2021-22 infl ation to rule at elevated levels, warranting expenditure is budgeted to increase to 2.9 per resolute and calibrated steps to anchor infl ation cent of GDP as against a decadal average of 1.8 expectations and contain second round effects. per cent of GDP. The ratio of revenue expenditure Accordingly, the MPC decided to increase the to capital outlay is set to improve for the second policy repo rate by 40 basis points to 4.40 per consecutive year to 5.2 in 2022-23 (BE), distinctly cent. Concomitantly, the standing deposit facility lower than the average of 7.8 during 2010-11 to (SDF) rate and the marginal standing facility 2019-20. The strategy of building in of buffers at (MSF) rate stood adjusted at 4.15 per cent various levels and a realistic disinvestment target and 4.65 per cent, respectively. Furthermore, of `65,000 crore (close to the average realisation in keeping with the stance of withdrawal of in the past 5 years) provides headroom to deal accommodation and in line with the earlier with future shocks. Transparency in accounting announcement of gradual withdrawal of liquidity practices imparts credibility to the fi scal arithmetic. over a multi-year time frame, the Reserve Bank States’ capex is expected to receive a strong push decided to increase the cash reserve ratio (CRR) in 2022-23 on account of enhanced allocation by 50 bps to 4.50 per cent, effective the fortnight under the ‘Scheme for Financial Assistance to beginning May 21, 2022, which would withdraw States for Capital Investment’ from `15,000 crore in liquidity to the tune of `87,000 crore from the 2021-22 (RE) to `1 lakh crore in 2022-23 (BE). banking system. The Reserve Bank will continue I.36 If geopolitical tensions ease, ongoing to follow a nuanced and nimble footed approach global supply disruptions could dissipate and to liquidity management while maintaining enable world trade to regain momentum. This adequate liquidity in the system to meet the credit could enhance India’s growing agricultural exports. needs of the productive sectors of the economy. Efforts are also being made to boost India’s The introduction of the SDF in April 2022 as an defence exports. The recently announced Green uncollateralised facility at 25 basis points below Hydrogen/Green Ammonia Policy would secure the repo rate to provide a new fl oor for the India’s energy security in an environmentally liquidity adjustment facility (LAF), and two-way sustainable way and cut down dependence on operations of absorbing liquidity through VRRR fossil-based imports. auctions of varying maturities and variable rate I.37 India’s Comprehensive Economic repo (VRR) auctions to meet transient liquidity Partnership Agreement (CEPA) with the United shortages, will help to ensure this objective in a Arab Emirates (UAE) could boost prospects of non-disruptive manner. trade with Africa and Asia. F urthermore, the signing I.35 In 2022-23 (BE), the central government of the India-Australia Economic Cooperation and has sought to prioritise capital spending while Trade Agreement (ECTA) will open up preferential maintaining fi scal prudence. A reduction in access to Australian markets for India. Trade GFD-GDP ratio by 0.3 percentage points is agreements with various other nations/blocks like envisaged in line with the target of achieving a the UK, Canada, and Gulf Cooperation Council GFD-GDP ratio below 4.5 per cent by 2025-26. (GCC) are in the making and will likely galvanise Fiscal consolidation is sought to be achieved India’s export market diversifi cation strategy. The by reining in revenue spending even as capital Foreign Trade Policy (FTP) 2021-26 is expected 10ASSESSMENT AND PROSPECTS to provide a medium-term path for achieving sheets becoming clearer in the upcoming quarters. merchandise exports of US$ 1 trillion by 2030. Prudence warrants proactive recognition of any States, on their part, are focusing on creating non-viable accounts to activate timely resolution. the enabling infrastructure, e-market strategies Going forward, as the economy recovers and and export-oriented policies to complement the credit demand rises, banks will need to focus on Government of India’s initiatives such as ‘One supporting credit growth while being vigilant of the District One Product’. The PLI scheme for sectors evolving risks. Care needs to be taken to ensure such as electronics, pharmaceuticals, textiles, that fresh slippages are arrested, and banks’ steel, and automotives are expected to enhance balance sheets are strengthened to avoid future India’s global value chain (GVC) participation build-up of stress. and reduce import dependency in critical sectors. I.40 The setting up of the National Asset Furthermore, the rationalisation of customs duties Reconstruction Company Ltd. (NARCL) is a aims to empower AatmaNirbhar Bharat goals step forward for resolution of large value legacy through increasing value-added manufacturing, stressed assets and is likely to serve as a which will further strengthen India’s GVC time-effi cient mechanism for reviving investor participation. interest in primary and secondary markets for I.38 At the same time, longer-than-expected stressed assets. Going forward, continued supply chain bottlenecks, elevated freight commitment, professionalism and transparency in rates and the upsurge in global infl ation amidst operation will help in making the exercise cost- and escalating geopolitical tensions pose signifi cant time-effective. The setting up of the National Bank risks. Although direct trade and fi nance exposures for Financing Infrastructure and Development in the context of the ongoing confl ict are limited, (NABFID) is expected to shift the burden of elevated crude oil prices can widen the current long-term fi nancing away from banks. The account defi cit while foreign portfolio investors NABFID can also play an active role in the may remain risk averse towards EMEs, including development of bond and derivatives markets India. Nevertheless, robust reserve buffers, a that are necessary for infrastructure fi nancing. strong FDI pipeline and proactive policy measures towards supporting merchandise exports and I.41 NBFCs and urban cooperative banks participation in GVCs should help the economy (UCBs) will have to be mindful of frailties, withstand adverse global spillovers. wherever they exist, in their balance sheets and ensure robust asset-liability management, apart I.39 The banking sector has witnessed from improving the quality of their credit portfolios. improved fi nancial parameters despite the COVID-19 pandemic. There is, however, a Considering the signifi cant share of funding need to be watchful of the credit behaviour of absorbed by NBFCs at the system level, continued the restructured advances and possibility of attention to their fi nancial health is warranted increased slippages arising from sectors that from the viewpoint of fi nancial stability. In order to were relatively more exposed to the pandemic. further strengthen the regulatory and supervisory With the unwinding of support measures, some framework, several measures are expected to be of the restructured accounts might face solvency put in place for banks and NBFCs during 2022-23, concerns, with the impact on banks’ balance as covered in Chapter VI of this Report. 11ANNUAL REPORT 2021-22 I.42 In the payments space, going forward, the fourth cohorts of the Regulatory Sandbox focus would be on enhancing awareness about on “MSME Lending” and “Prevention and digital payments and extending the outreach Mitigation of Financial Frauds” as also the of payment systems across India and beyond. outcomes from the hackathon HARBINGER 2021 Implementation of the geo-tagging framework are expected to provide innovative solutions for will provide precise locations of existing payment the fi nancial sector. touch points and facilitate implementation of I.45 The Reserve Bank will continue its efforts targeted literacy programmes and intervention towards improving the regulatory ecosystem for strategies. The possibility of linking India’s customer protection, upgrading and providing payment systems to other jurisdictions, including easy and quick access to the grievance redress the ongoing initiative of interlinking India’s fast mechanism, and also percolating customer payment system - UPI - with similar systems in awareness and fi nancial education to the excluded other jurisdictions, will enhance cross-border sections of the population as also to remote areas payment arrangements, including remittances. of the country. Looking ahead, the implementation I.43 The Reserve Bank is engaged in the of the various milestones under the National introduction of a central bank digital currency Strategy for Financial Inclusion (NSFI) and the (CBDC) in India. The design of CBDC needs National Strategy for Financial Education (NSFE) to be in conformity with the stated objectives of would sustain the momentum of fi nancial inclusion monetary policy, fi nancial stability and effi cient in the country. operations of currency and payment systems. I.46 To sum up, the year gone by brought The Reserve Bank proposes to adopt a graded many challenges, but a recovery is underway approach to introduction of CBDC, going step by in spite of headwinds. The future path of growth step through stages of Proof of Concept12, pilots will be conditioned by addressing supply-side and the launch. bottlenecks, calibrating monetary policy to bring I.44 In the FinTech space, the Reserve Bank infl ation within the target while supporting growth will facilitate setting up of 75 Digital Banking and targeted fi scal policy support to aggregate Units in 75 districts of the country during demand, especially by boosting capital spending. 2022-23. It will also work towards ensuring Undertaking structural reforms to improve India’s execution of key projects of importance through medium term growth potential holds the key the Reserve Bank Innovation Hub (RBIH) during to secure sustained, balanced and inclusive the year while fi nalising its vision, mission and growth, especially by helping workers adapt to the strategy documents and a policy framework after-effects of the pandemic by reskilling and for digital banking and FinTechs. Testing enabling them to adopt new technologies for and evaluation of entities under the third and raising productivity. 12 It is an exercise in which work is focused on determining whether an idea can be turned into a reality or to verify, if the idea will function as envisioned. 12ECONOMIC REVIEW II ECONOMIC REVIEW The Indian economy renewed its tryst with the recovery from the pandemic in 2021-22, albeit interrupted by a virulent second wave of infections and a relatively milder third wave. Headline inflation spiked on repetitive supply shocks during the year, though reversion to the target was also evident as shocks receded. Monetary and credit conditions evolved in sync with the accommodative monetary policy stance, although global spillovers towards the close of the year led to some tightening in financial conditions and heightened volatility in financial markets. The intensification and materialisation of geopolitical risks in early 2022 overcast the global outlook, with EMEs including India, being the most vulnerable to spillovers. A robust recovery in tax revenues helped contain the gross fiscal deficit close to budgetary targets. The sustained strength of exports and revival in inbound remittances underpinned the viability of the balance of payments, with net capital flows also contributing to the accretion to foreign exchange reserves. II.1 THE REAL ECONOMY were widely differentiated across jurisdictions by the size and durability of monetary and fiscal Global Economy1 stimuli, and access to vaccines. Global growth II.1.1 Omicron, rising food prices and sticky lost pace in the second half of the year, beset inflation, the US Fed’s much anticipated lift-off, by the highly transmissible but milder variant and escalation of geopolitical tensions towards of COVID-19 – Omicron. Despite these waves the end of the year flaring up into conflict in superimposed on global supply chain and early 2022 defined the macroeconomic and logistics disruptions, global trade recovered in financial landscape during this Annual Report’s the second half of the year and grew by 10.1 per period under review. Over the first half of 2021, cent in 2021. Underpinning this upturn, global an uneven and divergent recovery had lifted manufacturing accelerated to 9.4 per cent in the global economy out of the deep contraction 2021 from 4.2 per cent in 2020.2 imposed by the pandemic in the preceding year. According to the International Monetary Fund II.1.2 E ven as the release of pent-up spending (IMF) in its World Economic Outlook of April supported aggregate demand, persisting supply 2022, world GDP expanded by 6.1 per cent in disruptions fuelled inflation which increased 2021 as against a contraction of 3.1 per cent in markedly in the US, the Euro area and a the previous year. After a sharp setback due to number of emerging market economies (EMEs). the virulent Delta variant of the coronavirus in Commodity prices increased sharply in 2021 from the early part of 2021, the global recovery had their lows a year ago as the nascent recovery in regained some traction even as paths of growth demand collided with supply bottlenecks. While 1 Global developments relating to prices, fi nancial markets, fi scal, and external sectors are also covered in the respective sections of this chapter. 2 United Nations Industrial Development Organisation (UNIDO). 13ANNUAL REPORT 2021-22 fiscal and monetary policies remained largely persisting inflationary pressures across AEs and accommodative, inflation ruling above targets EMEs alike. forced several EMEs to tighten monetary policy, Domestic Economy with advanced economy (AE) central banks II.1.3 In 2021-22, India renewed its tryst with the following in their train. Tapers of pandemic- recovery that had commenced in the second half induced liquidity overhangs but without tantrums of 2020-21 with the abatement of the first wave. tightened financial conditions. In the financial The second wave took a grievous toll, however, markets, risk-off sentiment drove equity markets pushing the nation into arguably the worst health into correction. Bearish government bond market crisis the country had ever faced (Chart II.1.1). experienced hardening of real yields across AEs. Supported by continuing fiscal measures and As shorter-term yields began to reflect the shift congenial financial conditions engendered by in the monetary policy stance, the consequent monetary, regulatory and liquidity initiatives flattening of the yield curve pointed to global undertaken by the Reserve Bank, including some growth momentum losing steam towards the close unconventional ones, the real GDP bounced of 2021 and in early 2022. As risk aversion set in back in Q2:2021-22 and grew at 1.3 per cent with geopolitical conflict, there was considerable over Q2:2019-20. The recovery was further re-pricing of financial assets. Consequently, gold entrenched in Q3:2021-22 with GDP exceeding prices have surged, also buoyed by stagflation the corresponding pre-pandemic quarter by 6.2 concerns and rate hike expectations. Investors per cent. In Q4, however, the third wave of the face a very different dynamic as fiscal and pandemic driven by the Omicron variant and more monetary policy support fades in the face of recently, geopolitical conflict has caused a loss of elevated levels of public debt3 with higher and pace in the recovery and darkened the outlook. Chart II.1.1: COVID-19 Cases and Vaccination Status a. COVID-19 Cases and Vaccination b. People Vaccinated as per cent of Total Population Programme in India (as on March 31, 2022) Source: Ourworldindata.org. 3 Refer to footnote 6 of Chapter I. 14ECONOMIC REVIEW II.1.4 Unlike in the first wave, the economic transmissibility was followed by a steep fall - daily impact of the second wave of the pandemic was infections peaked on January 20, 2022 with 3.47 contained due to the localised nature of lockdowns lakh new cases and total 20.1 lakh active cases and better adaptability to pandemic protocols. but began to subside thereafter. The mortality rate Growth impulses, rejuvenated by the receding of remained much below that of the second wave. the second wave from June 2021, were fortified by High frequency indicators of economic activity the pace and scale of inoculation.4 suggest that the impact of third wave on the economy will likely be muted in comparison with II.1.5 Turning to financial conditions, money the first two waves. markets were flush with abundant liquidity, with short-term interest rates aligned to the floor of the II.1.7 Against this backdrop, an analysis of Reserve Bank’s liquidity adjustment facility (LAF), aggregate demand in the following sub-section is although they did firm up in the second half of the followed by an assessment of aggregate supply year as a result of rebalancing of liquidity towards conditions. Sub-section 4 presents a drill-down auctions and away from the fixed rate reverse into employment and labour market developments. repo, a cessation of large liquidity injections The concluding sub-section provides some policy through secondary market asset purchases and perspectives. the lapsing of some extraordinary measures on 2. Aggregate Demand due dates. In the debt markets, yields hardened in the second half of the year and spreads widened II.1.8 The second advance estimates (SAE) as market sentiment turned bearish on large that were released by the National Statistical issuances by governments (centre and states) Office (NSO) on February 28, 2022 indicated and the recurring incidence of global spillovers that aggregate demand, measured by real as monetary policy stances diverged across the GDP, registered a growth of 8.9 per cent in world. The Indian rupee (INR) traded range-bound, 2021-22, up from a contraction of 6.6 per cent displaying strong mean reversion after every bout in the previous year (Table II.1.1 and Appendix of volatility from global developments. The INR Table 1). Consequently, the GDP level surpassed was also buoyed by sustained capital inflows in the pre-pandemic level of 2019-20 by 1.8 per cent. the form of foreign direct investment and portfolio II.1.9 In the first half of 2021-22, real GDP flows attracted by a spate of initial public offerings registered double-digit growth which tapered in (IPOs). Domestic equity indices outperformed the the second half due to the gradual waning of base peer country indices in 2021. After two years of effects. The underlying momentum remained large gains, however, valuations of Indian equities strong, however, as evident in a sharp rebound were stretched by most conventional yardsticks. in the seasonally adjusted annualised growth rate II.1.6 The Omicron-led third wave hit India at the (SAAR) in Q2:2021-22 that appears to have been end of December 2021. It, however, turned out to sustained in subsequent quarters (Chart II.1.2 and be short-lived. The spike in infections with high Appendix Table 2). 4 Refer to footnote 1 of Chapter I. 15ANNUAL REPORT 2021-22 Table II.1.1. Real GDP Growth Chart II.1.3: Weighted Contribution to GDP Growth Component Growth (per cent) 2017-18 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 6 I. Total 7.1 7.0 4.9 -4.5 7.2 Consumption Expenditure Private 6.2 7.1 5.2 -6.0 7.6 Government 11.9 6.7 3.4 3.6 4.8 II. Gross Capital 14.5 6.2 -5.2 -13.8 21.5 Formation Gross Fixed 7.8 11.2 1.6 -10.4 14.6 Capital Formation Change in 68.3 27.3 -58.8 -110.7 -1,723.9 Stocks Valuables 40.2 -9.7 -14.2 26.4 63.0 Note: Component-wise contributions do not add up to the growth rate as change in stocks, valuables and statistical discrepancies are III. Net Exports not included. Exports 4.6 11.9 -3.4 -9.2 21.1 Source: NSO. Imports 17.4 8.8 -0.8 -13.8 29.9 IV. GDP 6.8 6.5 3.7 -6.6 8.9 remained weak by historical standards although Source: NSO. it managed to surpass its pre-pandemic level by 1.2 per cent. With contact-intensive activity yet II.1.10 Within this turnaround during the to normalise fully, discretionary consumption year, there was a compositional shift among spending lacked traction. Government constituents of aggregate demand (Chart II.1.3). consumption expenditure accelerated in 2021- Private final consumption expenditure (PFCE) 22, providing an upward thrust to aggregate demand. Gross fixed capital formation (GFCF) rebounded sharply, primarily backed by public Chart II.1.2: GDP Growth: Y-o-Y and 3-Quarter investment as government prioritised capital MA-SAAR expenditure. Exports recovered strongly in spite of hostile international environment and entered into positive growth territory from Q4 of 2020-21. Propelled by surging import demand and rising international commodity prices, especially of crude, the current account shifted from a surplus to modest deficits from Q2:2021-22. Consumption II.1.11 Private consumption - the mainstay of aggregate demand in India - partially recuperated with the gradual relaxation of restrictions on mobility and the accelerated pace of vaccination, #: Implicit growth. Source: National Statistical Office (NSO) and RBI staff estimates. both enabling a restoration of consumer 16ECONOMIC REVIEW confidence. Spending on consumer durables during the first half of the year. Furthermore, improved on a y-o-y basis and discretionary a bountiful monsoon, adequate soil moisture expenditure mainly took the form of revenge and replenished reservoir levels brightened its spending. A combination of factors, viz., robust prospects for the rest of the year. However, the growth in agriculture and allied activities, support last quarter reflected signs of demand slowdown from the government in the form of cut in excise as firms increasingly passed on cost pressures duty on petrol and diesel, and continuation of to end use customers. direct benefit transfer (DBT) schemes helped Investment and Saving shore up confidence and boost consumption II.1.14 The rate of gross domestic investment spending. in the Indian economy, measured by the ratio of II.1.12 With the second wave’s intensity, private gross capital formation (GCF) to GDP at current consumption sank below its pre-pandemic level in prices, nosedived to 27.3 per cent in 2020-21 Q1:2021-22 and consumer confidence plummeted from 30.7 per cent in the preceding year. Although to an all-time low. The wave peaked during the data on GCF are not yet available for 2021-22, month of May 2021 and thereafter, conditions movements in its constituents suggest an uptick started to improve. In the subsequent rounds, led by government spending on infrastructure. the Reserve Bank’s consumer confidence survey The ratio of real GFCF to GDP surged to 32.0 exhibited gradual improvement in consumer per cent in 2021-22 from 30.5 per cent in 2020- perceptions pertaining to both the current situation 21, reflecting a revival of investment sentiments. and future expectations except a dip in the January GFCF registered an acceleration of 14.6 per cent 2022 round at the peak of Omicron variant impact in 2021-22, on the back of a favourable base of COVID-19. PFCE rebounded in Q2 and Q3 of effect. 2021-22, with an uptick in y-o-y terms as well as on a sequential basis (in level terms). The release II.1.15 Among the components of GFCF, recovery of pent-up demand coupled with an upbeat festival in the construction sector was facilitated by the season sentiment was partially offset by supply- focus of the central government on infrastructure, side disruptions in the form of shortages of supply in addition to an uptick in the housing segment of coal, electricity and, particularly, semiconductor on favourable interest rates and attractive offers chips. This was manifested in moderation in growth by developers. This resurgence is evident in in sales of passenger vehicles, motorcycles, and its proximate coincident indicator – cement two-wheelers during the second half of the year. production (Chart II.1.4). A similar recovery On the other hand, an encouraging development became evident in investment in machinery was the gradual pick-up in bank credit, especially and equipment. Both its proximate coincident in the personal loans segment. Credit growth also indicators - imports and production of capital accelerated in respect of agriculture, MSMEs and goods - registered sharp expansion in 2021-22. select services. II.1.16 As per the order books, inventories II.1.13 Indicators of rural demand reveal a and capacity utilisation survey (OBICUS) slackness, vis-a-vis urban demand despite of the Reserve Bank, capacity utilisation in resilience in agriculture and allied activities manufacturing recovered to 68.3 per cent in 17ANNUAL REPORT 2021-22 inventory to sales ratio declined sequentially in Chart II.1.4: Indicators of Investment Demand Q2 and Q3:2021-22. The respondents of the 97th round of the Industrial Outlook Survey (IOS) assessed that there was improvement in demand conditions in terms of production, order books and employment situation in Q4:2021-22, albeit at a slower pace than Q3:2021-22. Capacity utilisation and the overall financial situation are expected to improve further in Q1:2022-23 while business expectations remained high, though optimism has moderated from the previous quarter. Respondents expressed higher optimism for growth in selling prices, indicating more pricing power combined Source: Joint Plant Committee, Office of Economic Adviser, NSO and with input cost pressures in Q1:2022-23. DGCI&S. II.1.17 The rate of gross domestic saving had Q2 and further to 72.4 per cent in Q3:2021-22 dropped to 27.8 per cent of gross national after a drop to 60.0 per cent in Q1:2021-22 in disposable income (GNDI) in 2020-21 from 29.4 the wake of the second wave of the COVID-19. per cent a year ago due to dissaving of the general The inventory to sales ratio increased in government sector and a fall in saving of the Q1:2021-22, reflecting the containment non-financial corporations. The financial saving measures under which the economy was of the household sector – the most important operating. With the subsequent improvement source of funds – surged by 3.6 percentage in sales and stable levels of inventories points to 11.5 per cent of GNDI in 2020-21, the maintained by manufacturing companies, the highest in over two decades (Table II.1.2 and Table II.1.2: Financial Saving of the Household Sector (Per cent of GNDI) Item 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 1 2 3 4 5 6 7 8 9 10 A. Gross Financial Saving 10.5 10.4 9.9 10.7 10.4 11.9 11.8 11.7 15.5 of which: 1. Currency 1.1 0.9 1.0 1.4 -2.1 2.8 1.4 1.4 1.9 2. Deposits 6.0 5.8 4.8 4.6 6.3 3.0 4.2 4.2 6.3 3. Shares and Debentures 0.2 0.2 0.2 0.2 1.1 1.0 0.4 0.4 0.5 4. Claims on Government -0.1 0.2 0.0 0.5 0.7 0.9 1.1 1.3 1.6 5. Insurance Funds 1.8 1.8 2.4 1.9 2.3 2.0 2.0 1.8 2.6 6. Provident and Pension Funds 1.5 1.5 1.5 2.1 2.1 2.1 2.1 2.2 2.5 B. Financial Liabilities 3.2 3.1 3.0 2.7 3.0 4.3 4.0 3.9 4.0 C. Net Financial Saving (A-B) 7.2 7.2 6.9 7.9 7.3 7.5 7.8 7.9 11.5 GNDI: Gross National Disposable Income. Note: Figures may not add up to total due to rounding off. Source: NSO. 18ECONOMIC REVIEW Appendix Table 3). The reduction in discretionary Chart II.1.6: GVA Growth: Y-o-Y and 3-Quarter MA-SAAR spending amidst the pandemic and the associated 100 forced saving as well as a surge in precautionary 80 saving on concerns relating to income flows in 60 the near-term boosted saving by households. 40 20 II.1.18 In 2020-21, saving had exceeded 0 investment for the first time since 2004-05. The -20 surplus from the household sector amounted to -40 11.8 per cent of GDP in 2020-21. The resource -60 gap of private non-financial corporations closed -80 in 2020-21, due to a curtailment in investment amidst the pandemic. As alluded to earlier, the drawdown on saving by the general government sector increased due to increase in spending #: Implicit growth. Sources: NSO and RBI staff estimates. to ameliorate the impact of the pandemic (Chart II.1.5). 3. Aggregate Supply II.1.19 Aggregate supply, measured by gross value added (GVA) at basic prices, expanded by 8.3 per cent in 2021-22 after registering a contraction of 4.8 per cent in 2020-21. With the gradual unshackling of the economy from pandemic-related restrictions, the three-quarter moving average of seasonally adjusted annualised growth rate (MA-SAAR) exhibited an upturn in Q2:2021-22 and remained resilient in Q3:2021-22 (Chart II.1.6). II.1.20 The acceleration in GVA growth was facilitated by a sustained recovery in the industrial and the services sectors, albeit on a favourable base. The agricultural sector provided a cushion to the economy, staying resilient throughout the year (Table II.1.3). 19 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q #4Q 2018-19 2019-20 2020-21 2021-22 tnecreP Y-o-Y Q-o-Q SAAR 3-Quarter MA-SAAR Chart II.1.5: Sectoral Resource Gap NPISH: Non-profit Institutions Serving Households. Source: NSO.ANNUAL REPORT 2021-22 Table II.1.3: Real GVA Growth (Per cent) Sector 2017-18 2018-19 2019-20 2020-21 2021- 22 1 2 3 4 5 6 I. Agriculture, Forestry and Fishing 6.6 2.1 5.5 3.3 3.3 II. Industry 6.1 4.9 -2.2 -1.8 10.4 II.1 Mining and Quarrying -5.6 -0.8 -1.5 -8.6 12.6 II.2 Manufacturing 7.5 5.4 -2.9 -0.6 10.5 II.3 Electricity, Gas, Water Supply and Other Utility Services 10.6 7.9 2.2 -3.6 7.8 III. Services 6.2 7.1 5.7 -7.8 8.8 III.1 Construction 5.2 6.5 1.2 -7.3 10.0 III.2 Trade, Hotels, Transport, Communication and Services related to 10.3 7.2 5.9 -20.2 11.6 Broadcasting III.3 Financial, Real Estate and Professional Services 1.8 7.0 6.7 2.2 4.3 III.4 Public Administration, Defence and Other Services 8.3 7.5 6.3 -5.5 12.5 IV. GVA at Basic Prices 6.2 5.8 3.8 -4.8 8.3 Source: NSO. II.1.21 Globally, COVID-19 induced shutdowns nationwide lockdown was followed by a rebound caused output losses in the manufacturing sector in profits of the corporate non-financial sector and overall GDP. In the case of India, the sharp (Box II.1.1). contraction in Q1:2020-21 during the stringent Box II.1.1 Corporate Performance during the Pandemic: The Role of Corporate Tax Rate Cut Indian corporates were shielded from the pandemic by the and Development (OECD) countries, the average corporate rationalisation in conduct of business that focused on cost- income tax rate declined from 32.5 per cent in 2000 to 23.9 saving and a corporate tax rate cut in September 20195 (RBI, per cent in 2018, and similar measures were undertaken 2021). This tax cut was in league with other countries as in the US and the UK (Kopp et al., 2019). Before the tax observed across the Organisation for Economic Cooperation rate cut, the effective rate for the manufacturing sector was Table 1a: Effective Tax Rate for Manufacturing 27.8 per cent, while for the non-manufacturing sector, it was higher at 30.5 per cent on an average, impinging upon the Industry Group Share in Effective Tax Tax Benefi t Industrial Rate Before (percentage competitiveness of Indian exports (Tables 1a and 1b). GVA* Tax Cut points) 1 2 3 4 Table 1b: Effective Tax Rate for Non-Manufacturing Food Beverages and Tobacco 11.1 32.8 7.6 Sector Share in Effective Tax Tax Benefi t Textiles 7.0 27.7 2.5 Services Rate Before (percentage Metal Products 15.4 27.4 2.2 GVA Tax Cut points) Machinery and Equipment 28.1 26.8 1.7 1 2 3 4 Transport Equipment 13.6 30.9 5.8 Refi ned Petroleum 6.7 21.6 0.0 Wholesale and Retail Trade 20.0 31.4 6.2 Pharmaceuticals 7.4 25.4 0.2 Transport and Logistics 7.7 29.5 4.3 Rubber and Plastic 4.6 29.5 4.3 Real Estate 1.2 26.8 1.6 Financial Services 9.5 37.0 11.8 *: Shares in GVA are calculated based on annual fi gures for 2019-20 from IT and Related Services 8.5 29.0 3.9 National Account Statistics 2022. Source: Union Budget documents. Source: Union Budget documents. (Contd.) 5 The Union Government announced a sharp cut in corporate tax rates from 30 per cent to 22 per cent. Inclusive of all surcharges and cess, effective corporate tax rate (ETR) has come down to 25.2 per cent, provided the companies do not avail any other tax incentives or benefi ts. Apart from this, for new manufacturing companies, effective tax rate would be 17.0 per cent, thereby increasing the incentives for fresh investment. 20ECONOMIC REVIEW A difference-in-difference (DID) panel regression to assess Table 2: Empirical Results the differential impact of the tax rate cut attempts to test the Dependent NPM NPM NPM Non- NPM Non- hypothesis that fi rms in sectors which benefi tted from the Variable Manufacturing Manufacturing manufacturing manufacturing tax rate cut in terms of lower effective corporate tax rate (Before Tax) (After Tax) (Before Tax) (After Tax) (ETR) registered higher net profi t6 margin (NPM) during 1 2 3 4 5 the post-tax cut period than in the pre-tax cut period. The reduction in the corporate tax rate would only increase profi t Intercept 26.69* 6.4648*** 27.13* 15.8048*** (11.43) (0.3125) (11.29) (0.4786) after tax (PAT), with profi t before depreciation, interest and Time (τ) -13.58 2.3482*** -13.81 2.1562** tax (PBDIT) remaining unchanged. As the ETR at a fi rm (22.28) (0.5951) (22.05) (0.9299) level is not directly available, it is computed for each fi rm Treatment (θ) 37.45** 2.4190*** 36.69** 3.8319*** as the ratio of corporate tax paid to total taxable income (13.92) (0.3830) (13.75) (0.5813) (Guha, 2007). Firms enjoying a reduction by at least fi ve Interaction (δ) 26.12 0.5631 25.66 0.7052 percentage points compared to the pre-tax cut period (27.09) (0.7262) (26.77) (1.1268) average constitute the treatment group and the rest form No. of 8269 8269 5934 5934 the control group. The period considered is from Q1:2018- Observations 19 to Q4:2020-21. The pre-tax cut period covers the period F 27.64 2.764 2.716 20.04 Q1:2018-19 to Q1:2019-20, while the period Q2:2019-20 Prob>F 0.0000 0.04044 0.04315 0.0000 to Q4:2020-21 represents the post-tax cut period.7 ***: Signifi cant at 1 per cent level. **: Signifi cant at 5 per cent level. Net profi t margin (NPM) turns out to be signifi cantly higher *: Signifi cant at 10 per cent level. for fi rms in the treatment group in both manufacturing and Note: Figures in the parentheses denote the standard errors. Source: RBI staff estimates. non-manufacturing sectors. Net profi t margin improves signifi cantly in the post-tax cut period (Table 2). Furthermore, 2. Kopp, E., L. Daniel, M. Susanna (2019), ‘U.S. Investment the impact of the tax rate cut on profi tability is stronger for the Since the Tax Cuts and Jobs Act of 2017’, Working Paper non-manufacturing sector than for the manufacturing sector. No. 19/120, International Monetary Fund, Washington, References: D.C. 1. Guha, Atulan (2007), ‘Company Size and Effective 3. RBI (2021), ‘Contours of Economic Recovery’, Inaugural Corporate Tax Rate Study on Indian Private Address by Shri Shaktikanta Das, Governor, Reserve Manufacturing Companies’, Economic and Political Bank of India at 8th SBI Banking & Economics Conclave, Weekly, Vol. 42, Issue 20, Pages 1869-1874. November 16, Mumbai. Agriculture and Allied Activities in south-west monsoon (SWM) and kharif sowing in the month of September 2021. Except for rice II.1.22 Agriculture and allied activities posted and wheat, the prospects for rabi production was a robust performance in 2021-22, even though good with robust sowing, coupled with adequate the second wave of the pandemic affected rural soil moisture and replenished reservoir levels. The areas on a larger scale than during the first wave. buoyancy in the agriculture sector was mirrored in The sector registered a growth of 3.3 per cent in sales of tractors and fertilisers, which consistently 2021-22, with record production in foodgrains. outstripped pre-pandemic levels for the major part The strong growth was aided by a sharp catch-up of 2021-22. 6 Net profi t margin is calculated as the proportion of net profi t to net sales. In case of profi t before tax, the ratio of PBDIT to net sales has been used. Corporate data at fi rm level are obtained from the Centre for Monitoring Indian Economy (CMIE) prowess IQ database for computing the profi tability indicators. 7 The estimated model is formulated as: π =γ+τ×1 +θ×1 +δ×1 ×1 +∈ ijt t t=P (i=T) (t=p) (i=T) ijt where, π is the profi tability indicator for ith fi rm in industry j at tth quarter. τ is the coeffi cient for time variable which assumes a value 1, if the ijt observation is in the post tax-cut period and 0, otherwise. θ is the coeffi cient for the reduction in ETR which takes a value 1 if the observation falls in the treatment group and 0 otherwise. δ denotes the coeffi cient for the interaction term. 21ANNUAL REPORT 2021-22 Chart II.1.7: Weekly Rainfall 2021-22 a. South-West Monsoon b. North-East Monsoon Note: North-east monsoon rains withdrew on January 22, 2022. Source: India Meteorological Department (IMD), GoI. II.1.23 In 2021, the SWM made its onset on especially mustard and rapeseed, and gram June 3, but lost momentum during end-June and lentils, offsetting the lower sowing of wheat. to mid-July and again in August, with uneven Consequently, total foodgrain production in distribution of rainfall across states (Chart II.1.7a). 2021-22 is placed at 3,145.1 lakh tonnes, in Notwithstanding these two weak spells of rainfall the third advance estimates (3rd AE), 1.2 per during the critical sowing months of July and cent higher than 2020-21 final estimates (FE) August, rainfall revived subsequently and ended [Table II.1.4]. The downward revision of foodgrain on a positive note for the season, i.e., ‘normal’, with production estimate by 0.5 per cent (3rd AE over a deficit of 1 per cent from the long period average (LPA) as on September 30, 2021. Kharif sowing Chart II.1.8: Reservoir Level which stalled in July and August, subsequently, caught up and surpassed the previous year’s sowing levels by 0.2 per cent and 5-year average levels by 4.1 per cent as on September 30, 2021. II.1.24 Subsequently, the delayed withdrawal of the SWM and simultaneous start of the north-east monsoon (NEM) on October 25, 2021 created congenial soil moisture conditions and raised reservoir levels (Chart II.1.7b). As on January 27, 2022, the reservoir level stood at 66 per cent of full reservoir capacity as compared with the decadal average of 53 per cent (Chart II.1.8). II.1.25 The jump in rabi acreage this year was Source: Central Water Commission, GoI. mainly driven by higher sowing of oilseeds, 22ECONOMIC REVIEW Table II.1.4: Agricultural Production 2021-22 (Lakh tonnes) Crop Season 2020-21 2021-22 2021-22 (3rd AE) Variation (Per cent) 3rd AE Final Target 3rd AE Over 2020-21 Over 2021-22 3rd AE FE Target 1 2 3 4 5 6 7 8 9 Foodgrains Kharif 1,483.6 1,505.8 1,514.3 1,549.3 4.4 2.9 2.3 Rabi 1,570.8 1,601.7 1,558.8 1,595.9 1.6 -0.4 2.4 Total 3,054.4 3,107.4 3,073.1 3,145.1 3.0 1.2 2.3 Rice Kharif 1,043.0 1,052.1 1,043.0 1,110.4 6.5 5.5 6.5 Rabi 171.6 191.6 168.0 186.2 8.5 -2.8 10.8 Total 1,214.6 1,243.7 1,211.0 1,296.6 6.8 4.3 7.1 Wheat Rabi 1,087.5 1,095.9 1,100.0 1,064.1 -2.2 -2.9 -3.3 Coarse Cereals Kharif 355.7 367.5 373.1 356.4 0.2 -3.0 -4.5 Rabi 140.9 145.7 139.0 150.6 6.9 3.4 8.3 Total 496.6 513.2 512.1 507.0 2.1 -1.2 -1.0 Pulses Kharif 84.9 86.2 98.2 82.5 -2.8 -4.3 -16.0 Rabi 170.9 168.4 151.8 195.0 14.1 15.8 28.5 Total 255.8 254.6 250.0 277.5 8.5 9.0 11.0 Oilseeds (total) Kharif 245.5 237.2 260.0 247.1 0.6 4.1 -5.0 Rabi 120.1 122.2 124 137.9 14.8 12.8 11.2 Total 365.7 359.5 384.01 385.0 5.3 7.1 0.3 Sugarcane Total 3,928.0 4,054.0 3,970.0 4,305.0 9.6 6.2 8.4 Cotton # Total 364.9 352.5 370.0 315.4 -13.6 -10.5 -14.7 Jute & Mesta ## Total 96.2 93.5 106.0 102.2 6.3 9.3 -3.6 #: Lakh bales of 170 kg each. ##:Lakh bales of 180 kg each. AE: Advance Estimates. FE: Final Estimates. Source: Ministry of Agriculture and Farmers Welfare, GoI. 2nd AE) is mainly on account of yield loss in wheat crops ensured a minimum return of 50 per cent due to persistent heatwaves in 2022 (March and over the cost of production.8 The prices were April). Horticulture crops logged a production at raised in the range of 1.1 - 8.6 per cent across 3,332.5 lakh tonnes (1st AE) during 2021-22, 0.4 crops. The procurement level at 503.42 lakh per cent lower than 2020-21 FE due to lower tonnes for rice as on March 31, 2022, during the output of tomato, other vegetables, spices, flowers, kharif marketing season of 2021-22, was 8.2 per aromatics and medicinal plants, while the output of cent higher than the corresponding period of last total fruits and onion have registered an increase. year (Chart II.1.9). The stock of cereals remained II.1.26 In line with the approach adopted in comfortable at 7.2 and 1.4 times the quarterly recent years, the minimum support prices (MSPs) buffer norms for rice and wheat, respectively, as announced in 2021-22 for both rabi and kharif on March 31, 2022 (Chart II.1.10). 8 Actual paid out cost plus imputed value of family labour (A2 + FL). 23ANNUAL REPORT 2021-22 Chart II.1.9: Annual Procurement of Rice and Wheat Chart II.1.11: Distribution of Foodgrains (April to March) Note: Additional offtake includes PM-GKAY, AatmaNirbhar Bharat Package (Migrants) and Non-NFSA (COVID-19). Source: Ministry of Consumer Affairs, Food and Public Distribution, Source: Ministry of Consumer Affairs, Food and Public Distribution, GoI. GoI. II.1.27 Stock levels of cereals were maintained foodgrains over and above the normal National despite the additional free distribution of Food Security Act (NFSA) entitlements of 5 kilogram/person/month to all NFSA beneficiaries Chart II.1.10: Monthly Position of Stock and under the Pradhan Mantri Garib Kalyan Anna Buffer Norm Yojana (PM-GKAY) to alleviate the impact of the pandemic (Chart II.1.11). II.1.28 In recent years, the impact of climate change in terms of volatile rainfall intensity, increase in extreme events and rising temperature has implications for the outlook for agriculture and in turn, for overall economic performance. In this regard, central banks are being drawn into climate risk management because of the implications of extreme weather for business cycles, and monetary policy. Physical and transition risks for the financial sector have raised financial stability Source: Ministry of Consumer Affairs, Food and Public Distribution, GoI. concerns among central banks (Box II.1.2). 24ECONOMIC REVIEW Box II.1.2 Role of Central Banks in Climate Change Central banks across the world are gearing up to manage Table 1: Commitments by Select Central Banks on Climate Change climate risks to macroeconomic and fi nancial stability Central bank Explicit Commitment (Issing, 2021; RBI, 2021; NGFS, 2020), [Table 1]. European “Climate change can affect price stability. Therefore, we will Using two types of methodologies, i.e., the Integrated Central Bank do our part within our mandate to tackle it.” Assessment Models (IAMs) by the International Institute Bank of “We are not here to “solve” climate change or drive the England transition…But central banks do have a role to play, and an for Applied Systems Analysis (IIASA) [modelling primarily important one at that.” transition risk] and Network for Greening the Financial Federal “While the primary responsibility for addressing climate System-Climate Analytics (NGFS-CA) [modelling primarily Reserve change itself rests with elected offi cials, the Federal Reserve physical risk], the implications for infl ation and economic Board, USA is committed to working within our existing mandates and authorities to address the implications of climate change, growth for India are assessed under the following scenarios: particularly the regulation and supervision of fi nancial (a) Net zero 2050 (target of achieving net zero CO institutions and the stability of the broader fi nancial system.” 2 emissions around 2050); (b) limiting global warming to Reserve “… the Reserve Bank, keeping in view our national Bank of commitments, priorities and complexity of our fi nancial below 2oC (though estimates suggest that a target of 1.5 India (RBI) system, commits to: (a) exploring how climate scenario oC may be needed for the net zero target); (c) divergent net exercises can be used to identify vulnerabilities in the Reserve Bank supervised entities' balance sheets, business zero (achieving net zero as above but with divergent policies models and gaps in their capabilities for measuring and across sectors, such as with faster phase out of oil use managing climate-related fi nancial risks; (b) integrating climate-related risks into fi nancial stability monitoring; and entailing higher costs); (d) delayed transition (policies which (c) building awareness about climate-related risks among are consistent with 2oC target but under which adjustment regulated fi nancial institutions and spreading knowledge about issues relating to climate change and methods to deal is backloaded as a result of which annual emissions do not with them accordingly”. decrease till 2030); (e) nationally determined contributions Source: Central bank websites and RBI (2021). (NDCs) [under which policies are pledged by nations even if not implemented]; and (f) current policies (only currently Energy consumption and CO emissions are signifi cantly 2 committed policies are implemented, leading to least reduced under the scenarios involving global coordination emission reduction and high physical risks). to control temperature rise (Chart 1). However, they are Chart 1: Implication of Climate Change under Various Scenarios for India a. CO Emissions b. Final Energy Consumption 2 c. Price of Carbon d. Non-Energy Crops Index MT CO: Metric tonnes of CO. tCO: Tonnes of CO. EJ: Exajoule – one quintillion (108) joules. 2 2 2 2 Source: NGFS, IIASA. (Contd.) 25ANNUAL REPORT 2021-22 Chart 2: Impact of Climate Change on the Indian Economy a. Labour Productivity Growth b. GDP growth Source: NGFS CA, KLEMS database [capital (K), labour (L), energy (E), material (M) and services (S)], and RBI staff calculations. associated with a signifi cant rise in commodity and carbon scenario. A successful implementation of emission reduction prices. Higher carbon prices can feed into infl ation following for India carries infl ationary risks, which will need to be higher input costs. By contrast, the ‘NDCs’ and ‘current managed through carefully crafted transition plans. The policies’ scenarios are not infl ationary, but they may come output losses associated with the transition may be limited. with a higher long-run physical risk. References: The NGFS-CA model is employed to assess how physical 1. Issing, O. (2021), ‘Central Banks – Independent or risk can affect India’s economic growth. Interestingly, the Almighty?’ SAFE Policy Letter, No. 92. ambitious plans for emission reduction, although infl ationary, 2. NGFS (2020), ‘Guide for Supervisors Integrating may cause limited loss in output growth than the scenario of Climate-related and Environmental Risks into Prudential ‘current policies’ which may result in a substantial loss in Supervision’. output and productivity over time (Chart 2). 3. RBI (2021), ‘Statement of Commitment to Support In sum, the physical and transition risks either individually Greening India’s Financial System – NGFS’, Reserve or together may be high for India under the ‘current policies’ Bank of India. Industrial Sector However, manufacturing capacity utilisation continues to drag (Chart II.1.12c). II.1.29 The industrial sector, which was severely affected by the first wave of the pandemic, II.1.30 Within the manufacturing sector, recovered with the easing of mobility restrictions recovery picked up in the second half, as in 2021-22. The second and third wave of the impact of second wave of COVID-19 the pandemic resulted in some moderation in subsided. Cumulatively, in 2021-22, of the 23 the momentum of recovery. Industrial output industry groups, eight recorded expansion over measured by the index of industrial production 2019-20 levels. In terms of use-based (IIP) expanded by 11.4 per cent during classification, infrastructure goods registered 2021-22 as against a contraction of 8.4 per cent in robust growth as increased activity in the the previous year (Charts II.1.12a and II.1.12b). construction sector led recovery. Other 26ECONOMIC REVIEW Chart II.1.12: Growth in Industrial Production a. GVA b. IIP c. Manufacturing Capacity Utilisation #: Implicit growth. *: April-December 2021. Source: NSO and RBI staff calculations. categories of intermediate and primary goods fully recover, as reflected in contraction in capital also recovered even as investment scenario goods and consumer durables goods segment, remained muted with consumer demand yet to over pre-pandemic 2019-20 (Chart II.1.13). Chart II.1.13: Index of Industrial Production a. Use-based Classification: Growth over 2019-20 b. Use-based Classification: Weighted Contributions Source: Ministry of Statistics and Programme Implementation, GoI. 27ANNUAL REPORT 2021-22 II.1.31 In India, micro, small and medium and provide employment to around 11 enterprises (MSMEs), which contribute about crore people was badly hit by the pandemic a third of the total gross value added (GVA) (Box II.1.3). Box II.1.3 Impact of COVID-19 Relief Measures on Small Business Financing The GoI and the Reserve Bank introduced several policy Chart 3: Usage of ECLGS Funds measures to support the MSME sector during the pandemic (RBI, 2021a, 2021b). Following the announcement of the emergency credit line guarantee scheme (ECLGS) in May 2020,9 MSME loan demand increased sharply, particularly credit disbursements to small enterprises with loan sizes of less than `10 lakh during Q2:2020-21 (Charts 1 and 2). Nearly half of these loans were used to clear the dues of vendors providing raw materials; one-third was used to restart businesses, and the remaining amount was used for payment of salaries and to meet other expenses (Chart 3). Of about 15 lakh ECLGS accounts, 88 per cent are standard Source: TransUnion CIBIL ECLGS Insights Report. assets, 10 per cent are special mention accounts (SMAs), and 2 per cent are non-performing assets (NPAs) [CIBIL, 2021a]. Out of total NPAs, the transition from NPAs to than non-ECLGS accounts of the same borrowers during 2021-22 (Charts 4 and 5). The scheme, however, standard assets were signifi cantly higher in ECLGS accounts Chart 1: Demand for MSME Credit Chart 4: Rating Transition Source: TransUnion CIBIL MSME Pulse and Google Community Mobility CMR: CIBIL MSME Rank. Index. Source: TransUnion CIBIL MSME Pulse. Chart 2: MSME Loan Disbursement Chart 5: Transition of NPAs (December 2020 versus March 2021) Source: TransUnion CIBIL MSME Pulse. Source: TransUnion CIBIL ECLGS Insights Report. (Contd.) 9 GoI (2020), ‘Emergency Credit Line Guarantee Scheme’, https://www.eclgs.com. 28ECONOMIC REVIEW Chart 6: Benefits of Existing Borrowers Chart 7: Sector-wise Credit Growth (y-o-y) Source: TransUnion CIBIL MSME Pulse. Source: Reserve Bank of India. benefi tted fi rms that already had a relationship with a bank Table 1: Empirical Estimates of the Impact of Policy rather than new borrowers (CIBIL, 2021b). In February Measures on MSME Credit Growth 2021, the Reserve Bank announced a deduction of loans Annual Rate of Credit Growth (per cent) given to new borrowers in the MSME sector from the cash Micro Medium Micro and Medium reserve ratio (CRR) maintenance by banks. This measure increased the availability of loanable funds to new MSME OECD India Composite Leading 0.27 *** 0.27 *** 0.27 *** Indicator (0.10) (0.09) (0.09) sector borrowers, as loans to new borrowers grew almost Sector Dummy*ECLGS Dummy -4.47 35.29 *** 23.12 *** at the same pace as for existing borrowers (Chart 6). Credit (3.44) (2.86) (2.66) growth (y-o-y) in medium-sized industries accelerated R2 0.20 0.45 0.36 post-announcement of the ECLGS scheme (Chart 7). ***: Signifi cant at 1 per cent level. **: Signifi cant at 5 per cent level. *: Signifi cant at 10 per cent level. A difference-in-difference analysis to estimate the causal Note: 1. In the analysis, ECLGS dummy takes value 1 after May 2020, and effect of the ECLGS scheme on credit growth in the MSME 0 otherwise. The sector dummy takes value 1, if the sector is micro, sector vis-à-vis other sectors of the economy, based on medium, micro and medium, otherwise, it takes value 0. There are three sectoral dummies for the above three categories. Along with monthly data from March 2016 to October 2021, reveals that the reported interaction term of dummies, separate dummies are several policy measures including the ECLGS contributed considered independently and controlled for lending rate and asset quality review undertaken during 2015, however, the results are not to about 35 per cent and 23 per cent of credit growth in provided due to space constraints. the medium-scale industry, and micro and medium industry 2. Figures in the parentheses denote the standard errors. together, respectively (Table 1). Source: RBI staff estimates. References: 3. RBI. (2021a), ‘Credit to MSME Entrepreneurs’, 1. CIBIL (2021a), ‘ECLGS Insights Report’, TransUnion Notifi cation, May 5. CIBIL, December. 4. RBI. (2021b), ‘Statement on Development and Regulatory 2. CIBIL (2021b), ‘ECLGS Pulse’, TransUnion CIBIL, June. Policies’, Press Release, April 7. II.1.32 The mining sector recorded resilience in generation, recorded a double-digit expansion over 2021-22, registering growth both year-on-year and pre-pandemic levels during H1:2021-22. In over pre-pandemic 2019-20. Electricity generation H2:2021-22, electricity generation moderated also expanded in H1:2021-22 – led by a double digit on account of low thermal electricity generation expansion in thermal electricity generation over a in Q3, due to supply disruptions resulting year ago, even as hydro and nuclear electricity from unseasonal rains and coal shortage. In generation recorded a contraction. Renewable H2:2021-22, renewables continued to register energy, which accounts for about 11 per cent of total robust growth, while nuclear and hydro electricity 29ANNUAL REPORT 2021-22 generation recovered, posting double digit growth by one year and measures to ease doing business over the corresponding period a year ago. in special economic zones (SEZs) units. On the industry front, tax incentives to startups have been II.1.33 The Union Budget 2022-23 has made extended by one year. an additional allocation of `19,500 crore for production linked incentive (PLI) for manufacturing II.1.34 The COVID-19 pandemic caused supply of high efficiency solar modules. Measures were chain disruptions globally. These disruptions were also announced to increase domestic production manifested in reduced access to low cost labour, of capital goods, electronics, chemicals and gems clogged ports, shortages of semiconductor chips, and jewellery. Other incentives for production containers and ships, and other commodities included, extension of the concessional tax regime (Box II.1.4). Box II.1.4 Impact of Supply Chain Disruptions on GDP Growth and Labour Markets amidst the COVID-19 Shock In order to assess the impact of global supply chain constraints, and these, could potentially cause a downside disruptions on India’s GDP growth, GSCDCI (Global Supply risk to overall GDP growth. Chain Disruption Cost Index) is estimated by extracting an underlying common factor from four variables10 using A group of AR(1) models of GDP growth, augmented the dynamic factor (DF) approach (Chart 1). An increase by high-frequency 9-indicator and 15-indicator dynamic in GSCDCI indicates that there are tighter supply side factors, that track economic activity (Bhadury et al., 2021), Table 1: Assessing the impact of GSCDCI on GDP Chart 1: Global Supply Chain Disruption Cost Index11 GDP YoY GDP YoY GDP YoY GDP YoY Seasonally Seasonally Seasonally Seasonally Adjusted Adjusted Adjusted Adjusted Own Lag 0.1 0.14** 0.11* 0.14** (0.07) (0.07) (0.07) (0.07) DF9 7.26*** 7.81*** (0.58) (0.56) DF15 7.40*** 7.57*** (0.56) (0.56) GSDCI(-1) -0.53*** -0.26* (0.15) (0.15) Constant 2.33*** 1.83*** 1.80*** 1.56*** (0.50) (0.49) (0.49) (0.50) N 70 70 70 70 Adj. R^2 0.77 0.80 0.79 0.79 ***: Significant at 1 per cent level. **: Significant at 5 per cent level. *: Significant at 10 per cent level. Note: 1. 9-Indicator and 15-Indicator baseline bridge equations are augmented with GSCDCI shock. 2. Figures in the parentheses denote the standard errors. Source: RBI staff estimates. (Contd.) 10 Monthly Baltic Dry Index, Bloomberg Commodity Index, IMF Fuel Index and Semi-conductor Equipment Billing. 11 The Monthly Baltic Dry Index, a shipping and trade index, created by the Baltic Exchange (London), measures the cost of transporting dry bulk raw materials such as coal, iron, steel, etc. The Bloomberg Commodity Index tracks prices of futures contracts on physical commodities (23 commodities covering 6 sectors). The IMF Fuel Index is a benchmark index determined by the largest exporter of commodities that include crude oil (petroleum), natural gas, coal and propane. Finally, the world semi-co nductor equipment billing, sourced from Semiconductor Industry Association (SIA), captures the 3-month average sale value of semi-conductor equipment that are crucial inputs for durables. All these indices, rebased to 2011-12 = 100, suggest that there has been an upward cost pressure by 2021, which affected costs of imports, and hence, the overall GDP. 30ECONOMIC REVIEW Chart 2: Relative Employment Share Chart 3: Wage Shares (Non-Agriculture) Source: PLFS. is employed to obtain baseline estimates of GDP growth bill also declined with heterogenous impact on the wage forecasts and are summarised in Table 1. To quantify the share. PLFS data show that the shares of informal and impact of GSCDCI on GDP growth forecasts, the same formal sectors in wages usually diverge, a phenomenon that set of baseline models are re-estimated, augmented by was upturned by the fi rst wave of the pandemic (Chart 3). GSCDCI. The model fi ndings suggest that a 1 unit (year- Thus, there was a greater contribution of the formal sector on-year) tightening in GSCDCI (or supply constraints) to the GVA in terms of its wage share during the fi rst wave could have lowered GDP growth in 2021-22 by around 26 despite an increase in the share of the informal sector in total employment. The industries that led the fall in the basis points (bps). If global supply chain disruptions persist informal sector wage share are wholesale and retail trade at the same level as in 2021-22, it could entail a cumulative and manufacturing.13 downside risk to baseline growth projection. To assess the direction and magnitude of the pandemic PLFS data are not available for post fi rst wave of COVID-19. shock’s infl uence on India’s informal sector workers, quarterly Therefore, after appropriately mapping the CMIE consumer individual level Periodic Labour Force Survey (PLFS) pyramid (CP) data to PLFS, the series for formal sector wage share is extrapolated. This hybrid-data series indicate data published by the NSO are analysed. Additionally, the that the increase in the share of the formal sector in total Consumer Pyramids (CP) data of the Centre for Monitoring wages during the fi rst wave appears to be transitory, without Indian Economy (CMIE) are also used. PLFS data suggest any visible impact of the second wave. that in India, the informal sector employs more than 65 per cent of the employed population, and the informal sector’s References: relative employment share always outnumbers the share of formal sector12 (Chart 2). Contrary to popular opinion, the 1. Bhadury, S., S. Ghosh, and P. Kumar (2021), contribution of the informal sector in terms of employment ‘Constructing a Coincident Economic Indicator for India: was larger than the formal sector during the fi rst wave of How Well Does It Track Gross Domestic Product?’, Asian the pandemic. The informal sector’s share in total wage bill, Development Review, 38(02), Pages 237-277. however, fell through this period. 2. Ray, D. and S. Subramanian (2020), ‘India’s Lockdown: During the fi rst wave of COVID-19, the total gross value An Interim Report’, Indian Economic Review, 55(1), added (GVA) of the economy contracted. The total wage Pages 31-79. 12 The defi nition of the informal sector given by NSO in the PLFS report is followed. The industries with the biggest share of informal sector employment include wholesale and retail trade, lodging and food services, real estate, and construction. 13 The fall of informal sector wage share in the wholesale and retail trade was largest, 8 percentage points, whereas in the case of manufacturing, it was 5.7 percentage points according to the 2019-20 round PLFS data. 31ANNUAL REPORT 2021-22 Services Sector expenditure. Rail and cargo freight also saw swift recovery. II.1.35 The services sector, which had suffered an unprecedented contraction in 2020-21, II.1.37 Global supply side disruptions in regained some lost ground in 2021-22. Despite semiconductor chips spilled over to the automobile the virulent second wave during Q1:2021-22, the sector, where declining production and increased recovery of the services sector was broad-based delivery timings impacted registrations adversely as all the sub-segments except trade, hotels, (Table II.1.5). Passenger car sales registered transport, communication, and services related to contraction. Two-wheeler sales also declined in broadcasting surpassed their pre-pandemic levels H2, and tractor sales were impacted by exhaustion (of 2019-20). of pent-up demand. A low base pushed up growth in air passenger traffic, even though they remained II.1.36 The residential housing sector registered muted vis-à-vis pre-pandemic levels. Port cargo recovery in Q4:2021-22, with sales and launches segment, which displayed resilience during the improving sequentially, and inventory overhang pandemic, was impacted in the third quarter by declining to the lowest in eight quarters. The global container shortages. Indicators that remain optimism in the sector was reflected in the robust despite a high base include railway freight, number of units launched, the highest in 15 GST E-way bills and GST revenue. quarters. The construction sector benefitted from the thrust by the government on infrastructure, II.1.38 The Reserve Bank’s services sector coupled with activity in the housing segment. composite index (SSCI),14 which tracks activity in The Pradhan Mantri Awas Yojana, with an construction, trade, transport and finance and is a allocation of `48,000 crore, is expected to coincident indicator of GVA growth in the services support growth in the construction sector along excluding PADO, remained almost at the same with generation of mass employment in the level in Q4:2021-22 as in Q3, after declining for economy. Financial, real estate and professional previous two consecutive quarters (Chart II.1.14). services surpassed their pre-pandemic levels. 4. Employment The performance of information technology (IT) companies has been better than hospitality and II.1.39 Annual PLFS data are available up to aviation segments. In the financial sector, while 2019-20 and the quarterly PLFS data released bank credit to commercial sector improved, by the Ministry of Statistics and Programme aggregate deposits moderated with the ebbing Implementation (MoSPI) for urban areas is of precautionary savings. Public administration, available till December 2021. The impact of defence and other services (PADO) witnessed the second wave of COVID-19 infections was an impressive turnaround to register a double- relatively muted as compared to the first wave digit growth of 12.5 per cent on account of strong (Chart II.1.15). During the first wave (April-June growth in both central and state governments’ 2020), the labour force participation rate (LFPR) 14 SSCI is constructed by suitably extracting and combining the information collected from high frequency indicators, namely, steel consumption, cement production, cargo handled at major ports, sale/production of commercial vehicles, railway freight traffi c, air passenger/freight traffi c, tourist arrivals, non-oil imports, bank credit and deposit. 32ECONOMIC REVIEW Table II.1.5: High Frequency Indicators: Growth Rates (Per cent, Y-o-Y) Indicators Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 1 2 3 4 5 6 7 8 9 10 11 12 13 Urban Demand Automobiles Sales - 40.0 14.7 4.0 -11.4 -19.7 -24.7 -31.8 -10.7 -18.8 -23.5 -17.8 Passenger Vehicles - 162.5 119.3 44.7 7.6 -41.2 -27.1 -18.6 -13.3 -8.1 -6.5 -3.9 Agriculture / Rural Demand Domestic Sales of Tractors 436.2 -8.0 18.9 3.3 -17.0 -14.8 0.4 -22.5 -27.5 -32.6 -31.3 -14.3 Two Wheelers Sales - 26.1 4.0 -2.1 -14.6 -17.4 -24.9 -34.4 -10.8 -21.1 -27.3 -20.9 Three Wheelers Sales 59,587.0 -48.7 -8.8 40.5 59.7 53.8 19.1 -6.6 27.0 -8.5 -1.1 0.5 Transport Vahan Total Registration 215.5 158.6 22.5 34.0 14.6 -5.3 -5.3 -2.7 -16.0 -10.7 -9.0 -2.9 Domestic Air Passenger Traffi c 1,05,896.5 608.7 53.8 136.4 132.6 76.5 68.7 65.5 53.3 -16.2 -1.0 37.7 International Air Passenger Traffi c 2,575.0 343.3 31.2 45.9 119.2 155.9 162.9 140.2 121.7 67.5 66.6 105.7 Domestic Air Cargo 1,117.7 285.7 43.0 41.3 35.7 10.1 6.7 -1.7 2.0 -6.1 -6.3 -1.0 International Air Cargo 312.5 116.8 46.9 31.7 25.8 18.1 23.8 11.7 10.5 5.2 -0.4 1.1 Freight Traffi c Net Tonne Kilometre 86.9 55.7 27.1 21.4 20.0 9.0 20.6 14.3 8.4 11.5 11.0 11.2 Freight Traffi c Freight Originating 70.7 39.1 20.5 18.4 16.9 3.6 8.4 6.1 7.2 7.7 6.6 6.7 Port Cargo 29.5 31.5 19.5 6.7 11.4 0.1 6.5 -0.2 -0.4 -2.9 0.0 0.7 Domestic Trade GST E-way Bill 582.5 56.8 25.9 32.7 33.3 18.3 14.5 5.9 11.6 9.5 8.3 9.7 GST E-way Bill Intra-state 480.3 47.1 24.3 31.6 30.8 15.6 14.1 7.3 13.4 11.4 10.3 11.8 GST E-way Bill Inter-state 840.6 76.5 28.8 34.4 37.2 22.3 15.1 3.9 8.9 6.6 5.3 6.6 GST Revenue 339.5 65.3 2.1 33.1 29.6 22.5 23.7 25.3 12.7 15.5 17.6 14.7 Construction Steel Consumption 721.5 64.3 28.3 4.2 -2.2 -3.2 -3.8 -7.1 -8.3 0.5 -5.3 -0.5 Cement Production 582.7 8.3 7.5 21.7 36.3 11.3 14.5 -3.6 14.2 14.3 5.0 8.8 Expansion Contraction -: Not available. Source: CEIC. fell to 45.9 per cent, but during the second wave Chart II.1.14: Growth in Services Sector (excluding PADO) and Services Sector Composite Index (April-June 2021), the LFPR declined to 46.8 per cent. Similarly, the worker population ratio (WPR) contracted less during the second wave as compared to the first. While the unemployment rate ballooned to 20.8 per cent during first wave, they rose relatively less to 9.8 per cent during the second wave. However, the labour market recovery was not complete by December 2021, and LFPR and WPR, both remain low as compared to the pre-pandemic quarter (January-March 2020). II.1.40 Organised sector employment, measured by payroll data, presents a picture of strong Source: NSO and RBI staff estimates. recovery in job creation in 2021-22 so far. On 33ANNUAL REPORT 2021-22 Chart II.1.15: Quarterly Periodic Labour Force Survey Chart II.1.16: Jobs in Organised Sector (Urban) Source: MoSPI, GoI. Source: Government of India. a cumulative basis, net subscribers added to Further, the peak unemployment rate between employees’ provident fund organisation (EPFO) the two waves halved from 23.5 per cent in per month increased to 10.1 lakh in April-February April 2020 to 11.8 per cent in May 2021. Across 2021-22 from 6.0 lakh for the same period in the both rural and urban areas, unemployment rate previous year. On the other hand, the average followed the same pattern. In terms of gender number of members who paid their contribution gap in the labour market, the unemployment rate to employees’ state insurance corporation (ESIC) for women registered a sluggish recovery. The improved from 1.0 lakh per month during April- male unemployment rate declined substantially February 2020-21 to 1.6 lakh per month during from 11.2 per cent in May 2021, at the peak of the April-February 2021-22. New subscribers to the second wave, to 6.7 per cent in March 2022, but national pension scheme (NPS) also increased the decline was lower for female unemployment during the same period (Chart II.1.16). rate from 16.8 per cent in May 2021 to 15.6 per cent in March 2022 (Chart II.1.17). II.1.41 An assessment of the employment and unemployment situation using CMIE household II.1.42 Other surveys covering information on survey data indicates relatively resilient labour employment like the employment sub-index market conditions during the second and third of the overall purchasing managers’ index wave. The localised nature of restrictions and (PMI) registered marginal contraction in hiring intermittent relaxations for movement ensured that in manufacturing and services sectors after there were sufficient employment opportunities the second wave of COVID-19. As compared available. During 2021-22, the average monthly to the first wave, the services sector during labour force participation rate stood above 40 per the second wave was severely affected in cent as compared to 39.9 per cent in 2020-21. comparison to the manufacturing sector. During 34ECONOMIC REVIEW 5. Conclusion Chart II.1.17: Unemployment and Labour Force Participation Rate II.1.43 India’s economic recovery from the pandemic depths has been sustained in 2021-22 and the momentum is expected to broadly continue in 2022-23, though with risks to the downside from the geopolitical shock and its spillovers. Despite these risks, the recovery is getting entrenched and is broadening. The Union Budget 2022-23 envisioned the roadmap for ‘India at 100’, with a focus on demand side measures. The substantial increase in government capex outlay could crowd-in private investment and propel a virtuous cycle, thereby improving aggregate demand. Furthermore, the National Infrastructure Source: CMIE Household Survey. Plan (NIP) amounting to `100 lakh crore and the National Monetisation Pipeline (NMP) involving Q3:2021-22, however, the services sector `6 lakh crore - both targeted for completion by employment expanded at a brisk pace. Similarly, 2024-25, are also expected to give a major thrust Naukri Jobspeak index shows that private sector to infrastructure spending. The focus on supply hiring picked up in Q4:2021-22 (Chart II.1.18). side management15 through ‘process reforms’, facilitating the smoothening and simplification of Chart II.1.18: Employment Scenario - Alternate processes in some sectors where government’s Employment Indicators presence as a facilitator or regulator is necessary, would help improve the resilience of the Indian economy. Several sectors have benefitted from process reforms such as public procurement and telecommunications. Laying out a path for sustainable agricultural growth and enhanced farm income, the Union Budget 2022-23 announced several initiatives focusing on chemical free natural farming, increase in the domestic production of oilseeds and millets and promotion of agri-tech startups to enhance productivity. The Pradhan Mantri Gati Shakti Yojana laid the roadmap, driven by seven engines of roads, railways, airports, Source: IHS Markit, Monster.com and Naukri.com. ports, mass transport, waterways, and logistics 15 Includes deregulation of sectors, simplifi cation of processes, privatisation, asset monetisation and production-linked incentives (Economic Survey 2021-22). 35ANNUAL REPORT 2021-22 infrastructure. For the MSME sector, the ECLGS registering a sharper rise in infl ation than EMDEs has been extended up to March 2023 with the in spite of the latter also facing the pass-through of guarantee cover expanded by `50,000 crore to a exchange rate depreciation into domestic infl ation. total cover of `5 lakh crore, the additional amount II.2.2 During 2021, the World Bank energy price being earmarked exclusively for hospitality and index was 81 per cent higher than 2020, while related enterprises. ‘metals and minerals’ and agriculture commodity II.1.44 Overall consumer and business price indices were up by 47.1 per cent and 24.2 confidence remains resilient in spite of the third per cent, respectively. Energy prices, which wave on the back of the accelerated pace of had undergone corrections during November- vaccination and better prospects for economic December 2021 as supply conditions improved, activity. A full recovery in aggregate demand is, increased sharply in the fi rst quarter of 2022 due however, contingent on a turnaround in private to geopolitical confl ict and subsequent economic investment. On the supply side, there is a sanctions. Brent crude prices rose by 55.6 per resurgence in mining and manufacturing sectors. cent in March 2022 over December 2021 levels. The services sector, which felt the brunt of the Other major primary commodities have also pandemic, is staging a broad-based recovery recorded signifi cant price increases – metals since Q2:2021-22. and minerals by 21 per cent and food by 23.6 per II.1.45 The future path of growth will be conditioned cent in March 2022 over December 2021. This by addressing supply-side bottlenecks and by broad-based increase in commodity prices has calibrating monetary and fiscal policy support to raised concerns about extreme infl ation risks. The aggregate demand and structural reforms. Such confl ict has placed at risk the prospect of an early reforms are also warranted in the labour market so normalisation of global supply chain disruptions as to adapt to the pandemic by reskilling workers. and has brought forward the danger of infl ation The pandemic also provides a unique opportunity expectations getting unhinged. to boost digitalisation and adopt new technologies II.2.3 In India, headline infl ation16 breached the for raising productivity growth. upper tolerance level of the infl ation target during May-June 2021, driven by a sharp increase in II.2 PRICE SITUATION infl ation in all the three major groups - food, fuel II.2.1 Infl ation rose sharply across advanced and excluding food and fuel (core) - due to supply economies (AEs) and emerging market and disruptions induced by the localised lockdowns developing economies (EMDEs) during 2021, (Chart II.2.1). Subsequently, while fuel infl ation refl ecting pandemic related supply and logistics increased due to rising international prices, disruptions, a rebound in global commodity prices core infl ation remained elevated, refl ecting the and a release of pent-up demand. The intensity of pass-through of input cost pressures. By contrast, price pressures varied across countries, with AEs food infl ation eased with the progress in kharif 16 Headline infl ation is measured by year-on-year changes in the all-India CPI-Combined (Rural + Urban) with base year: 2012=100 released by the National Statistical Offi ce (NSO), Ministry of Statistics and Programme Implementation, Government of India (GoI). 36ECONOMIC REVIEW Ukraine confl ict along with lower winter easing in Chart II.2.1: Inflation across Major Components domestic food prices. II.2.4 Average infl ation, as well as volatility measured by the standard deviation of the consumer price index (CPI) infl ation, was lower in 2021-22 than a year ago (Table II.2.1). The intra-year distribution of infl ation was also more balanced, as refl ected in a smaller negative skew. II.2.5 Against this backdrop, sub-section 2 assesses developments in global commodity prices. Sub-section 3 discusses movements in headline infl ation in India including major turning points, followed by a detailed analysis of its primary Note: Figures in parentheses indicate weight in CPI-Combined. April and May 2020 data were imputed by the NSO. constituents in sub-section 4. Other indicators of Source: NSO and RBI staff estimates. prices and costs are analysed in sub-section 5, followed by concluding observations. crop sowing until excess/unseasonal rains during 2. Global Infl ation Developments October-November 2021 damaged standing crops (especially vegetables) and led to a build-up II.2.6 Elevation in global commodity prices in price pressures. As a result, headline infl ation was primarily led by energy prices (Chart II.2.2). which had eased close to the infl ation target by Natural gas and coal prices reached record September 2021 aided by favourable base effects, highs amid supply constraints and an increase in increased again in October 2021 and breached demand for electricity as global economic activity the upper tolerance level of 6 per cent during revived. Global crude oil prices remained volatile January-March 2022. This rise in Q4:2021-22 was during the year and rose sharply in Q4:2021-22 led by elevated international commodity prices due to the confl ict in Ukraine. The decision by the and supply bottlenecks on account of the Russia- organisation of petroleum exporting countries Table II.2.1: Headline Infl ation – Key Summary Statistics (Per cent) 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 6 7 8 9 10 11 Mean 10.0 9.4 5.8 4.9 4.5 3.6 3.4 4.8 6.2 5.5 Standard Deviation 0.5 1.3 1.5 0.7 1.0 1.2 1.1 1.8 1.1 0.9 Skewness 0.2 -0.2 -0.1 -0.9 0.2 -0.2 0.1 0.5 -0.7 -0.1 Kurtosis -0.2 -0.5 -1.0 -0.1 -1.6 -1.0 -1.5 -1.4 -0.7 -1.0 Median 10.1 9.5 5.5 5.0 4.3 3.4 3.5 4.3 6.5 5.6 Maximum 10.9 11.5 7.9 5.7 6.1 5.2 4.9 7.6 7.6 7.0 Minimum 9.3 7.3 3.3 3.7 3.2 1.5 2.0 3.0 4.1 4.2 Note: Skewness and Kurtosis are unit-free. Annual infl ation is the average of the monthly infl ation rates during the year and therefore, may vary from the annual infl ation calculated from the average index for the year. Source: NSO and RBI staff estimates. 37ANNUAL REPORT 2021-22 up their prices and consequently the input costs Chart II.2.2: International Commodity Prices for food crops. Refl ecting these global commodity price developments, consumer price infl ation rose in both AEs and EMDEs. 3. Infl ation in India II.2.7 Circling back to CPI headline infl ation in India, it had eased to 4.2 per cent in April 2021 (Chart II.2.3), before the second wave of COVID-19 led supply disruptions, localised lockdowns and pass-through of increase in global commodity prices (crude oil and metals) led to a sharp and broad-based pick up in headline infl ation during May-June 2021. Infl ation eased thereafter with moderation in food prices aided by the easing of Source: World Bank Pink Sheet Database. curbs and favourable base effects. Infl ation began picking up again from October 2021, breaching (OPEC) and their allies (OPEC+) in July 2021 to the upper tolerance level in Q4: 2021-22 as stated increase production only gradually by 0.4 million earlier. barrels per day on a monthly basis from August II.2.8 Infl ation in food and beverages remained 2021 to make up for the large production cuts the primary mover of headline infl ation although announced in April 2020, together with sluggish its contribution to headline infl ation declined to pick up in investment in new oil production, 35.9 per cent in 2021-22 from 54.8 per cent a including US shale, supported prices. As a result, global crude oil prices picked up to US$ 112 per barrel in March 2022 from US$ 49 per barrel in Chart II.2.3: Movements in Headline Inflation December 2020. The demand for metals continued to increase even as production was disrupted by energy shortages and lockdowns. International food prices also remained elevated during the year and the food index (World Bank Pink Sheet) reached an all-time high (since January 1960) in March 2022, primarily driven by edible oils (palm oil; sunfl ower oil; rapeseed oil and soybean oil) and grain prices, due to tight supply conditions caused by adverse weather in several producing countries (South America and East Asia), Russia-Ukraine confl ict and higher demand for animal feed (maize and soybean). Moreover, higher natural gas and Note: April and May 2020 data were imputed by the NSO. Source: NSO and RBI staff estimates. coal prices affected fertiliser production, pushing 38ECONOMIC REVIEW year ago. Nonetheless, supply-side measures Chart II.2.4: Drivers of Inflation (Y-o-Y) implemented by the central government to relieve price pressures in edible oils and pulses aided in keeping food infl ation under control. II.2.9 Fuel prices, on the other hand, scaled new peaks and reached an all-time high of 14.3 per cent in the current infl ation series in October 2021 due to a sharp pick up in prices of liquefi ed petroleum gas (LPG) and kerosene, in line with international prices. Subsequently, fuel infl ation eased during November 2021 - March 2022 mainly due to the reduction in electricity prices announced by some states and favourable base effects. *: Includes recreation and amusement and personal care and effects. II.2.10 Infl ation excluding food and fuel or core Note: April and May 2020 data were imputed by the NSO. Source: NSO and RBI staff estimates. infl ation remained elevated throughout the year refl ecting input cost pressures amid global supply Food disruptions and some recovery in domestic demand. The main contributors were prices of II.2.13 Infl ation in prices of food and beverages transport and communication; health; household (weight: 45.9 per cent in CPI) moved within a wide goods and services; and clothing and footwear. range of 1.6 per cent to 7.5 per cent during 2021- The excise duty cut in petrol and diesel prices 22 largely refl ecting the movements in vegetables in early November 2021 led to some easing of and oils and fats infl ation (Chart II.2.5). transport and communication infl ation. II.2.11 For the year, infl ation eased to an average Chart II.2.5: Drivers of Food Inflation (Y-o-Y) of 5.5 per cent in 2021-22, 66 basis points (bps) lower than a year ago (Appendix Table 4). Notwithstanding the easing in headline infl ation, households’ median infl ation expectations hardened during 2021-22 by 59 bps three months ahead and by 62 bps a year ahead refl ecting the uncertainty surrounding the path of the pandemic and sporadic supply shocks. 4. Constituents of CPI Infl ation II.2.12 During 2021-22, the drivers of CPI headline # : Includes sugar and confectionery, spices, non-alcoholic beverages, infl ation showed notable changes wherein food and prepared meals, snacks, sweets, etc. and beverages; fuel and light; transport and * : Includes meat and fish, egg and milk and products. Note: For April 2020, indices for meat and fish and prepared meals, communication; health; and clothing and footwear etc. and for May 2020 index for prepared meals, etc. were imputed by the NSO. remained the major drivers (Chart II.2.4). Source: NSO and RBI staff estimates. 39ANNUAL REPORT 2021-22 and exerted downward pressure on overall food Chart II.2.6: Inflation in Major Food Subgroups infl ation during the year. II.2.15 Food infl ation, excluding vegetables would have averaged 204 bps higher (Chart II.2.7a). While higher production generally led to lower price build-up, excess/unseasonal rains pushed up vegetable prices during October-November 2021, as also observed in the past (Chart II.2.7b). II.2.16 Onion prices increased during the months of June-July 2021 refl ecting summer uptick and damage to stored rabi onions in Maharashtra and Gujarat due to cyclone Tauktae and again during Note: For April 2020, indices for meat and fish and prepared meals, October-November 2021 as heavy rains damaged etc. and for May 2020, index for prepared meals, etc. were imputed kharif crops in major producing states. Government by the NSO. Source: NSO and RBI staff estimates. intervened by releasing stored onions from a total buffer stock of 2 lakh metric tonnes under the price II.2.14 Food infl ation averaged 4.2 per cent stabilisation fund (PSF) scheme. Support came from in 2021-22, compared to 7.3 per cent in 2020- fresh arrivals, which eased price pressures during 21. Eight out of the 12 sub-groups witnessed a December 2021- March 2022, barring a temporary moderation in infl ation (Chart II.2.6). Vegetable rise in February 2022. In the case of tomatoes, price prices (weight: 13.2 per cent in CPI-Food and pick-up was observed during October-November beverages) remained in defl ation during a major 2021 owing to erratic rains in some major producing part of the year, recording an average defl ation states in north India in September 2021 followed of (-) 7.2 per cent on favourable base effects by heavy rains in major producing states in south Chart II.2.7: CPI-Vegetables: Seasonality in Prices and Drivers of Inflation a. CPI-Vegetables (Cumulative Momentum) b. Rainfall Deviation and CPI-Vegetables Momentum LPA: Long Period Average. Note: For chart b, data are from February 2011 to March 2022. Source: NSO, Indian Meteorological Department and RBI staff estimates. 40ECONOMIC REVIEW India in October 2021, which resulted in supply Chart II.2.8: CPI-Egg, Meat and Fish disruption and crop damages. Potato prices were (Cumulative Momentum) in defl ation throughout 2021-22 (barring February- March 2022) on higher production [15.7 per cent in 2020-21 fi nal estimates (FE) over 2019-20 FE] in response to attractive prices in the previous year. However, prices fi rmed up during October- November 2021 due to unseasonal rains and delays in the arrivals of fresh crops. Lower production in 2021-22 [estimated to be (-) 4.6 per cent in 2021-22 1st advanced estimates (AE) over 2020-21 FE] led to the re-emergence of price pressures in March 2022. II.2.17 Prices of cereals and products (weight Note: For April 2020, index for meat and fish was imputed by NSO. of 21 per cent in the CPI-Food and beverages) Source: NSO and RBI staff estimates. recorded defl ation during the fi rst half of the year, before registering some price pressures during to upward revision in retail prices by `2 per litre October 2021-March 2022. Higher procurement, by major milk co-operatives like Amul and Mother offtake under Pradhan Mantri Garib Kalyan Anna Dairy, followed by some state milk co-operatives. Yojana (PMGKAY), record production of rice II.2.19 Oils and fats (weight of 7.8 per cent in CPI- (4.3 per cent as per 2021-22 3rd AE over 2020- Food and beverages) recorded historically high 21 FE) kept prices soft during the fi rst half of the infl ation of 34.8 per cent in June 2021 on the back year. However, price pressures emerged in wheat of rising international prices, especially of palm oil during the second half due to higher exports (236 (Chart II.2.9). In order to contain price pressures, per cent year-on-year during 2021-22). a number of measures were undertaken by the II.2.18 In the case of protein-rich items such as government - imposing stock limits on edible oils eggs, meat and fi sh (weight of 8.8 per cent in CPI- and oilseeds for a period up to September 31, Food and beverages), price pressures were seen 2022 and successive reduction in import duties on during April-July 2021 refl ecting supply disruptions palm oil (bringing down the duty on refi ned and and input cost pressures from an increase in feed crude palm oil to 12.5 per cent and 5 per cent, and transportation costs (Chart II.2.8). Prices respectively, by February 2022 from 37.5 per cent eased during August 2021-January 2022 in line and 32.5 per cent, respectively, in June 2021), with the gradual normalisation of supply chains and soybean oil and sunfl ower oil. Responding to import of 12 lakh tonnes of genetically modifi ed these measures and following sharp increase in soya meal. However, price pressures re-emerged rabi oilseeds sowing, edible oil prices recorded a during February-March 2022 refl ecting a further correction during November 2021-January 2022. increase in feed costs. In the case of milk and However, the confl ict in Ukraine (which is a major products prices remained subdued, barring the global supplier of sunfl ower oil) led to the return of increase seen in July 2021 and March 2022, due price pressures during February-March 2022. 41ANNUAL REPORT 2021-22 urad and moong from restricted to ‘free category’ Chart II.2.9: CPI-Oils and Fats (Cumulative Momentum) from May 15, 2021 till October 31, 2021; imposing stock limit on all pulses except moong until October 31, 2021; completely abolishing import duty on masur and reducing Agriculture Infrastructure and Development Cess (AIDC) to 10 per cent from July 27, 2021; releasing masur from buffer stocks at discounted prices; and extending free import policy of urad and tur to March 31, 2023. These measures led to cooling down of infl ation to 2.6 per cent by March 2022 from an intra-year peak of 10 per cent in June 2021. II.2.21 Infl ation in fruits (weight of 6.3 per cent in CPI-Food and beverages) picked up to a Source: NSO and RBI staff estimates. 3-year high of 11.8 per cent in May/June 2021. Subsequently, however, price pressures ebbed owing to higher production of apples and grapes. II.2.20 Infl ation in prices of pulses (weight of 5.2 per cent in CPI-Food and beverages) followed Fuel a declining path after the May-June 2021 rise II.2.22 The contribution of the fuel group (weight of on account of a host of supply side measures 6.8 per cent in CPI) to headline infl ation increased undertaken by the government (Chart II.2.10). The to 13.1 per cent in 2021-22 from 2.9 per cent in the supply measures include moving imports of tur, previous year. Fuel infl ation picked up sharply to 14.3 per cent in October 2021, largely due to the hardening of domestic LPG and kerosene prices Chart II.2.10: Component-wise Contribution in which tracked international price movements CPI-Pulses Inflation (Chart II.2.11 and Chart II.2.12). Subsequently, infl ation witnessed some moderation and reached 7.5 per cent in March 2022 mainly due to the easing of electricity prices and favourable base effects. Infl ation Excluding Food and Fuel II.2.23 Infl ation excluding the volatile food and fuel items, i.e., core infl ation, picked up to an average of 6.0 per cent in 2021-22, with *: Includes moong, masur, peas, khesari, besan and other pulses products. an intra-year peak of 6.6 per cent at the height Note: 1. Figures in parentheses indicate weight in CPI-pulses and products. of the second wave of COVID-19 in May 2021 2. Item level CPI data were not released by the NSO during March-May 2020. (Chart II.2.13) [Appendix Table 4]. Subsequently, Source: NSO and RBI staff estimates. infl ation eased somewhat in line with the gradual 42ECONOMIC REVIEW Chart II.2.11: Drivers of Fuel Inflation Chart II.2.12: Movements in LPG Retail Prices *: Includes kerosene PDS and kerosene from other sources. **: Includes diesel, coke, coal, charcoal, and other fuel. Note: 1. Figures in parentheses indicate weight in CPI-Fuel and light. Note: Domestic non-subsidised LPG prices are the average of prices 2. Item level CPI data were not released by the NSO during in four metros. March-May 2020. Source: Petroleum Planning and Analysis Cell (PPAC), Bloomberg and Source: NSO and RBI staff estimates. RBI staff estimates. removal of lockdown restrictions before crossing II.2.24 Among the major constituents, double-digit 6 per cent again during November 2021-March infl ation in transport and communication refl ected 2022 (barring February 2022) despite the cut an increase in domestic prices of petrol and diesel in excise duty on petrol and diesel (`5 per litre in line with international prices (Chart II.2.14). and `10 per litre, respectively) in early November Infl ation in the health sub-group rose on account 2021, followed by a reduction in value added tax of the increase in medicine prices and hospital (VAT) by most of the state governments. and nursing charges due to higher raw material Chart II.2.13: Drivers of CPI Excluding Food and Chart II.2.14: Domestic Oil Price Trends Fuel Inflation Note: International crude oil price represents the average price of *: Includes recreation and amusement and personal care and effects. WTI, Brent and Dubai Fateh. Note: April and May 2020 data were imputed by the NSO. Source: W orld Bank Pink Sheet Database, Indian Oil Corporation Source: NSO and RBI staff estimates. Limited, PPAC and RBI staff estimates. 43ANNUAL REPORT 2021-22 costs, supply bottlenecks and pandemic-induced consistently from 3.5 per cent in April 2021 to 9.4 demand. Within transport and communication, per cent in March 2022, largely refl ecting input prices of personal transport vehicles also increased cost pressures emanating from rising international refl ecting a gradual pass-through of higher input prices of cotton (as measured by the Cotton A costs (especially metals and microchips) by Index) due to lower global and domestic production major automobile manufacturers. Private telecom as well as improved global demand. operators increased mobile tariff charges for 5. Other Indicators of Infl ation various plans in July 2021 (around 40 per cent for II.2.27 From a sectoral perspective, infl ation base categories) and November 2021 (20-25 per based on the CPI for industrial workers (CPI- cent). As a result of pass-through of input costs to IW) remained slightly elevated at 5.1 per cent retail prices, a larger number of items within core during 2021-22, although it eased to 4.4 per cent goods registered greater than 4 per cent infl ation in September 2021 before picking up to 5.8 per rates during 2021-22 (Chart II.2.15). cent in January 2022, largely due to the increase II.2.25 Housing infl ation remained moderate at in food prices. On the other hand, infl ation based 3.7 per cent in 2021-22 (3.3 per cent in 2020-21), on the CPI for agricultural labourers (CPI-AL) and refl ecting subdued rental demand on account of rural labourers (CPI-RL) eased to 4.0 per cent and hybrid work culture amid the multiple waves of 4.2 per cent, respectively, in 2021-22 from 5.5 per COVID-19. Net of housing, infl ation excluding cent in the previous year due to favourable base food and fuel averaged 6.6 per cent in 2021-22, effects and subdued food infl ation, although both up from 6.2 per cent a year ago. crossed 6 per cent level in March 2022. II.2.26 Infl ation in clothing and footwear picked up II.2.28 Infl ation measured by the wholesale price signifi cantly and remained a major pressure point, index (WPI) rose sharply from 1.3 per cent in 2020- averaging 7.2 per cent in 2021-22. It increased 21 to 13.0 per cent in 2021-22, with an intra-year peak of 14.9 per cent in November 2021 (the highest Chart II.2.15: Inflation: Core Items level in the current series). WPI Infl ation picked up from February 2021 and remained in double-digits during the year, refl ecting a sharp pick up in prices across all major groups. Within primary articles, infl ation in non-food articles (21.2 per cent), minerals (19.4 per cent) and crude petroleum and natural gas (56.5 per cent) remained in double- digits, refl ecting higher international commodity prices amid rising domestic demand. Infl ation in fuel and power also jumped to an average of 32.8 per cent, driven mainly by a sharp increase in mineral oil prices. With the broad-based increase in input costs, manufactured product infl ation also reached double-digits since May 2021 Source: N SO and RBI staff estimates. (Box II.2.1). Refl ecting the sharp rise in WPI 44ECONOMIC REVIEW Box II.2.1 Sensitivity of Infl ation in India to Input Cost Pressures In order to understand the responsiveness of CPI infl ation The results suggest that the direct pass-through of global to the input cost pressures in India, two approaches have commodity prices to CPI is lower than via the WPI, with a been followed: (a) pass-through of global commodity prices longer transmission lag in the case of non-food non-fuel directly to the CPI, and (ii) indirectly via the WPI. Monthly (or core). The impact is also persistent in the case of core data for the period 1992 to 2021 are employed in an infl ation (Chart 1). A one per cent change in overall (non- ordinary least squares (OLS) framework using a polynomial food non-fuel) global commodity prices leads to a 0.02 distributed lag (PDL) model (Batten and Thornton, 1983) (0.04) per cent change in overall (non-food non-fuel) CPI [equations17 (1) and (2)]: infl ation, and around a 0.11 (0.09) per cent change in overall P ∑ (non-food non-fuel) WPI infl ation. dlog(Domestic Price Index )=c+ β dlog(Domestic Price Index ) t 1 i t-i (i=1) Q R On the other hand, a one per cent change in the overall ∑ ∑ + α dlog(IMF Price ) + γ dlog(Ex Rate ) i t-i i t-i (non-food non-fuel) WPI leads to around 0.26 (0.33) per i=0 i=0 cent change in the overall (non-food non-fuel) CPI infl ation. + θ IIPGapDom +δ IIPGapOECD 1 t-j 1 t-k Indirect estimates corroborate direct estimates, i.e., a + ɸ 1Abs Rain Dev t-l+ ԑ t …(1) one per cent change in overall (non-food non-fuel) global S T commodity prices leads to around 0.03 per cent change in ∑ ∑ d log( CPI t )=c 2 + ϕ i dlog(CPI t-i) + ч i dlog(WPI t-i) overall (non-food non-fuel) CPI infl ation. (i=1) i=0 U + ∑ γ dlog(Ex Rate ) +η IIPGapDom To sum up, the hardening of global commodity prices has a i t-i 1 t-v i=0 relatively moderate impact on CPI infl ation relative to WPI + λ IIPGapOECD +ωAbs Rain Dev +υ …(2) infl ation, but the impact on CPI core is more persistent. 1 t-w 1 t-x t Chart 1: Estimated Results a. Estimated Coefficients: b. Estimated Coefficients: c. Estimated Coefficients: Lag Structure Global to WPI Lag Structure Global to CPI Lag Structure WPI to CPI Note: Coefficients are pass-through estimates. Source: NSO, Office of the Economic Adviser, GoI, International Monetary Fund and RBI staff estimates. Reference: Batten, Dallas S., and Daniel L. Thornton (1983), ‘Polynomial Distributed Lags and the Estimation of the St. Louis Equation’, Federal Reserve Bank of St. Louis, Vol.65 (Apr.), Pages 13-25. 17 Where Domestic Price Index refers to CPI and WPI overall/non-food non-fuel as the case may be; IMF Price refers to overall/non-food non- fuel primary commodity price index; Ex Rate refers to USD/INR exchange rate; IIP Gap Dom/IIP Gap OECD are IIP gaps used as proxies for domestic and global demand, respectively, Abs Rain Dev refers to absolute deviation of actual rainfall from its long period average, and ԑ and t u are associated error terms and t denotes time. All data series have been converted to their natural log form and then de-seasonalised before t estimation. 45ANNUAL REPORT 2021-22 infl ation and elevated CPI infl ation, the gross infl ation. Cost-push pressures from high industrial domestic product (GDP) defl ator infl ation also raw material prices, transportation costs, and hardened to 9.6 per cent in 2021-22 as per 2nd global logistics and supply chain bottlenecks AE 2021-22 from 5.6 per cent in 2020-21. continue to impinge on core infl ation. The substantial wedge between wholesale and retail II.2.29 There was a moderate hike in minimum price infl ation amidst a sharp rise in manufactured support prices (MSPs) for kharif and rabi crops products’ infl ation poses risk of a possible pass- in 2021-22. The extent of MSP increases varied through of input cost pressures to retail infl ation across crops, ranging from 1.1 per cent in the case with a lag, although slack in the economy is muting of moong and maize to 8.6 per cent for rapeseed/ the pass-through. The confl ict over Ukraine and mustard. MSPs for rice and wheat were increased the consequent spike in commodity prices has by 3.9 per cent and 2.0 per cent, respectively. overcast the outlook for infl ation in India as in the II.2.30 Wage growth for agricultural and non- rest of the world. agricultural labourers remained muted during the year, averaging 4.4 per cent and 3.6 per cent, II.3 MONEY AND CREDIT respectively, during May 2021-February 2022, on II.3.1 Monetary and credit conditions during the account of subdued demand conditions coexisting year evolved in sync with the Reserve Bank’s with lower rural infl ation. However, agricultural wage accommodative policy stance. Overall fi nancial growth picked up to 6.0 per cent in February 2022 conditions remained benign although there has from a low of 1.1 per cent in June 2021, while non- been some tightening in the recent period largely agricultural wage growth increased to 6.1 per cent due to global spillovers. Reserve money (RM), in February 2022 from 0.2 per cent in May 2021, adjusted for the fi rst-round effects of the increase partly refl ecting unfavourable base effects. in the cash reserve ratio (CRR)18, moderated. 6. Conclusion Precautionary demand for currency, which had surged in 2020-21 due to the COVID-19- II.2.31 In sum, headline infl ation remains above induced uncertainties, softened during the year. the target of 4 per cent, having tested the upper Concomitantly, there was a marginal uptick in the tolerance level during the second wave in May- velocity of money, possibly refl ecting improvement June 2021 and the third wave along with the in consumer demand conditions in the economy. Russia-Ukraine confl ict in January-March 2022. Money supply (M ) growth decelerated during The fl are-up in vegetable prices due to heavy rains 3 the year, mirroring the behaviour of its largest in October and November 2021 started to reverse component - aggregate deposits. On the other with winter crop arrivals in December 2021 but the hand, bank credit growth picked up, especially extent of winter easing was shallower than normal. since August 2021, and it was broad-based. The supply side interventions by the government continue to restrain the pass-through of elevated II.3.2 Against this backdrop, sub-section 2 international edible oil prices to domestic retail delves into the dynamics underlying movements 18 CRR was increased from 3.0 per cent to 3.5 per cent, effective March 27, 2021; to 4.0 per cent, effective May 22, 2021; and further to 4.5 per cent, effective May 21, 2022. 46ECONOMIC REVIEW in RM and, thereby, the shifts in the Reserve Adjusted for the increase in CRR in phases by 100 Bank’s balance sheet. Sub-section 3 examines basis points (bps) since March 27, 2021, RM grew developments in money supply in terms of its by 7.3 per cent in 2021-22, as against 18.0 per components and sources, throwing light on the cent a year ago. movements in assets and liabilities of the banking II.3.4 Among its components, currency in sector. The underpinnings of bank credit are circulation (CiC) constituted around 80 per cent covered in sub-section 4, followed by concluding of RM in 2021-22. Although the contribution of observations. currency in determining the overall expansion in 2. Reserve Money19 RM peaked in June 202120, CiC accounted for 88 per cent of the overall expansion in RM during the II.3.3 Reserve money - which is essentially an year (89 per cent a year ago), which is below the analytical and stylised depiction of the Reserve decennial average of 108 per cent (2012-21). Bank’s balance sheet that focuses on its monetary liabilities, comprising currency in circulation, II.3.5 The demand for CiC normally follows a bankers’ deposits, and other deposits with the predictable intra-month pattern - expansion Reserve Bank - increased by 12.3 per cent in during the fi rst fortnight due to transactions by 2021-22, lower than 14.2 per cent a year ago households, followed by a contraction in the but higher than its decennial average of 10.6 per second fortnight due to fl ow back of currency from cent (2012-21) [Chart II.3.1; Appendix Table 4]. households to the banking system (Chart II.3.2). Chart II.3.1: Reserve Money Growth 30 27.4 25 22.723.9 20 16.717.2 15 14.5 15.1 14.2 12.3 10.8 10 9.0 8.59.5 7.7 9.8 7.3 5 0 -5 -10 -9.6 -15 #: RM adjusted for the change in CRR. Source: RBI. 47 tnecreP 70-6002 80-7002 90-8002 01-9002 11-0102 21-1102 31-2102 41-3102 51-4102 61-5102 71-6102 81-7102 91-8102 02-9102 12-0202 22-1202 #22-1202 Chart II.3.2: Weekly Variation in Currency in Circulation 50,000 40,000 30,000 20,000 10,000 0 -10,000 -20,000 Source: RBI. 19 In sub-section 2, growth and other ratios pertaining to end of fi nancial year/quarter/month are based on the last Friday of the respective fi nancial year/quarter/month. 20 Excluding the months in which RM contracted. erorc(cid:2) rpA-2 rpA-32 yaM-41 nuJ-4 nuJ-52 luJ-61 guA-6 guA-72 peS-71 tcO-8 tcO-92 voN-91 ceD-01 ceD-13 naJ-12 beF-11 raM-4 raM-52 2021-22 2020-21 2019-20ANNUAL REPORT 2021-22 Chart II.3.3: Impact of COVID-19 on CiC 2 1 0 -1 2017 2018 2019 2020 2021 2022 January February March April May June July August September October November December Note: The unusual increase in CiC during January-June 2017 was on account of the remonetisation process, post demonetisation. Source: RBI. II.3.6 There was an unusual rise in month- expansion in CiC was evident in Q4:2021-22 due over-month (M-o-M) CiC variation in April-May to the harvest of rabi crops, various festivals, and 2021 due to the second wave of COVID-19, run up to the legislative assembly elections in fi ve albeit to a lesser extent as compared with the states (Chart II.3.5). Lower CiC growth at 9.7 per fi rst wave in April-June 2020, but higher than cent in 2021-22 (17.2 per cent a year ago) resulted the corresponding period of pre-pandemic in a decline in the currency-GDP ratio to 13.7 per years (Chart II.3.3). With the epidemiological cent (14.4 per cent in 2020-21) as cash-intensity curve bending downwards from June 2021, the variations in CiC were mostly determined by seasonal factors (Chart II.3.4). II.3.7 Barring the sharp surge during April-May 2021 due to the second wave of the pandemic, currency demand reverted to its usual seasonal pattern in 2021-22. The typical seasonal spurt in Q1:2021-22, associated with rabi procurement and kharif sowing, was signifi cantly lower than Q1:2020-21, and was comparable with pre-pandemic years. In the following quarter, CiC contracted due to the seasonal slack in economic activity in cash-intensive sectors such as construction and agriculture. In Q3:2021-22, CiC expanded, refl ecting increase in demand for currency for festivals and kharif harvest. Further 48 )erorchkal(cid:2)( CiC ninoitairavM-o-M Chart II.3.4: COVID-19 Cases and Vaccinations in India Remonetisation First Wave of COVID-19 SecondWave of COVID-19 Source: www.ourworldindata.org. Chart II.3.5: Quarterly Variation in Currency in Circulation 3 2 1 0 -1 Q1 Q2 Q3 Q4 Source: RBI. erorc hkal(cid:2) 2018-19 2019-20 2020-21 2021-22ECONOMIC REVIEW Chart II.3.6: India’s Currency-GDP Ratio 15 14 13 12 11 10 9 8 Source: RBI and Ministry of Statistics and Programme Implementation, GoI. in the economy started normalising with reduction foreign assets (NFA), even though net purchases in the intensity of the pandemic (Chart II.3.6). from authorised dealers at `2.07 lakh crore were lower than `5.16 lakh crore of the previous year II.3.8 Bankers’ deposits with the Reserve Bank (Chart II.3.8a and II.3.8b). Consistent with the increased by 25.3 per cent in 2021-22 as against a marginal expansion of 0.8 per cent in the previous accommodative stance of monetary policy, liquidity year, primarily due to increase in CRR in phases management operations boosted net domestic by 100 bps to 4.0 per cent (Chart II.3.7). assets (NDA) of the Reserve Bank. II.3.9 Amongst the sources of RM, during II.3.10 In particular, net open market purchases 2021-22, the main driver for RM growth was net (including auctions of special OMOs involving 49 tnecreP 21-1102 31-2102 41-3102 51-4102 61-5102 71-6102 81-7102 91-8102 02-9102 12-0202 22-1202 Chart II.3.7: Bankers’ Deposits with the Reserve Bank 8 7 6 5 4 Source: RBI. erorc hkal(cid:2) rpA-2 rpA-32 yaM-41 nuJ-4 nuJ-52 luJ-61 guA-6 guA-72 peS-71 tcO-8 tcO-92 voN-91 ceD-01 ceD-13 naJ-12 beF-11 raM-4 raM-52 2019-20 2020-21 2021-22 Chart II.3.8a: NFA as per cent of RM Chart II.3.8b: Variation in Domestic and Foreign Assets of the Reserve Bank 150 130 110 90 70 50 30 10 -10 Source: RBI. tnecreP 60-5002 70-6002 80-7002 90-8002 01-9002 11-0102 21-1102 31-2102 41-3102 51-4102 61-5102 71-6102 81-7102 91-8102 02-9102 12-0202 22-1202 8 6 4 2 0 -2 -4 -6 )erorc hkal(cid:2)(egnahcY-o-Y 60-5002 70-6002 80-7002 90-8002 01-9002 11-0102 21-1102 31-2102 41-3102 51-4102 61-5102 71-6102 81-7102 91-8102 02-9102 12-0202 22-1202 NFA NDAANNUAL REPORT 2021-22 Chart II.3.9: Net Domestic Assets (Y-o-Y Variation) 5 4 3 2 1 0 -1 -2 -3 -4 -5 RBI's Net Credit to RBI's Net Credit toBanksand Government Sector Commercial Sector Source: RBI. simultaneous purchase and sale of securities for liquidity distribution across the yield curve and OMOs in state development loans) of `2.14 lakh crore refl ected in an increase in the net Reserve Bank credit to the government by `1.95 lakh crore in 2021-22. On the other hand, contraction 50 erorc hkal(cid:2) in the Reserve Bank’s net credit to banks and the commercial sector (mainly PDs), primarily refl ected in net liquidity adjustment facility (LAF) absorption (Chart II.3.9). II.3.11 The net LAF position remained in reverse repo mode throughout 2021-22, averaging `6.7 lakh crore, indicating ample system level liquidity (Chart II.3.10). 3. Money Supply21 II.3.12 Stabilising from a prolonged decline till 2016-17, M comprising currency with the public 3 (CwP), aggregate deposits (AD) and other deposits with the Reserve Bank, recorded a 2018-19 2019-20 2020-21 2021-22 growth of 8.7 per cent in 2021-22 (12.3 per cent a year ago) driven by time deposits (Chart II.3.11). II.3.13 On the components side, M expansion 3 was driven by AD, its largest constituent (85 per cent share). In fact, AD accounted for 82 per cent of the increase in M during the year, with time 3 deposits growing at 8.1 per cent (10.9 per cent a year ago) in spite of considerable moderation Chart II.3.10: Liquidity Injection/Absorption a. 2020-21 b. 2021-22 7 10 6 9 8 5 7 4 6 3 5 2 4 3 1 2 0 1 -1 0 Source: RBI. 21 In sub-sections 3 and 4, growth and other ratios pertaining to end of fi nancial year/quarter/month are based on the last reporting Friday of the respective fi nancial year/quarter/month. erorc hkal(cid:2) 02 ,30rpA 02 ,42rpA 02 ,51 yaM 02 ,50nuJ 02 ,62nuJ 02 ,71luJ 02,70guA 02,82guA 02 ,81peS 02 ,90 tcO 02 ,03 tcO 02 ,02voN 02 ,11 ceD 12 ,10 naJ 12 ,22 naJ 12,21 beF 12 ,50raM 12 ,62raM erorc hkal(cid:2) 7 10 9 6 8 5 7 4 6 5 3 4 2 3 2 1 1 0 0 ADPurchase (Net) OMO Purchase (Net) Net ReverseRepo(RHS) erorc hkal(cid:2) 12 ,20rpA 12 ,32rpA 12 ,41 yaM 12 ,40nuJ 12 ,52nuJ 12 ,61luJ 12,60guA 12,72guA 12 ,71peS 12 ,80 tcO 12 ,92 tcO 12 ,91voN 12 ,01 ceD 12 ,13 ceD 22 ,12 naJ 22,11 beF 22 ,40raM 22 ,52raM erorc hkal(cid:2) ADPurchase (Net) OMO Purchase (Net) Net ReverseRepo(RHS)ECONOMIC REVIEW Chart II.3.11: Aggregate Deposits and M Chart II.3.12: SCBs’ Time Deposits: 3 Y-o-Y Growth and Interest Rate Source: RBI. Source: RBI. in interest rates (Chart II.3.12). As usual, demand the government and net foreign exchange assets deposits remained volatile, largely mirroring the of the banking sector led the expansion in M in 3 variations in currency with the public which grew 2021-22 (Chart II.3.14). Amongst these sources, by 10.2 per cent in 2021-22 vis-à-vis 17.7 per cent bank credit to the commercial sector - the largest in the previous year (Chart II.3.13). constituent of M from the sources side - grew at a 3 rate higher than a year ago. II.3.14 On the sources side, bank credit to the commercial sector, followed by net bank credit to Chart II.3.13: Currency with the Public and Demand Deposits: Fortnightly Variation 3 2 1 0 -1 -2 -3 Source: RBI. 51 erorc hkal(cid:2) 12,62 beF 12,62raM 12,32rpA 12,12 yaM 12,81nuJ 12,61luJ 12,31guA 12,01peS 12,80 tcO 12,50voN 12,30 ceD 12,13 ceD 22,82 naJ 22,52 beF 22,52raM Chart II.3.14: Expansion in M : 3 Components and Sources Currency with thePublic Demand Deposits Source: RBI.ANNUAL REPORT 2021-22 Table II.3.1: Monetary Aggregates Item Outstanding as on Year-on-Year Growth Rate (Per cent) March 25, 2022 (` crore) 2019-20 2020-21 2021-22 1 2 3 4 5 I. Reserve Money (RM) 39,20,298 9.8 14.2 12.3 II. Money Supply (M) 2,04,89,597 8.7 12.3 8.7 3 III. Major Components of M 3 III.1. Currency with the Public 30,37,622 14.0 17.7 10.2 III.2. Aggregate Deposits 1,73,99,596 8.0 11.3 8.4 IV. Major Sources of M 3 IV.1. Net Bank Credit to Government 62,04,211 14.2 13.2 8.2 IV.2. Bank Credit to Commercial Sector 1,26,10,042 6.3 5.7 9.0 IV.3. Net Foreign Assets of the Banking Sector 48,50,355 22.4 21.4 6.3 V. M Net of FCNR(B) 2,03,60,720 8.7 12.6 8.9 3 VI. Money Multiplier* 5.2 5.0 4.8 3.8 *: In columns 3, 4 and 5, data indicate incremental money multiplier. Note: Data are provisional. Source: RBI. II.3.15 On the other hand, net bank credit to vis-à-vis end-March 2021, indicating that the government decelerated to 8.2 per cent in public’s preference towards cash, the most liquid 2021-22 as compared with 13.2 per cent a asset, in response to the uncertainties relating to year ago, refl ecting active usage of funds for the pandemic, did not increase signifi cantly during credit creation, unlike a year ago when banks the year. The reserve-deposit ratio at 4.2 per cent augmented their SLR portfolios in search of safe (3.6 per cent a year ago), refl ected the impact of haven amidst COVID-19 induced uncertainties CRR increase during 2021-22 (Chart II.3.17). (Table II.3.1). Key Monetary Ratios Chart II.3.15: M Growth 3 II.3.16 The money multiplier stood at 5.2 in 2021-22, below its decennial average of 5.7 (2012-21). Adjusted for reverse repo - analytically more meaningful and akin to banks’ deposits with the central bank - the money multiplier turned out to be lower at 4.5. A weak money multiplier along with the deceleration in RM growth (adjusted for the fi rst-round effects of CRR increase) explain the slower growth in M in 2021-22 vis-à-vis last 3 year (Chart II.3.15 and Chart II.3.16). II.3.17 The currency-deposit ratio stood at 17.5 per cent in 2021-22, above its decennial average Source: RBI. (2012-21) of 15.3 per cent. It is at a similar level 52ECONOMIC REVIEW Chart II.3.16: Money Multiplier and Velocity* Chart II.3.18: SCBs’ Credit-Deposit Ratio 40 90 35 80 70 30 60 25 50 20 40 15 30 10 20 5 10 0 0 *: As on end-March. Source: RBI. Source: RBI. 4. Credit (SCBs) credit-deposit ratio stood at 72.2 per cent, a level comparable with end-March 2021 (72.4 II.3.18 With the current policy prescription of per cent), as credit expansion broadly maintained 4.5 per cent and 18 per cent for CRR and SLR, pace with deposit mobilisation after lagging behind respectively, around 78 per cent of the deposits during 2019-20 and 2020-21 (Chart II.3.18 and are available with the banking system for extending Chart II.3.19). credit. In 2021-22, scheduled commercial banks’ Chart II.3.17: Monetary Ratios* *: As on end-March. Source: RBI. 53 tnecreP 40-3002 50-4002 60-5002 70-6002 80-7002 90-8002 01-9002 11-0102 21-1102 31-2102 41-3102 51-4102 61-5102 71-6102 81-7102 91-8102 02-9102 12-0202 22-1202 tnecreP Credit-Deposit Ratio(RHS) Deposit Growth Credit Growth Chart II.3.19: Incremental Credit-Deposit Ratio 1.4 1.2 16 1.0 0.8 11 0.6 0.4 6 0.2 1 0.0 Source: RBI. erorc hkal(cid:2) 40-3002 50-4002 60-5002 70-6002 80-7002 90-8002 01-9002 11-0102 21-1102 31-2102 41-3102 51-4102 61-5102 71-6102 81-7102 91-8102 02-9102 12-0202 22-1202 Incremental Credit-Deposit Ratio(RHS) Incremental Credit Incremental DepositANNUAL REPORT 2021-22 Chart II.3.20: SCBs’ Credit Growth: Chart II.3.21: Credit-to-GDP Gap Momentum and Base Effect 120 25 20 100 15 10 80 5 60 0 -5 40 -10 -15 20 -20 0 -25 Source: Bank for International Settlements (BIS) Credit-to-GDP Gap Source: RBI. statistics. II.3.19 In 2021-22, the y-o-y growth in SCBs’ credit various sectors. According to data on the sectoral recouped lost pace. As per the Section 42 returns deployment of bank credit22, credit to agriculture and data submitted by banks under the Reserve Bank allied activities grew by 9.9 per cent in March 2022 of India Act, the momentum in SCBs’ credit offtake vis-à-vis 10.5 per cent in March 2021. Bank credit has been mostly positive since end-August 2021 growth remained robust for the resilient agriculture and its growth stood at 9.6 per cent on a year-on- sector even during the COVID-19 pandemic year basis for 2021-22 as compared with 5.6 per period, with continued support of the government’s cent a year ago (Chart II.3.20). The credit-to-GDP interest subvention scheme. Industrial credit growth gap, however, continues to be large, refl ecting the improved steadily after Q1:2021-22 and accelerated persisting slack in credit demand in the economy to 7.1 per cent in March 2022. Medium industries, (Chart II.3.21). in particular, registered a growth of 71.4 per cent in II.3.20 After remaining subdued in the beginning March 2022, as compared with 34.5 per cent a year of the fi nancial year 2021-22, a turnaround in ago. Credit to micro and small industries also posted credit growth was recorded across major sectors a faster growth of 21.5 per cent in March 2022 from in Q4:2021-22. The Reserve Bank’s continuous 3.9 per cent a year ago. The growth recorded in the efforts to maintain adequate liquidity in the banking MSME sector’s credit demand is largely attributable system, coupled with the government’s efforts to to the government’s impetus and the Reserve boost credit demand conditions in the economy Bank’s policies to revive the sector. Credit growth was refl ected in the pickup in credit offtake by to large industry, which was mainly in contraction 54 tnecreP 00-raM-13 10-raM-13 20-raM-13 30-raM-13 40-raM-13 50-raM-13 60-raM-13 70-raM-13 80-raM-13 90-raM-13 01-raM-13 11-raM-13 21-raM-13 31-raM-13 41-raM-13 51-raM-13 61-raM-13 71-raM-13 81-raM-13 91-raM-13 02-raM-13 12-raM-13 12-peS-03 stniop egatnecreP Credit-to-GDPGap(RHS) Credit-to-GDP(Actual) Credit-to-GDP(Trend) 22 In the sectoral deployment of bank credit data, non-food credit data are based on fortnightly Section 42 return, which covers all SCBs, while sectoral non-food credit data are based on sector-wise and industry-wise bank credit (SIBC) return, which covers select banks accounting for about 94 per cent of total non-food credit extended by all SCBs, pertaining to the last reporting Friday of the month.ECONOMIC REVIEW Chart II.3.22: Sectoral Deployment of Non-Food Bank Credit Growth a. Y-o-Y Credit Growth - Sector-wise b. Y-o-Y Credit Growth - Bank Group-wise 20 15 10 5 0 -5 Note: Data are provisional. Source: RBI. zone till December 2021, turned positive in January 2022 and stood at 0.9 per cent in March 2022 (Chart II.3.22a and Table II.3.2). II.3.21 Among the industry sub sectors, credit to engineering, beverage and tobacco, chemicals and chemical products, construction, food processing, 55 tnecreP 02-raM 02-rpA 02-yaM 02-nuJ 02-luJ 02-guA 02-peS 02-tcO 02-voN 02-ceD 12-naJ 12-beF 12-raM 12-rpA 12-yaM 12-nuJ 12-luJ 12-guA 12-peS 12-tcO 12-voN 12-ceD 22-naJ 22-beF 22-raM 35 30 25 20 15 10 5 0 -5 Non-food Credit Agricultural Activities Industry (Micro, Mediumand Large) Services Personal Loans tnecreP 02-raM 02-rpA 02-yaM 02-nuJ 02-luJ 02-guA 02-peS 02-tcO 02-voN 02-ceD 12-naJ 12-beF 12-raM 12-rpA 12-yaM 12-nuJ 12-luJ 12-guA 12-peS 12-tcO 12-voN 12-ceD 22-naJ 22-beF 22-raM All Banks Public Sector Banks Private Sector Banks infrastructure, leather and leather products, mining and quarrying, petroleum, coal products and nuclear fuels, textiles, rubber plastic and their products, and vehicles, vehicle parts and transport equipment recorded accelerated growth in March 2022 on a year-on-year basis. However, credit growth to Table II.3.2: Credit Deployment to Select Sectors Sectors Outstanding as on Year-on-Year Growth (Per cent) March 25, 2022 (` crore) 2019-20* 2020-21# 2021-22## 1 2 3 4 5 Non-food Credit 1,18,35,628 6.1 4.5 9.7 1. Agriculture & Allied Activities 14,66,514 8.1 10.5 9.9 2. Industry (Micro & Small, Medium and Large) 31,71,909 4.1 -0.4 7.1 2.1. Micro & Small 4,95,281 4.5 3.9 21.5 2.2. Medium 2,42,269 3.4 34.5 71.4 2.3. Large 24,34,359 4.1 -2.5 0.9 (i) Infrastructure 12,02,694 2.7 1.6 9.3 (a) Power 6,09,773 0.3 -0.3 7.2 (b) Telecommunications 1,37,381 29.4 -21.3 18.6 (c) Roads 2,70,806 3.6 27.6 17.0 (ii) Chemicals & Chemical Products 2,14,141 10.2 -6.8 8.7 (iii) Basic Metals & Metal Products 2,96,427 -6.3 -6.4 -9.2 (iv) Food Processing 1,73,530 -1.3 8.2 10.9 (v) Textiles 2,25,096 -3.6 5.0 10.1 3. Services 30,36,122 14.4 3.0 8.9 4. Personal Loans 33,74,876 18.4 10.7 12.4 *: March 2020 over March 2019. #: March 2021 over March 2020. ##: March 2022 over March 2021. Note: Data are provisional. Source: RBI.ANNUAL REPORT 2021-22 gems and jewellery, paper and paper products tensions and persistent supply bottlenecks. and wood and wood products decelerated. Bank Precautionary currency demand is ebbing and the credit to basic metal and metal products, cement usual seasonal pattern in CiC, comparable to pre- and cement products, and glass and glassware pandemic years, has re-emerged. In tandem with recorded contraction during the same period. economic activity, credit growth has accelerated. Going forward, the broad-based rebound in II.3.22 Credit growth to infrastructure, a major domestic economic activity is likely to sustain constituent of the industrial sector, improved credit demand. Several measures undertaken by during 2021-22. The sector recorded a credit the government such as the PLI scheme and the growth of 9.3 per cent in March 2022 as compared extended ECLGS support had a salutary effect on to 1.6 per cent a year ago. The credit growth to credit growth and are expected to limit the impact of the sector was mainly driven by roads, power and risks facing the borrowers from global spillovers and telecommunications. the uncertainty about the recurrence of COVID-19 II.3.23 Services sector credit growth picked up in waves. Q4:2021-22 and recorded an accelerated growth of 8.9 per cent in March 2022 vis-à-vis 3 per cent II.4 FINANCIAL MARKETS growth registered a year ago. The spurt in credit II.4.1 Global fi nancial markets which generally growth was mainly on account of a credit pick up in remained buoyant during the greater part of 2021, sub-sectors like NBFCs and trade, which together turned volatile in Q1:2022 in the anticipation constitute around 58 per cent of the total services of start of the withdrawal of monetary policy sector credit. The bank credit growth in personal accommodation by many central banks. Abrupt loans segment remained in double digits during and large shifts in risk sentiment caused volatility 2021-22, primarily driven by housing, the largest to spike and repricing of assets roiled fi nancial constituent of the sector, followed by vehicle loans. markets with the escalation of the Ukraine-Russia II.3.24 Among bank groups, public sector banks’ confl ict. credit growth remained sub 4 per cent till November II.4.2 Earlier during the year, abundance of 2021 before improving to 7.4 per cent in March liquidity and accommodative monetary policies 2022 (2.9 per cent a year ago), driven by personal in major economies had pushed fi nancial loans. Credit extended by private sector banks asset prices to all-time highs, bolstered also registered an improved growth of 12.9 per cent in by stimulus packages and easing of COVID-19 March 2022 as compared with 9 per cent a year restrictions, with occasional bouts of turbulence ago (Chart II.3.22b). dispelling the calm as monetary policy stances 5. Conclusion diverged and intent to normalise triggered II.3.25 To sum up, key monetary and credit illiquidity fears, alongside rising cases of the aggregates moved in line with the Reserve Bank’s Omicron variant. Surges in energy prices and accommodative policy stance during the year. the persisting disruptions to international supply Overall fi nancial conditions remained supportive of chains kept market sentiment unsettled. Equity the recovery, despite the volatile global environment markets in emerging market economies (EMEs) and diverging monetary policy stances, geopolitical experienced spillovers and occasional fl ights 56ECONOMIC REVIEW to safety as well as risk-on bounce backs. The oil prices led to upward pressure on domestic 10- US dollar strengthened on safe haven demand. year G-sec yields. The strengthening of the US Global bond yields also hardened in response dollar and net foreign portfolio investment (FPI) to these developments. Commodity prices, outfl ows contributed to weakening of the Indian including oil, rose sharply with crude oil prices rupee during the year. touching their highest levels in the past fourteen II.4.4 Money market developments are detailed years in March 2022 as geopolitical tensions in sub-section 2. G-sec yields are discussed in sub- collided with these visitations of turbulence and section 3. Sub-section 4 presents developments overwhelmed market sentiment. in the corporate bond market. Sub-section 5 II.4.3 In India, fi nancial markets remained profi les developments in the domestic equity vibrant amidst easy liquidity conditions, although market, followed by a discussion on movements the severe second wave of the pandemic during in the Indian rupee in the foreign exchange April-May 2021 dampened sentiments. The market in sub-section 6. The last sub-section equity market continued to register double- offers concluding observations along with some digit growth in 2021-22 in sync with global forward-looking perspectives. peers with optimism on large scale vaccine 2. Money Market rollouts and resurgence in economic activity. II.4.5 Notwithstanding the ravages unleashed Sustained support from monetary and fi scal by the virulent second wave of the pandemic in measures cushioned domestic equities and April-May 2021, the money market remained initial public offerings (IPOs) and follow-on public stable during the year 2021-22, as the Reserve offers (FPOs) recharged investor ebullience Bank maintained ample liquidity23 in the system. while containing movements in bond yields. In II.4.6 The weighted average call rate (WACR) in H1:2021-22, substantial resources were raised the unsecured call money market – the operating from the market in a non-disruptive manner, target of monetary policy – generally traded below helped by strong corporate earnings. Investors the fl oor of the policy corridor, i.e., the fi xed rate turned cautious in H2:2021-22 following the reverse repo, during the year refl ecting abundant announcements of policy normalisation in liquidity in the system (Chart II.4.1). The average advanced economies (AEs) and rapid spread of spread of the WACR over the policy rate widened Omicron. In 2021-22, the Sensex increased by to (-) 75 basis points (bps) in 2021-22 from (-) 63 18.3 per cent, outperforming global peers. The bps in 2020-21. Reserve Bank proactively managed liquidity conditions during the year with various liquidity II.4.7 Volatility in the call money segment, measures. Expectation of faster normalisation measured by the coeffi cient of variation24 of the of monetary policy by global central banks WACR, decreased signifi cantly to 4.05 from 8.34 amid infl ationary concerns along with upside in 2020-21 on account of the proactive liquidity movement in the US treasury yields and crude measures taken by the Reserve Bank. 23 Details relating to liquidity management operations are covered in Chapter III of this Report. 24 Coeffi cient of variation is measured as a ratio of standard deviation to the mean. 57ANNUAL REPORT 2021-22 Chart II.4.1: Money Market Rates and Policy Corridor 7 6 5 4 3 2 Source: RBI, CCIL, CCIL-Ftrac, FBIL and RBI staff calculations. II.4.8 The average daily volume in the money to 9 bps during the year from 16 bps in 2020-21 market (call money, triparty repo and market repo (Chart II.4.3). The average daily spread of 3-month taken together, excluding Saturdays) increased CP(NBFC) rates over the 91-day T-bill rates by 35 per cent to `4,55,224 crore during 2021- increased from 16 bps during Q2: 2021-22 to 56 22 from `3,36,371 crore in 2020-21. Volumes bps in Q4:2021-22. The weighted average discount in the triparty repo and market repo segments rates in the primary CP market, which softened in also increased and accounted for 74 per cent mid-September 2021 to 3.51 per cent, hardened and 24 per cent, respectively, of the total money market volume (call/triparty repo and market repo) as compared with 69 per cent and 28 per cent, respectively, in 2020-21. In the call money segment, average daily volumes decreased by 18 per cent to `9,060 crore during the year from `10,993 crore in 2020-21, reducing market share to 2 per cent from 3 per cent in the previous year (Chart II.4.2). II.4.9 Interest rates on long term money market instruments, viz., 91-day Treasury Bills (T-bills), certifi cates of deposit (CDs) and commercial papers (CPs) generally moved in sync with the short term (call, triparty repo and market repo) rates during the year under review. The average daily spread of CD rates over T-bill rates narrowed 58 tnecreP 12-raM-13 12-rpA-51 12-rpA-03 12-yaM-51 12-yaM-03 12-nuJ-41 12-nuJ-92 12-luJ-41 12-luJ-92 12-guA-31 12-guA-82 12-peS-21 12-peS-72 12-tcO-21 12-tcO-72 12-voN-11 12-voN-62 12-ceD-11 12-ceD-62 22-naJ-01 22-naJ-52 22-beF-90 22-beF-42 22-raM-11 22-raM-13 Chart II.4.2: Share of Major Segments in Money Market Volume 100 90 80 70 60 50 40 30 20 10 WACR Triparty Repo Rate 0 Market RepoRate 3-monthCP Rate 3-monthCD Rate 91-day T-Bill Rate RepoRate Reverse Repo Rate MSFRate Source: CCIL and RBI staff calculations. tnecreP 12-rpA 12-yaM 12-nuJ 12-luJ 12-guA 12-peS 12-tcO 12-voN 12-ceD 22-naJ 22-beF 22-raM Call/Notice Triparty Repo Market Repo Chart II.4.3: Spread of 3-month CP and CD Rate over 91-day T-bill Rate 250 200 150 100 50 0 -50 Source: Bloomberg, FBIL and RBI staff calculations. stniopsisaB 12-rpA-10 12-rpA-61 12-yaM-10 12-yaM-61 12-yaM-13 12-nuJ-51 12-nuJ-03 12-luJ-51 12-luJ-03 12-guA-41 12-guA-92 12-peS-31 12-peS-82 12-tcO-31 12-tcO-82 12-voN-21 12-voN-72 12-ceD-21 12-ceD-72 22-naJ-11 22-naJ-62 22-beF-01 22-beF-52 22-raM-21 22-raM-13 Spread ofCD Rate Over91-day T-Bill Rate Spread of3MCP (NBFC) RateOver 91-day T-Bill Rate Spread of3MCP (Non-NBFC) RateOver91-day T-Bill RateECONOMIC REVIEW thereafter by about 96 bps to 4.47 per cent in end- of MPC’s infl ation forecast in August 2021 meeting March 2022. The hardening of the rates was led led to hardening of yields pushing them up to by increased liquidity absorption by the Reserve 6.26 per cent in August 2021. In the fi rst half of Bank through variable rate reverse repo (VRRR) September 2021, however, yields softened with operations and the NBFCs borrowing through resumption of portfolio debt infl ows, lower than CPs to subscribe to initial public offerings (IPOs) expected fi scal defi cit of the central government by companies. The 3-month CP (NBFC) rate for April-July and a softer CPI infl ation print for increased from 3.48 per cent at end-September August 2021. Towards the latter part of September 2021 to 4.25 per cent at end-March 2022. The 2021, the announcement of OMO sales of 3-month CP (non-NBFC) rate increased from 3.48 short-term securities along with G-SAP 2.0, higher per cent to 4.08 per cent during the same period. cut-offs in VRRR auctions, hawkish signals from II.4.10 In the primary market, fresh issuance of other central banks and a sharp rise in crude oil CDs increased to `2.33 lakh crore during 2021-22 prices contributed to upward pressure on yields. from `1.31 lakh crore in 2020-21. New issuance II.4.13 The 10-year yield hardened during of CPs in the primary market increased to `20.19 October 2021 in sympathy with rise in US treasury lakh crore in 2021-22 from `17.41 lakh crore in yields and international crude oil prices and pause 2020-21. in G-SAP auctions. The 10-year yield hardened 3. G-sec Market further in December 2021 and closed at 6.45 per cent on December 31, 2021, amidst, II.4.11 During Q1:2021-22, the benchmark G-sec devolvement/cancellation in weekly primary yield softened in response to accommodative auction and rise in international crude oil prices. stance of monetary policy operations under Overall, the 10-year generic G-sec yield hardened G-SAP 1.0 and special OMOs (operation twist). by 23 bps in Q3:2021-22. Fears of additional government borrowing to bridge the GST compensation cess shortfall and II.4.14 The 10-year generic G-sec yield hardened a higher than expected CPI infl ation print for May in Q4:2021-22, tracking the rise in international 2021 imparted transient bearishness to market crude oil prices and higher than expected gross sentiment. Overall, the 10-year generic G-sec borrowing by the central government for the yield softened by 12 bps during the quarter to next fi nancial year. Yields remained elevated in close at 6.05 per cent, trading in the range of March amidst rally in commodity prices following 5.96-6.19 per cent (on an intra-day basis). escalation of geopolitical confl ict. The 10-year II.4.12 During Q2:2021-22, the 10-year generic generic G-sec yield closed at 6.84 per cent on yield rose by 17 bps to close at 6.22 per cent. The March 31, 2022 (Chart II.4.4). Overall, the 10-year rise in global crude oil prices, announcements yield hardened by 67 bps with the sovereign yield of a phased increase in the quantum of VRRR curve shifting upwards and fl attening during the operations on August 6, 2021 and upward revision year. 59ANNUAL REPORT 2021-22 crore with effect from April 1, 2022). FPIs bought Chart II.4.4: 10-year G-sec Generic Yield a net amount of `30 crore of State Development Loans (SDLs) during the same period and in the aggregate invested `2,627 crore in G-secs and SDLs, across MTF, FAR and VRR segments during April 1, 2021 to March 31, 2022. 4. Corporate Debt Market II.4.16 Financing conditions in the corporate bond market remained accommodative, with compression in credit spreads. During 2021-22, the monthly average yield on AAA-rated 3-year bonds of public sector undertakings (PSUs), fi nancial institutions (FIs) and banks, NBFCs and corporate paper hardened by 3 bps, 29 bps and 32 Source: Bloomberg. bps, respectively. The average yield on AAA-rated 3-year bonds stood at 5.84 per cent for PSUs, FIs II.4.15 With the introduction of the fully and banks, 5.98 per cent for NBFCs, and 5.88 per accessible route (FAR)25 with effect from April 1, cent for corporates in March 2022. 2020, FPIs have three routes to invest in G-secs, II.4.17 During 2021-22, the monthly average risk viz., the general route with investment limits set premium or spread on AAA-rated 3-year bonds under the medium-term framework (MTF), the (over 3-year G-sec) decreased from 60 bps to 23 voluntary retention route (VRR) and the FAR. The bps for PSUs, FIs and banks, 48 bps to 37 bps limit for FPI investments in G-sec under the MTF for NBFCs and 35 bps to 26 bps for corporates. for the year 2021-22 was set at `3,75,596 crore. The narrowing of spreads was also visible across The number of securities included under the the rating segments. The average daily turnover FAR scheme increased from 12 securities (with decreased to `7,358 crore during 2021-22 from outstanding stock of `11,79,423 crore as on April `7,675 crore in the previous year (Chart II.4.5). 1, 2021) to 17 securities (with outstanding stock of `17,58,043 crore as on March 31, 2022). During II.4.18 Primary corporate bond issuances 2021-22, FPIs registered a net sell of `15,048 witnessed moderation in Q1:2021-22, but picked crore in G-secs under the general route. However, up subsequently. Overall, primary corporate bond FPIs invested `13,275 crore under the FAR route issuances decreased by 23.4 per cent to `6 lakh during the same period. FPIs also invested `4,370 crore during 2021-22 as against issuances of crore in G-secs under VRR, which has a combined `7.8 lakh crore during the previous year. Private investment limit of `1,50,000 crore for G-secs placements remained the preferred choice for and corporate bonds (increased to `2,50,000 corporates, accounting for 98.1 per cent of total 25 Under FAR, certain categories of central government securities were opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well. 60ECONOMIC REVIEW end-March 2021. Consequently, utilisation of the Chart II.4.5: Turnover and AAA-rated 3-Year Yield Spread in Corporate Bond Market approved limit by FPIs declined to 19.9 per cent at end-March 2022 from 24.5 per cent at end-March 2021. 5. Equity Market II.4.19 Extending the rally from 2020-21, bulls continued to dominate the Indian equity markets in 2021-22. Market sentiment was unsettled, however, on global cues amid concerns over policy normalisation in AEs, country specifi c factors in systemic EMEs, the spread of Omicron and geopolitical tensions. Nevertheless, the BSE Sensex surged by 18.3 per cent to close at 58,569, outperforming many global peers, while Source: SEBI and FIMMDA. the Nifty 50 increased by 18.9 per cent to close at 17,465 on March 31, 2022 (Chart II.4.6a and resources mobilised through the bond market. Chart II.4.6b). In 2021-22, the total market Outstanding corporate bonds increased by 11.2 capitalisation of BSE listed companies surged by per cent y-o-y to `40.2 lakh crore, i.e., 17.0 per 29.2 per cent to `264.1 lakh crore. After increasing cent of GDP at end-March 2022. Investments by to 32 per cent in February 2022, India VIX, which FPIs in corporate bonds decreased to `1.2 lakh captures short-term volatility of Nifty 50, dipped crore at end-March 2022 from `1.3 lakh crore at back to its end-March 2021 level of 20.6 per cent. Chart II.4.6: Equity Market a. Movement in BSE Sensex and Nifty 50 b. Return on Major EME and AE Equity Indices in 2021-22 Source: BSE, NSE and Bloomberg. 61ANNUAL REPORT 2021-22 II.4.20 The equity markets commenced the various sectors by the government, setting up year with modest losses due to a sudden spike of the National Asset Reconstruction Company in COVID-19 cases, sell-off by FPIs, decline (NARCL) and relief measures for the telecom in the manufacturing PMI to a 7-month low and sector. Thereafter, domestic equity markets imposition of fresh lockdown-like restrictions witnessed episodes of volatility in sync with global in some parts of the country. However, strong peers as a combination of ongoing regulatory clampdowns in a systemic EME and corporate corporate earnings for Q4:2020-21 and positive debt woes sparked global investor concern over cues from the global markets amidst a swift potential spillovers. Fresh highs were climbed vaccine roll-out and fi scal stimulus measures lifted during the fi rst half of October 2021, buoyed by investor sentiment towards the end of the quarter. signs of recovery in economic activity, strong As a result, the market rebounded in May 2021 demand outlook ahead of the festive season with the announcement of a series of liquidity and continued accommodative monetary policy enhancing measures by the Reserve Bank and stance. However, the rally proved transient due upbeat corporate results. With domestic equities to accelerated profi t bookings in the second half remaining bullish, market capitalisation of the following mixed Q2:2021-22 corporate earnings BSE-listed companies rose to over US$ 3 trillion results and concerns over stretched valuations. for the fi rst time in its history. II.4.23 The domestic equity market remained II.4.21 The Sensex climbed to fresh highs during undeterred by tapering announcements by the June 2021 with the gradual reopening of the US Fed in the fi rst week of November 2021. economy and pick up in business activity. Market Notwithstanding this positive start, however, sentiment was dented by concerns over infl ation the equities registered sharp declines towards and imminent tapering of monetary stimulus by the end of the month, triggered by the reports systemic central banks. The market extended of detection of Omicron and imposition of fresh losses towards the end of the month following rounds of travel restrictions across various parts negative global cues on concerns over the spread of the globe. The downtrend deepened in the of COVID-19 infections in various countries, with fi rst half of December 2021 as FPIs continued to sharp volatility spikes in July 2021. Sustained offl oad Indian equities and monetary tightening selling by FPIs also added pressure on domestic in AEs seemed imminent. However, robust GST equities. Equity market bulls wrestled their way collection, expansion in the manufacturing PMI for back in August 2021, pushing the benchmark November and the Reserve Bank’s status quo in indices to record highs, supported by recovery monetary policy setting provided succour to the in auto sales, robust GST collections, strong corporate earnings results for Q1:2021-22, benign market. CPI infl ation prints and expansion in India’s II.4.24 Amidst heightened volatility, the sell-off manufacturing PMI to 55.3 in July. in the domestic equities exacerbated in January II.4.22 Despite a sell-off in global equities, 2022 as infl ationary concerns, rising US Treasury the domestic equity market registered gains yields and crude oil prices as well as the Fed’s in September 2021 on bullish sentiment signalling of an early interest rate hike dampened stirred by announcements of the extension of investor sentiments. Notwithstanding global production-linked incentive (PLI) scheme for headwinds, the Indian equity market reacted 62ECONOMIC REVIEW Chart II.4.7: Investment in Equity a. Net Investment in Equity by Institutional Investors b. New Demat Accounts Added Source: NSDL, CDSL and SEBI. positively to the budget announcements and the the previous year (Chart II.4.7b). During 2021-22, Reserve Bank’s accommodative monetary policy on an average, 28.8 lakh demat accounts were in February 2022. However, the steady rise in opened every month, which is higher than 11.8 crude oil prices amidst escalating geopolitical lakh per month in the previous year and 4.2 lakh tensions weighed heavily on investor sentiments. demat accounts per month in 2019-20. Domestic equities witnessed sharp sell-off in the Primary Market Resource Mobilisation second half of the month following the breakout of war in Ukraine. Sentiments improved somewhat in II.4.27 In the primary segment of the equity March following the announcements of electoral market, resource mobilisation through initial public results of state assemblies and positive global offerings (IPOs), follow-on public offers (FPOs) cues, but remained edgy as concerns persisted and rights issues increased by 26.1 per cent to over Russia-Ukraine peace talks, volatility `1.39 lakh crore during 2021-22 as against `1.1 in commodity prices and renewed lockdown lakh crore during the previous year (Chart II.4.8a measures in China. and Appendix Table 5). `1.13 lakh crore were II.4.25 The FPIs became net sellers for eight mobilised through 121 IPO/FPO issues, out of out of 12 months in 2021-22 with a net outfl ow of which 70 issues amounting to `958 crore were `1.3 lakh crore as against a net infl ow of `2.8 lakh listed on the small and medium enterprises (SMEs) crore in the previous year. Mutual funds, on the platform of the BSE and the NSE. Resource other hand, made heavy investments worth `1.7 mobilisation through rights issues decreased to lakh crore in the Indian equity market in 2021-22 `26,327 crore during 2021-22 as compared with (Chart II.4.7a). `64,059 crore during the previous year. Resource II.4.26 The direct participation of retail investors mobilisation through preferential allotment and in equities continued to increase, with the opening qualifi ed institutional placement (QIP) decreased of 3.46 crore demat accounts during 2021-22, as to `92,135 crore during 2021-22, as against against 1.42 crore demat accounts opened during `1,19,678 crore during the previous year. 63ANNUAL REPORT 2021-22 Chart II.4.8: Resource Mobilisation a. Resource Mobilisation through IPOs and Rights Issues b. SIP Contribution 120,000 100,000 80,000 60,000 40,000 20,000 0 2017-18 2018-19 2019-20 2020-21 2021-22 Source: SEBI and AMFI. II.4.28 Of the net resources mobilised by of vaccination and strong foreign fl ows to IPOs by mutual funds of `2.5 lakh crore during 2021-22, Indian corporates helped Indian rupee outperform systematic investment plan (SIP) contributions most of its Asian peers in Q2:2021-22. The rupee witnessed a healthy growth - an indication of was also supported by a mild correction in crude rising retail participation and fi nancialisation oil prices and a brief rally in emerging market of household savings (Chart II.4.8b). Equity- currencies. oriented schemes witnessed net mobilisation II.4.31 The Indian rupee again came under of `1,54,094 crore in 2021-22 as against net pressure during Q3:2021-22 as the US dollar redemption of `39,327 crore in the previous year. gained, tracking rise in US short term yields, as Assets under management (AUM) of equity- traders priced in hawkish FOMC statements oriented mutual funds increased by 37.2 per cent (faster taper and rate hikes in 2022). During the to `13.7 lakh crore at end-March 2022 from `10 quarter, pressure on EME currencies rose across lakh crore at end-March 2021. the board. The Indian rupee touched an intra-day 6. Foreign Exchange Market low of `76.32 against the US dollar on December 16, 2021 as markets braced for acceleration of II.4.29 In the foreign exchange market, turnover US Federal Reserve taper and prepared for policy picked up in both interbank and merchant divergence between US and the rest of the AEs. segments as compared with the previous year. The rupee recovered sharply in the latter part of II.4.30 The Indian rupee weakened by 1.64 December 2021 tracking dollar weakness and per cent during Q1:2021-22 amid a steep rise in closed at `74.33/USD on December 31, 2021, COVID-19 infections and sustained gains in crude weakening 0.13 per cent over Q3:2021-22. Th e oil prices. A weaker dollar and a current account rupee remained under pressure in Q4:2021-22 as surplus of USD 6.5 billion during the quarter limited US yields rose sharply in anticipation of rate hikes the downside for the rupee. A pick-up in the pace by the US Fed with the US dollar index inching 64 erorc(cid:2) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 IPOs Rights 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 erorc(cid:2)ECONOMIC REVIEW forward premia witnessed some gyration due Chart II.4.9: Movement in Rupee, US Dollar, Crude Oil Price and EM Currency Index to factors like IPO related rupee demand during Q1:2021-22, they stabilised in the subsequent quarters, amidst comfortable system-wide liquidity conditions. 7. Conclusion II.4.34 In sum, fi nancial markets, going forward, face considerable uncertainty and tightening of global fi nancial conditions. Infl ation concerns amid growth worries have magnifi ed the risks to emerging market currencies, with the risk of global spillovers. II.5 GOVERNMENT FINANCES Source: Bloomberg. II.5.1 In 2022, fi scal defi cits are projected to towards 100 mark amid safe haven demand moderate in the majority of the G-20 countries due to geopolitical tensions. FPI outfl ows from but would mostly remain above pre-pandemic domestic equity markets and a broad-based rally levels (Chart II.5.1a). While the projected fi scal in commodity prices also impacted the rupee adjustment plans are expected to lower the public during the quarter. Consequently, Indian rupee debt-GDP ratios in advanced economies over the touched a fresh intra-day low of `76.98/USD medium term, the average government debt-GDP on March 7, 2022 with most emerging market ratio for emerging market economies (EMEs) currencies remaining under pressure during remains on an upward trajectory, driven mainly by the quarter. Overall, Indian rupee closed at China.26 India’s gross debt is projected to remain `75.79/USD on March 31, 2022, with a net range bound in 2022 but stay higher than peer depreciation of 3.53 per cent in 2021-22 EMEs (except Brazil) [Chart II.5.1b]. (Chart II.4.9). II.4.32 On an average basis, the 40-currency II.5.2 Against this backdrop, sub-sections 2 nominal effective exchange rate (NEER) and 3 present the position of central government depreciated by 0.8 per cent in 2021-22 (y-o-y). fi nances in 2021-22 and 2022-23, respectively. However, the 40-currency real effective exchange Sub-sections 4 and 5 outline the developments rate (REER) appreciated by 1.2 per cent during in state government fi nances during 2021-22 this period, refl ecting higher domestic infl ation and 2022-23. General government fi nances are vis-à-vis trading partners. discussed in sub-section 6. The fi nal section II.4.33 During 2021-22, long-term forward sets out concluding remarks and some policy premia remained anchored. While short-term perspectives. 26 IMF (2022), Fiscal Monitor, International Monetary Fund (IMF), Washington D.C., April. 65ANNUAL REPORT 2021-22 Chart II.5.1: General Government Overall Fiscal Balance and Gross Debt in G-20 Economies a. Fiscal Balance b. Gross Debt USA: United States of America UK: United Kingdom EU: European Union Note: Data for India have been sourced from World Economic Outlook (WEO), IMF to ensure comparability with other countries. However, this may be at variance with data reported in Budget related documents or the Reserve Bank publications as the accounting practices and conventions followed by the Government of India and the IMF differ. Source: World Economic Outlook, April 2022. 2. Central Government Finances in 2021-22 provision of broadband connectivity to villages and boost for project exports through the National II.5.3 In the wake of the second wave of the Export Insurance Account. This was supplemented pandemic, the government announced a fi scal by additional expenditure measures during the package amounting to `6.3 lakh crore during Q1:2021-22, which included, inter alia, extension year such as increased allocation for the National of the Pradhan Mantri Garib Kalyan Anna Yojana, Rural Employment Guarantee Scheme and the measures to strengthen public health, extension Pradhan Mantri Awas Yojana (Urban), as outlined of the AatmaNirbhar Bharat Rozgar Yojana, loan in the Supplementary Demand for Grants (SDG).27 guarantee scheme for COVID-19 affected sectors, As a result, total expenditure overshot budget 27 The proposed increase in expenditure over budget estimates, based on first and second batch of SDGs stood at ₹3,22,918 crore. The third and last SDGs (announced on March 14, 2022) involves an additional net cash outgo of ₹1.07 lakh crore over and above the revised estimates (RE) for 2021-22. 66ECONOMIC REVIEW estimates by `2.9 lakh crore (a deviation of `2.4 tax revenues registering a y-o-y growth of 24.1 per lakh crore under revenue expenditure and `48,475 cent in 2021-22 RE (25.2 per cent over 2019-20). crore under capital expenditure). The additional Aided by higher than budgeted surplus transfer spending was, however, offset by higher tax and by the Reserve Bank, non-tax revenues also non-tax revenues, leading to a consolidation of surpassed BE by `70,763 crore. Disinvestment 0.03 percentage points in the gross fi scal defi cit receipts, however, fell short of the BE by `97,000 (GFD) from the budget estimate (BE) of 6.8 per crore. cent of GDP.28 3. Central Government Finances in 2022-23 II.5.4 Tax revenues remained buoyant even in II.5.5 For 2022-23, the Union Budget has sought the face of the pandemic (Table II.5.1), with gross to balance fi scal prudence with a focus on capital expenditure in order to accelerate growth and Table II.5.1: Tax Buoyancy place the ongoing economic rebound on a fi rm Average 2021-22 2021-22 2022-23 footing. The GFD is budgeted at 6.4 per cent of Tax (BE) (RE) (BE) GDP29, a consolidation of 29 basis points (bps) Buoyancy (2010-11 to over 2021-22 (RE) in line with the medium-term 2018-19) target of achieving a GFD below 4.5 per cent of 1 2 3 4 5 GDP by 2025-26.30 This consolidation is sought 1. Gross Tax Revenue 1.11 1.33 1.24 1.05 to be achieved through containment of revenue 2. Direct Taxes 1.03 1.79 1.66 1.49 expenditure to 12.4 per cent of GDP, as capital (i) Corporation Tax 0.92 1.80 2.00 1.47 (ii) Income Tax 1.27 1.81 1.37 1.57 expenditure is budgeted to rise to an all-time high 3. Indirect Taxes 1.25 0.91 0.88 0.62 of 2.9 per cent of GDP and receipts are pegged at (i) GST - 1.78 1.19 1.71 moderate levels (Table II.5.2). (ii) Customs Duty 0.31 1.71 2.07 1.39 (iii) Excise Duty 0.91 -0.57 0.03 -1.64 II.5.6 Under capital expenditure, a large push GST: Goods and Services Tax. - : Not available. has been given to loans and advances to states, Note: Tax buoyancy is defi ned as the responsiveness of tax with a provision of `1 lakh crore in the form of revenue to changes in nominal GDP and to discretionary changes in tax policies. Calculations for 2021-22 (BE) are made 50-year interest free loans to be utilised for over 2020-21 (RE). Source: RBI staff calculations based on Union Budget documents Pradhan Mantri Gati Shakti31 related capital for various years. investment, supplemental funding for priority 28 Budget 2021-22 had placed the GDP for 2021-22 at `2,22,87,379 crore (GFD-GDP ratio of 6.76 per cent). This was revised upwards in the first advance estimates and Union Budget 2022-23 to `2,32,14,703 crore, according to which GFD-GDP ratio stood at 6.85 per cent. As per the second advance estimates (SAE) [released on February 28, 2022], nominal GDP for 2021-22 is higher at `2,36,43,875 crore, which implies a GFD-GDP ratio of 6.73 per cent. Going by the principle of using the latest available GDP data for any year, the nominal GDP for 2021-22 (RE) is as per the SAE. In view of this, the fiscal indicators as per cent of GDP given in this section, may vary from those reported in the Union Budget documents. 29 Nominal GDP for 2022-23 (BE) has been projected at ₹2,58,00,000 crore, assuming 11.1 per cent growth over the estimated nominal GDP of ₹2,32,14,703 crore for 2021-22 (RE). 30 The Union Budget 2021-22 had announced the government’s intention to reduce the GFD below 4.5 per cent of the nominal GDP by 2025-26 with a fairly steady decline over the period. 31 Gati Shakti - a digital platform - will bring 16 ministries, including railways and roadways, together for integrated planning and coordinated implementation of infrastructure connectivity projects. 67ANNUAL REPORT 2021-22 Table II.5.2: Central Government's Fiscal Performance (Per cent of GDP) Item 2004-08 2008-10 2010-15 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2021-22 2022-23 (BE) (RE) (BE) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 I. Non-debt 11.0 9.7 9.5 9.2 9.1 9.4 9.1 8.8 8.7 8.5 8.9 9.2 8.9 Receipts II. Gross Tax 10.7 10.4 10.2 10.0 10.6 11.1 11.2 11.0 10.0 10.2 9.9 10.6 10.7 Revenue (a+b) a) Direct Tax 5.1 6.0 5.7 5.6 5.4 5.5 5.9 6.0 5.2 4.8 5.0 5.3 5.5 b) Indirect Tax 5.6 4.4 4.5 4.4 5.2 5.6 5.4 5.0 4.8 5.5 5.0 5.4 5.2 III. Net Tax Revenue 7.9 7.6 7.3 7.2 6.9 7.2 7.3 7.0 6.8 7.2 6.9 7.5 7.5 IV. Non-tax Revenue 2.2 1.8 1.8 1.6 1.8 1.8 1.1 1.2 1.6 1.0 1.1 1.3 1.0 V. Non-debt Capital 0.9 0.3 0.4 0.4 0.5 0.4 0.7 0.6 0.3 0.3 0.8 0.4 0.3 Receipts VI. Total Expenditure 14.5 16.1 14.4 13.3 13.0 12.8 12.5 12.2 13.4 17.7 15.6 15.9 15.3 VII. Revenue 12.1 14.4 12.6 11.8 11.2 11.0 11.0 10.6 11.7 15.6 13.1 13.4 12.4 Expenditure VIII. Capital 2.4 1.7 1.8 1.6 1.8 1.8 1.5 1.6 1.7 2.2 2.5 2.5 2.9 Expenditure IX. Revenue Defi cit 2.0 5.0 3.5 2.9 2.5 2.1 2.6 2.4 3.3 7.3 5.1 4.6 3.8 X. Gross Fiscal 3.5 6.3 4.9 4.1 3.9 3.5 3.5 3.4 4.7 9.2 6.8 6.7 6.4 Defi cit BE: Budget Estimates. RE: Revised Estimates. Note: Going by the principle of using the latest available GDP data for any year, GDP used for 2021-22 (RE) is as per the SAE, 2021-22. Source: Union Budget documents. segments of Pradhan Mantri Gram Sadak II.5.7 The Union Budget proposals for 2022-23 Yojana, digitisation of the economy, and other entail gross market borrowings of `14.31 lakh productive capital investment. Capital outlay, i.e., capital expenditure less loans and advances, Chart II.5.2: Ministry-wise Break up of Capital Expenditure in 2022-23 (Per cent of Total) is also budgeted to increase by 11.5 per cent in 2022-23 on top of a growth of 73.3 per cent in 2021-22 (RE), led by robust growth in infrastructure spending. Around two-thirds (64.7 per cent) of the total capex is to be incurred by the ministries of defence; road; and railways (Chart II.5.2). The revenue expenditure to capital outlay (RECO) ratio is budgeted to improve for the second year in a row to 5.2, as against the decadal average of 7.8. On the receipts side, revenue forecasts are based on conservative nominal GDP projections and the disinvestment target has been set at `65,000 crore, which is close to the average realisation of Source: Union Budget documents. around `66,000 crore in the past fi ve years. 68ECONOMIC REVIEW in 2021-22 (RE), an increase of 36.7 per cent.32 Chart II.5.3: Sources of Financing Gross Fiscal Deficit Marking a return to the pre-pandemic trend, net market borrowings are budgeted to fi nance 67.3 per cent of the GFD in 2022-23, up from 48.8 per cent in 2021-22 (RE), with lower recourse to treasury bills, small savings, and cash balances (Chart II.5.3). As a part of the overall market borrowings, the government also intends to issue Sovereign Green Bonds to facilitate climate change transition. 4. State Finances in 2021-22 II.5.8 State government fi nances were budgeted to improve in 2021-22 with the GFD-GDP ratio narrowing to 3.5 per cent from 4.7 per cent in the Source: Union Budget documents. revised estimates for 2020-21 (Table II.5.3 and Appendix Table 6). crore (adjusting for switch operations conducted II.5.9 Provisional accounts (PA)33 data of 26 on January 28, 2022) as against `10.47 lakh crore states available for April-February 2021-22 Table II.5.3: Fiscal Position of States (` lakh crore) 2017-18 2018-19 2019-20 2020-21 (RE) 2021-22 (BE) 1 2 3 4 5 6 I. Revenue Receipts 23.2 26.2 26.7 27.9 34.5 (13.6) (13.9) (13.3) (14.1) (14.6) II. Capital Receipts 0.4 0.4 0.6 0.2 0.2 (0.2) (0.2) (0.3) (0.1) (0.1) III. Revenue Expenditure 23.4 26.4 27.9 31.9 35.7 (13.7) (14.0) (13.9) (16.1) (15.1) IV. Capital Expenditure 4.3 4.9 4.6 5.5 7.2 (2.5) (2.6) (2.3) (2.8) (3.1) a. Capital Outlay 3.9 4.4 4.2 5.0 6.7 (2.3) (2.3) (2.1) (2.5) (2.8) b. Loans and Advances by States 0.4 0.5 0.4 0.5 0.5 (0.2) (0.2) (0.2) (0.2) (0.2) V. Fiscal Defi cit 4.1 4.6 5.3 9.3 8.2 (2.4) (2.4) (2.6) (4.7) (3.5) VI. Revenue Defi cit 0.2 0.2 1.2 3.9 1.2 (0.1) (0.1) (0.6) (2.0) (0.5) Note: Figures in parentheses are per cent of GDP. Source: Budget documents of state governments and CAG. 32 Market borrowings of union government excludes borrowing of ₹1,59,000 crore in 2021-22 (RE) passed on to the states as loans on back- to-back basis in lieu of GST compensation cess shortfall. 33 Website of Comptroller and Auditor General (CAG) of India. 69ANNUAL REPORT 2021-22 indicate that their consolidated GFD was lower Table II.5.4: State Government Finances 2022-23*: Key Indicators by 31.5 per cent than a year ago, mainly due (Per cent of GSDP) to higher growth in revenue receipts (30.5 per cent as against a contraction of 8.6 per cent in Item 2020-21 2021-22 2021-22 2022-23 (BE) (RE) (BE) 2020-21). Following the Centre’s move of reduction 1 2 3 4 5 in excise duty on petrol and diesel on November Revenue Defi cit 2.0 0.7 1.1 0.6 3, 2021, majority of states reduced their value Gross Fiscal Defi cit 4.1 3.7 3.7 3.2 added tax (VAT) in the range of `1.8 to `10.0 per Primary Defi cit 2.2 1.7 1.9 1.5 litre of petrol and `2.0 to `7.0 per litre of diesel. *: Data pertain to twenty states that have presented their fi nal The embodied revenue loss was more than offset budgets for 2022-23. Source: Budget documents of state governments. by central transfers in lieu of GST compensation – the Centre released `1.59 lakh crore in 2021-22 (`0.75 lakh crore on July 15; 0.40 lakh 2021-22 (RE), though there is signifi cant variation crore on October 7; and `0.44 lakh crore on amongst states (Table II.5.4). The consolidation in October 28) to states as back-to-back loans. Apart states’ fi scal position can entirely be attributed to from these loans, the Centre has also released revenue account as the growth in revenue receipts GST compensation of `60,000 crore. In addition is budgeted at a signifi cantly higher level than to the regular instalment of tax devolution, the revenue expenditure, resulting in compression of Centre released two advance instalments of tax revenue defi cit by 55 bps. devolution in November 2021 and January 2022. II.5.12 Following the recommendations of the II.5.10 Despite the second wave of the pandemic FC-XV, Centre has allowed the states a fi scal and corresponding state-specifi c restrictions, defi cit of up to 4 per cent of gross state domestic capital outlay remained robust, while higher product (GSDP) in 2022-23, of which 0.5 per cent revenue expenditure helped in strengthening will be tied to power sector reforms. In the Union the economic recovery. Thirteen states received Budget 2022-23, the Centre has budgeted tax permission to borrow an additional amount of devolution to grow by 9.6 per cent on the top of a `32,412 crore (till Q2: 2021-22) as an incentive high base of 2021-22. For 2022-23, the budgeted for achieving the target set by the Ministry of FC-XV’s grants are 9 per cent lower than in Finance for capital expenditure. The outlay under 2021-22 (RE), primarily due to reduction in post the ‘Scheme for Financial Assistance to States devolution revenue defi cit grants in anticipation of for Capital Investment’ has been enhanced by the further improvement in states’ revenue defi cit. As Centre from `10,000 crore in the BE to `15,000 stated earlier, states are being extended `1 lakh crore in the RE for 2021-22. crore in 50-year interest-free loans over and above normal borrowings to spur overall investment. 5. State Finances in 2022-23 6. General Government Finances II.5.11 As per information available for 20 state governments, their combined GFD has been II.5.13 As per the latest available information for budgeted at 3.2 per cent of their consolidated 2022-23, the general government defi cit and debt GSDP in 2022-23 as against 3.7 per cent in are expected to moderate to around 9 per cent 70ECONOMIC REVIEW and 85 per cent of GDP, respectively, from the provided in sub-section 6, followed by concluding peak levels of 13.3 per cent and 89.4 per cent in observations. 2020-21 (RE), respectively (Appendix Table 7). 2. Global Economic Conditions 7. Conclusion II.6.3 Global economic activity gained traction, II.5.14 While maintaining fi scal prudence, albeit unevenly, in Q1:2021, but lost pace in the budget has relied on an investment-led Q2:2021 as rising infections in several parts of the growth strategy to steer the economy out of the world and supply shortages took their toll. Supply COVID-19 pandemic. In 2022-23, calibrated chain and logistics disruptions combined with fi scal consolidation is envisaged while improving international surges in commodity price pressures the quality of expenditure. Going forward, fi scal posed downside risks to the global economic consolidation will need to be pursued actively to recovery. Although global growth picked up to 6.1 manage fi scal and fi nancing risks and to ensure per cent in 2021 from (-) 3.1 per cent in 2020, the debt sustainability, while building credibility in IMF revised downwards its global growth projection public fi nances. for 2022 in April 2022 to 3.6 per cent as against 4.4 per cent in January 2022 (Chart II.6.1a). In II.6 EXTERNAL SECTOR late February 2022, renewed bouts of fi nancial market turbulence, synchronised upsurges in II.6.1 India’s external sector remained resilient global commodity prices and economic and during the year. Even as the domestic economic fi nancial sanctions in the wake of the Russia- recovery drove up import demand, adverse net Ukraine confl ict put the global economy at risk of terms of trade shocks and safe haven demand for stagfl ation with threats of supply bottlenecks and gold expanded the merchandise trade defi cit in deglobalisation becoming acute. the second half of 2021-22. Nevertheless, robust II.6.4 World merchandise trade rebounded to exports of services and strong capital infl ows pre-pandemic level, recording a growth of 26.0 dominated by foreign direct investment (FDI) per cent in value terms and 10.3 per cent moderated pressures on the current account in volume terms during 2021, aided by balance, which swung from surpluses into defi cits strong growth in Asian economies, inspite of in the later part of the year. With external funding supply disruptions and elevated freight rates needs remaining modest, reserve accretions (Chart II.6.1b). Thus, the contraction in world trade during the year built up resilience in the face of during the pandemic seems to be less severe, and global spillovers. the recovery has been much faster than the earlier II.6.2 Set against this backdrop, sub-section 2 two trade recessions (Chart II.6.2). According to presents a brief overview of the global economic UNCTAD’s February 2022 Global Trade Update, and fi nancial conditions against which these shifts the value of global trade reached a record level of in external balances occurred. This is followed by US$ 28.5 trillion in 2021. Trade in services, a discussion on merchandise trade and invisibles however, lagged merchandise trade, primarily on in sub-sections 3 and 4, respectively. Sub- account of the travel and tourism sector which was section 5 presents an analysis of capital fl ows. An hit hard by the pandemic due to the imposition of assessment of external vulnerability indicators is travel restrictions. 71ANNUAL REPORT 2021-22 Chart II.6.1: Real GDP and World Trade Volume a. GDP Growth Projections by IMF b. Global Trade Volume P: Projection. Source: IMF and CPB Netherlands. II.6.5 FDI fl ows rebounded in 2021, with fi nancial market conditions and triggered fl ights of advanced economies (AEs) dominating. The portfolio fl ows out of EMEs as an asset class in outlook on portfolio fl ows in emerging market search of safe haven. economies (EMEs) improved with strong rebounds 3. Merchandise Trade in hard currency issuances, while local currency II.6.6 The year 2021-22 turned out to be a debt fl ows remained weak. Towards the close of remarkable year for India’s merchandise trade. 2021, intents of policy normalisation dovetailing Both exports and imports reached historically into tapers of asset purchases, elevated infl ation high levels. Shrugging off global supply chain risks, renewed bouts of volatility and heightened disruptions, a broad-based recovery in exports uncertainties on the heels of war unsettled global got entrenched, expanding into newer markets and product categories. During 2021-22, India’s Chart II.6.2: Cumulative Change in Global Trade from the Start of Each Recession merchandise exports and imports expanded by 34.7 per cent and 28.9 per cent in US dollar terms over pre-pandemic levels, respectively. In terms of volume, exports recorded an increase of 16.6 per cent on the same basis. Imports surpassed pre-pandemic levels from Q2:2021-22 (Table II.6.1). II.6.7 At a disaggregated level, exports growth was driven by engineering goods, Note: 1. Lines indicate that the trade recovered faster (less number of petroleum products, chemicals, agricultural quarters) in 2020 as compared to the previous two recessions. 2. 2009 trade recession was caused by global financial crisis products, textiles, electronic goods, drugs (GFC) and 2015 recession resulted from the structural changes in East Asian economies and decline in commodity and pharmaceuticals and gems and jewellery. prices. The recession in 2020 was COVID-19 pandemic- Labour-intensive export categories like apparels, induced. Source: UNCTAD. also contributed positively, reversing the losses 72ECONOMIC REVIEW T able II.6.1: India’s Merchandise Trade Value in US$ Billion Growth Rate (Y-o-Y) Growth over Pre-COVID Period 2019-20 2020-21 2021-22 2019-20 2020-21 2021-22 2021-22 1 2 3 4 5 6 7 8 Exports Q1 80.9 51.3 95.5 -1.4 -36.6 86.1 18.1 Q2 78.2 74.1 102.7 -3.9 -5.3 38.6 31.3 Q3 79.1 75.8 106.8 -1.9 -4.2 41.0 35.1 Q4 75.1 90.4 116.8 -12.7 20.4 29.2 55.6 Annual 313.3 291.6 421.9 -5.1 -6.9 44.7 34.7 Imports Q1 130.1 61.3 127.0 1.1 -52.9 107.3 -2.4 Q2 118.0 88.3 147.5 -11.3 -25.2 67.1 25.0 Q3 116.1 110.8 166.9 -11.2 -4.6 50.6 43.7 Q4 110.5 131.7 170.7 -9.2 19.1 29.6 54.4 Annual 474.7 392.0 612.0 -7.7 -17.4 56.1 28.9 Trade Balance Q1 -49.2 -9.9 -31.4 Q2 -39.7 -14.1 -44.8 Q3 -37.1 -35.1 -60.1 Q4 -35.4 -41.2 -53.9 Annual -161.4 -100.4 -190.1 Note: Quarterly fi gures may not add up to annual fi gures. Source: DGCI&S. observed during April-September 2021. However, II.6.8 Over the last decade, there has been an leather products and oilseeds recorded a slight inter-temporal shift in the export basket, with the decline (Chart II. 6.3). share of petroleum products and chemicals having gone up on the back of rising competitiveness Chart II.6.3: Major Drivers of Exports Growth in (Economic Survey, GoI, 2020-21). In contrast, the 2021-22 (Over Pre-COVID-19 Period) shares of gems and jewellery and apparels have declined (Chart II.6.4). II.6.9 Engineering goods, which account for one-fourth of India’s total exports, witnessed a robust growth of around 42 per cent in 2021-22 over their pre-pandemic levels. Iron and steel exports contributed nearly 41 per cent of growth of total engineering exports during 2021-22 (Chart II.6.5), benefi tting from rising global prices, strong global demand and production cuts by China. The government has announced production-linked incentive (PLI) schemes for Source: DGCI&S. various product categories (Box II.6.1). 73ANNUAL REPORT 2021-22 Chart II.6.4: Diversification of India’s Key Chart II.6.5: Engineering Goods – Relative Contribution Commodity Exports of Components to Growth (2021-22 over 2019-20) Note: The size of the band refers to the share of the respective product group in India’s export basket. Source: DGCI&S. Source: DGCI&S. II.6.10 Petroleum, oil and lubricants (POL) total exports, benefi tting from higher global crude exports accounted for 16.0 per cent of India’s oil prices and expansion to new markets during Box II.6.1 Role of Global Value Chains (GVCs) in Enhancing Exports Competitiveness Over the past two decades, the structure and pattern of processes across geographies. Now fi nished goods global trade has refl ected a defragmentation of production account for only 30 per cent of global trade in goods and Chart 1: Key Factors for Promoting Manufacturing Exports a. Shipping Connectivity and GVC Participation Rate b. FDI and Tariff Rates on Manufactured Products CHN: China USA: United States KOR: Korea UK: United Kingdom SPA: Spain NER: Netherlands JAP: Japan GER: Germany ITY: Italy FRN: France GRE: Greece IND: India CAN: Canada DEN: Denmark AUS: Australia RUS; Russia FIN: Finland ROM: Romania MEX: Mexico SLV: Slovenia SWE: Sweden HUN: Hungary Note: Bubble represents the size of manufacturing exports in US$ million. Source: ADB, World Bank, ITC and RBI staff calculations. (Contd.) 74ECONOMIC REVIEW services among countries. 70 per cent of global trade Table 1: Impact of Logistics and GVC on involves transactions in services, raw materials, parts and Manufacturing Export Performance components through global value chains (GVCs) [OECD, (Dependent Variable: Manufacturing Exports) 2020]. India’s GVC integration, as measured by the GVC Explanatory Variables Coefficient participation index, has been low – 34.0 per cent, of total Model 1 Model 2 Model 3 exports – relative to the Association of Southeast Asian 1 2 3 4 Nations (ASEAN) countries (45.9 per cent of gross exports). Shipping connectivity, greater GVC participation, higher FDI GVC it 0.0128*** 0.0114*** (0.00346) (0.00325) fl ows, and lower tariff rates are driving this phenomenon Log(Shipping ) 0.0911* 0.0984** (Chart 1a and 1b). it (0.0468) (0.0475) Log (R&D ) 0.147*** 0.233*** 0.139*** A cross-country panel regression framework covering 40 it (0.0474) (0.0429) (0.0481) major advanced and emerging economies for the period Log(Electricity ) 1.898*** 1.914*** 1.642*** it 2000-2019, with manufacturing exports of country ‘i’ in (0.332) (0.327) (0.330) year ‘t’ (MExp) as the dependent variable and the GVC Tariff Rate -0.0162* -0.0177** -0.0127 it it (0.00830) (0.00818) (0.00838) participation index (GVC) and shipping connectivity index it FDI 0.000582** 0.000562** 0.000644** (Shipping) as regressors and tariff levels (Tariff), research it (0.000255) (0.000245) (0.000258) it it and development (R&D) expenditure, infrastructure and Constant 15.26*** 15.50*** 16.99*** it FDI infl ows as control variables in the form indicated below (1.580) (1.543) (1.533) suggests that GVC participation positively impacts export Observations 446 511 446 R2 0.53 0.52 0.51 performance for manufacturing exports in all specifi cations (Table 1). *** : Significant at 1 per cent level. ** Significant at 5 per cent level. * Significant at 10 per cent level. Note: Standard errors in parentheses. Source: RBI staff calculations. (UNCTAD, 2018) can bring technological competitiveness and export- Shipping connectivity index has a positive and signifi cant orientation to India’s manufacturing sector. impact on exports. Higher tariff levels adversely impact References: the input cost structure and export competitiveness. These 1. Osakwe, P. N. and Jean-Marc Kilolo (2018), ‘What results suggest that even as the production-linked incentive Drives Export Diversifi cation? New Evidence from a (PLI) scheme aims to enhance India’s participation in GVCs, Panel of Developing Countries’, UNCTAD Research higher tariff rates, especially on intermediate goods, may be Paper No.3/2018, UNCTAD. a deterrent in enhancing India’s export competitiveness. Longer duration tax incentives for R&D on the lines of 2. OECD (2020), ‘Trade Policy Implications of Global Value practices in ASEAN countries and appropriate FDI policies Chains’, OECD Trade Policy Brief. 2021-22. Australia and Saudi Arabia have become impressive growth for the second successive the fi fth and seventh largest export destinations year in 2021-22. India’s wheat exports reached for India’s petroleum exports. Destination and highest-ever levels in 2021-22, largely benefi tting product-wise diversifi cation underscore the from elevated freight costs and lower inventories competitiveness of Indian refi ners, indicating higher in major global exporting countries, viz., Canada value addition and reduction in concentration risk and Russia. Rice exports achieved record levels (Chart II.6.6). and grew to 1.5 times over their levels in 2019- II.6.11 Agricultural exports, including 20. Within rice, exports of non-Basmati varieties geographical indication (GI) products, recorded have seen a remarkable rise drawing strength 75ANNUAL REPORT 2021-22 demand from the US, the largest export market Chart II.6.6: Destination-wise Profile of India’s Petroleum Exports of Indian diamonds. On the other hand, exports to the UAE remain at almost 50 per cent of their pre-pandemic levels (Chart II.6.8a and II.6.8b). II.6.13 Globally, the automotive industry accounts for 11 per cent of semiconductor demand. Although automotive exports from India witnessed an average growth of 17.5 per cent during 2021-22 compared to 2019-20 (pre-pandemic), persisting global semiconductor shortages led to production cuts and temporary closure of factories (Chart II.6.9a and II.6.9b). II.6.14 A major key impediment to global trade has been disruptions in the shipping industry, Source: DGCI&S and RBI staff calculations. impacting maritime logistics. The schedule reliability of ships covering 34 different trade from rising price competitiveness, especially in lanes and 60 plus carriers averaged 35.0 per cent markets such as Bangladesh, China and Vietnam in 2021-22 as against 76.5 per cent in the pre- (Chart II.6.7a and Chart II.6.7b). pandemic times (2019-20). Consequently, the II.6.12 Gems and jewellery exports, which have global average delay for vessel arrival stood at been on a downward trend for past four years, 7.1 days during 2021-22 as against 4.3 days prior registered a growth of around 50 per cent during to the pandemic in 2019-20. The Freightos Baltic 2021-22. This renewed strength was driven by Global Container Index, which refl ects ocean exports of pearls and precious stones and strong container transport spot across 12 global trade Chart II.6.7: Composition of Agricultural Export Growth a. Product Groups b. Cereals Source: DGCI&S and RBI staff calculations. 76ECONOMIC REVIEW Chart II.6.8: Gems and Jewellery Exports a. Gems and Jewellery Exports b. Composition of Exports Source: DGCI&S. lanes, reached its historical high in October 2021 electronic goods and gold (Chart II.6.10a and and remains well above pre-pandemic levels. II.6.10b). II.6.15 Merchandise imports witnessed a broad- II.6.16 More recently, brent crude oil prices, based expansion, aided by robust domestic which witnessed volatility amidst Russia- demand, to US$ 612.0 billion during 2021-22, Ukraine crisis, softened to US$ 108 per barrel surpassing pre-COVID levels by 28.9 per cent. on March 31, 2022 from its recent high of In terms of volume, merchandise imports have US$ 128 per barrel (March 8, 2022). Oil demand expanded by 14.4 per cent during 2021-22 over was dampened on account of expectations of pre-COVID levels. At a disaggregated level, POL a rate increase by the US Fed and stringent was the major driver of imports, followed by lockdown in China due to the recent increase in Chart II.6.9: Impact of Semiconductor Shortage on Automotive Sector a. Semiconductors Demand by End Use (2020) b. Automotive Exports Source: Semiconductor Industry Association and CEIC. 77ANNUAL REPORT 2021-22 Chart II.6.10: Relative Contribution in Import Growth a. Relative Contribution: Imports b. Key Drivers of Imports Growth (2021-22 over 2019-20) Source: RBI staff calculations based on DGCI&S data. number of COVID-19 cases. Source-wise, Iraq drive and festival/wedding demand (Chart II.6.12). and Saudi Arabia remained the major source of However, imports of gold fell amid rising global crude oil imports for India. The diversifi cation of infl ation concerns since January 2022. Gold prices India’s import basket for POL in 2021-22 refl ects fell short of only about 1 per cent in March 2022 a conscious policy measure to diversify suppliers to reach US$ 1,947.8 per troy ounce against a (Chart II.6.11a and II.6.11b). multi-year high of US$ 1,968.6 per troy ounce recorded in August 2020. II.6.17 India’s gold imports at US$ 46.2 billion in 2021-22 exceeded the pre-COVID levels. In terms II.6.18 India imports around 10 per cent of of volume, demand surged since July 2021 on its total gold imports from the UAE, which is the back of decline in COVID-19 cases, easing of likely to increase in the wake of the successful restrictions following acceleration in vaccination implementation of a Free Trade Agreement (FTA). Chart II.6.11: Dynamics of India’s Oil Imports a. International Oil Prices and Import Volume of POL b. Share in India’s Crude Oil Import Source: DGCI&S and Ministry of Petroleum, GoI. 78ECONOMIC REVIEW of palm oil remained high due to tight migrant Chart II.6.12: India’s Gold Import Volume labour conditions in major palm oil suppliers like Malaysia34 and increased export levy on palm oil in Indonesia.35 The Government of India rationalised import duty on edible oils, including palm oil, and imposed stock limits to avoid hoarding and to reduce the infl ationary pressures.36 II.6.21 Pearls and precious stone imports, which had witnessed a revival at the end of 2020, strengthened further in 2021 on the back of strong export demand for the gems and jewellery sector during this period. The import of pearls and precious stones at US$ 31.0 billion expanded by 38.1 per cent during 2021-22 over pre-pandemic Source: Calculations based on DGCI&S and World Gold Council. levels. Around two-thirds of this growth was driven by unworked non-industrial diamonds (the largest component with 60 per cent share). The UAE, II.6.19 Non-oil non-gold imports witnessed the USA and Belgium remained the top import strong growth in 2021-22, expanding by 47.1 per sources (Chart II.6.13a and II.6.13b). cent on a y-o-y basis and by 28.0 per cent over pre-pandemic levels. Sectors such as electronic II.6.22 India’s fertiliser imports also registered goods, vegetable oil, organic and inorganic an increase (89.7 per cent in value terms and 3.2 chemicals and coal, coke and briquettes per cent in volume terms) during 2021-22 from contributed to the growth in non-oil non-gold pre-pandemic levels, refl ecting the surge in global imports. fertiliser prices. Global prices of urea, the major constituent of India’s fertiliser imports (with a 40.0 II.6.20 India is the largest importer of vegetable per cent share), witnessed the sharpest increase oil. The import bill expanded from US$ 9.7 billion of 124.1 per cent during 2021-22, on a y-o-y basis. in 2019-20 to US$ 19.0 billion during 2021-22, refl ecting a surge in import prices. Composition- II.6.23 Capital goods imports, contributing more wise, palm oil constitutes the major share, than one-fourth of India’s total imports, expanded accounting for about 62.0 per cent of the total by 15.6 per cent during 2021-22 compared to edible oil imports in India. International prices pre-pandemic levels, refl ecting a surge in 34 Oilseed, Oil and Monthly Price Update, Food and Agriculture Organisation (FAO), United Nations (December 2021). 35 Oilseeds: World Markets and Trade, United States Department of Agriculture (USDA) [December 2021]. 36 For instance, import duty has been reduced from 2.5 per cent to nil on crude palm/soybean/sunfl ower oil; from 32.5 per cent to 17.5 per cent on refi ned soybean/sunfl ower oil; and from 17.5 per cent to 12.5 per cent on refi ned palm oil, as per March 23, 2022 press release. 79ANNUAL REPORT 2021-22 Chart II.6.13: Pearls and Precious Stone Imports a. Relative Contribution to Import Growth b. Supplier’s Share 2021-22 (Apr-Feb) over 2019-20 (Apr-Feb) Source: RBI staff calculations based on DGCI&S and MOC&I data. investment demand. Electronic goods were the with oil defi cit accounting for half of the total defi cit largest contributor (Chart II.6.14). (Chart II.6.15a). On a bilateral basis, the defi cit with China widened while the trade surplus with II.6.24 Refl ecting the developments, India’s the USA and Bangladesh expanded signifi cantly trade defi cit expanded to US$ 190.1 billion in (Chart II.6.15b). 2021-22 from US$ 161.4 billion during 2019-20, 4. Invisibles Chart II.6.14: Relative Contribution of Capital Goods II.6.25 Net receipts from invisibles, refl ecting Import Growth (2021-22 Over Pre-COVID Period) cross-border transactions of services, income and transfers, displayed resilience during April- December 2021-22 (Chart II.6.16). While demand for software services exports surged sequentially since Q2:2020-21, remittances receipts also remained strong. Further, the net outgo on primary income account increased marginally following a rise in net investment income outfl ows. II.6.26 Alongside the recovery in global trade in services (Chart II.6.17), services exports remained resilient during 2021-22, primarily on the back of surging software exports, followed by Source: Calculations based on DGCI&S. transportation and business services. 80ECONOMIC REVIEW Chart II.6.15: India’s Merchandise Trade Deficit a. Total and Oil Trade Balance b. Sources of Changes in India’s Trade Balance (2021-22 over 2019-20) Note: A positive ∆ imports implies lower imports and vice versa. TB: Trade Balance. Source: DGCI&S and RBI staff calculations. II.6.27 Software services account for more than To facilitate cheaper cross-border payments, 40 per cent of India’s total services exports. in September 2021, the Reserve Bank and the Travel and transportation services, which were hit Monetary Authority of Singapore announced a hard by the pandemic, showed a weak recovery project to link their fast payment systems, viz., (Charts II.6.18a and II.6.18b). Unifi ed Payments Interface and PayNow. The II.6.28 Remittances to India fully recovered to pre- World Bank estimates that the average cost of pandemic levels by H1:2021-22 (Chart II.6.19a). sending remittances of US$ 200 to India declined Chart II.6.16: Composition of India’s Services Exports Chart II.6.17: Country-wise Export of Services *: Includes communication services and government not included *: Data for 2021-22 relate to April-February, barring India. Figure pertaining to India for 2021-22 is for the full year, comprising elsewhere. provisional data for January-March 2022. Source: RBI. Source: WTO and RBI. 81ANNUAL REPORT 2021-22 Chart II.6.18a: Travel Receipts in Major Travel Destinations Chart II.6.18b: Transportation Receipts in Major Economies Source: WTO and RBI. from 5.51 per cent in Q4:2020 (highest since II.6.30 Led by recovery in domestic demand Q1:2019) to 4.94 per cent in Q4:2021. India and rise in international crude oil prices, India’s remained the top recipient of global remittances current account balance recorded a defi cit of during the year (Chart II.6.19b). 1.2 per cent of GDP in April-December 2021 as II.6.29 Under the income account, both receipts against a surplus of 1.7 per cent a year ago (Chart and payments relating to income on cross-border II.6.20a). Intra-year, a surplus of 0.9 per cent investments and compensation of employees that of GDP in Q1:2021-22 was followed by defi cits domestic resident entities earn from (or pay to) the in Q2 and Q3:2021-22. Negative net terms of rest of the world were higher than a year ago. trade owing to upsurge in crude oil prices and Chart II.6.19a: Inward Remittances to India Chart II.6.19b: Inward Remittances across Major Recipient Countries Source: RBI and World Bank. 82ECONOMIC REVIEW Chart II.6.20a: Composition of India’s Current Account Balance Chart II.6.20b: Sources of Incremental Current Account Balance Source: RBI and IMF. the consequent widening of trade defi cit mainly valuation changes) in April-December 2021 contributed to the current account defi cit in April- [Chart II.6.21 and Appendix Table 8]. December 2021-22 (Chart II.6.20b). II.6.33 Capital fl ows were dominated by FDI II.6.31 The upsurge in global infl ation, driven during 2021-22, albeit with a rise in outward FDI by sharp rise in crude oil prices and supply during the period (Table II.6.2). During the year, chain disruptions, has emerged as a major policy norms for FDI in select sectors, including policy challenge for most economies, including pension fund management companies, oil and India, leading to potential erosion of external competitiveness via real appreciation of local Chart II.6.21: Financing of Current Account Deficit currencies. 5. External Financing II.6.32 In 2021-22, India’s external fi nancing needs were modest, given the moderate level of the current account defi cit. Among the major components of fi nancial fl ows, net FDI remained robust, while foreign portfolio investment (FPI) witnessed signifi cant volatility during the year. Moreover, loans in the form of external commercial borrowings (ECBs), trade credit and banking capital recorded net infl ows. Amid robust net capital infl ows, there was an accretion of US$ 63.5 billion to the foreign exchange reserves on a balance of payment (BoP) basis (excluding Source: RBI. 83ANNUAL REPORT 2021-22 Table II.6.2: Foreign Direct Investment Infl ows (US$ billion) 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 1. Net FDI (1.1 - 1.2) 30.7 43.0 44.0 39.3 1.1 Net Inward FDI (1.1.1 - 1.1.2) 43.3 56.0 54.9 55.0 1.1.1 Gross Infl ows 62.0 74.4 82.0 83.6 1.1.2 Repatriation/Disinvestment 18.7 18.4 27.0 28.6 1.2 Net Outward FDI 12.6 13.0 11.0 15.7 Source: RBI. gas PSUs and telecom services, were further FDI equity in India during 2021-22, followed by the eased. While gross inward FDI at US$ 83.6 billion manufacturing sector, retail and wholesale trade, in 2021-22 was comparable to its level a year ago, education, and R&D (Appendix Table 9). net FDI (i.e., net inward minus net outward) at II.6.34 Higher outward FDI from India during US$ 39.3 billion moderated from US$ 44.0 billion the year was mainly towards destinations such a year ago. The top FDI investor countries were as Singapore, the US, the UK, Mauritius, the Singapore, the US, Mauritius, the Netherlands, Netherlands and the Philippines. Financial, and Switzerland, contributing 76 per cent of the insurance and business services, manufacturing, total FDI equity during the period (Chart II.6.22). wholesale and retail trade, and restaurants and Sector-wise, the services sector, including hotels were the major sectors attracting India’s computer services, communication services and overseas direct investment during the year. fi nancial services, accounted for a major share of II.6.35 In contrast to FDI fl ows, net foreign portfolio investment (FPI) fl ows ebbed after record Chart II.6.22: Source Country-wise Inflow of FDI (Equity) net infl ows in 2020-21. After making net purchases during H1:2021-22, FPIs withdrew in H2, primarily from the equity segment (Chart II.6.23). II.6.36 In terms of the investment route of FPIs in the equity market, the stock exchange channel recorded a signifi cant decline during 2021-22. However, FPIs maintained their investment interest in the primary market segment (Chart II.6.24). In fact, a large chunk of fl ows was diverted by FPIs from secondary to primary market during November-December period when big ticket initial public offering (IPO) issues hit the capital market. FPIs were allowed to acquire debt Source: RBI. securities issued by infrastructure investment 84ECONOMIC REVIEW oil and gas (22.3 per cent), software and services Chart II.6.23: Net Foreign Portfolio Flows to India (21.4 per cent), utilities (16.2 per cent), metals and mining (8.2 per cent) and telecom services (5.5 per cent) [Chart II.6.25]. Notwithstanding the modest level of net purchases by FPIs in the debt market during the year, investment limits (general route) remained underutilised. As on March 31, 2022, only 26.3 per cent of the limits in central government securities were utilised (33.7 per cent as at end-March 2021), while the utilisation rate for SDLs remained abysmally low at one per cent. In contrast, given the positive response under the VRR, the investment limit for the same was raised by `1,00,000 crore to `2,50,000 crore Source: NSDL and SEBI. with effect from April 1, 2022. Of the total value of specifi ed categories of central government securities opened fully for non-resident investors trusts (InvITs) and real estate investment trusts without any restrictions under the Fully Accessible (REITs) under the Medium-Term Framework Route (FAR), 2.6 per cent was held by FPIs as on (MTF) or the Voluntary Retention Route (VRR). March 31, 2022. In the corporate bond segment, II.6.37 Around 74 per cent of the FPI infl ows in the FPIs’ interest remained subdued, inter alia, due to equity market was recorded in top fi ve sectors, viz., credit rating downgrades of companies and rise in Chart II.6.24: Investment Route-wise FPIs in Chart II.6.25: Major Recipient Sectors of FPI in Equity Market Equity Market Source: NSDL. Source: NSDL. 85ANNUAL REPORT 2021-22 Chart II.6.26: External Commercial Borrowings to India Chart II.6.27: End Use of External Commercial (Net) Borrowings during 2021-22 P: Provisional. Loc.CG: Local capital goods. Source: RBI. Source: RBI. yield rates in the US. Only around 20.0 per cent of denominated loans and rupee denominated bonds the limit for FPIs in corporate bonds (in absolute (RDBs) accounted for 8.4 per cent of the total terms) was utilised as on March 31, 2022, down agreement amount during 2021-22 as compared from 24.5 per cent as at end-March 2021. with 6.0 per cent a year ago. Furthermore, the share of hedged foreign exchange loans stood at II.6.38 ECBs recorded a rise, both in terms of the 51.6 per cent during the year, marginally higher number of ECB agreements and the agreement than 51.3 per cent during 2020-21. amount, during 2021-22 (Chart II.6.26). In terms of policy measures, a relaxation for parking of II.6.40 Short-term trade credit also increased unutilised ECB proceeds in term deposits was during the year in line with the recovery in imports. extended till March 1, 2022. Further, in view of the The net infl ow of short-term credit stood at US$ discontinuation of LIBOR and to take into account 13.3 billion in April-December 2021-22 as against differences in credit risk and term premia between a net outfl ow of US$ 1.8 billion a year ago. Around LIBOR and the alternative reference rates (ARRs), 35 per cent of the trade credit was raised for the all-in-cost ceiling for new foreign currency imports of crude oil, gold, coal and copper. overseas borrowings and trade credit transactions II.6.41 Non-Resident (External) Rupee (NRE) was increased by 50 bps to 500 bps and 300 bps, deposits, which constituted around 72 per cent respectively, over the benchmark rates. of total outstanding Non-Resident Indian (NRI) II.6.39 Besides repayment of earlier borrowings, deposits, witnessed net infl ows of US$ 3.3 billion disbursements were largely used for on-lending/ during 2021-22, much lower than US$ 8.8 billion sub-lending, refi nancing of earlier ECBs, a year ago (Table II.6.3). Redemptions from refi nancing of rupee loans, working capital FCNR(B) accounts and sharp fall in NRE deposits requirements, new projects and infrastructure contributed to lower net accretions in non-resident development (Chart II.6.27). Within ECBs, rupee deposits. Sizeable redemptions were reported in 86ECONOMIC REVIEW Table II.6.3: Flows under Non-Resident Deposit Accounts (US$ billion) 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 1. Non-Resident External (Rupee) Account 7.3 5.6 8.8 3.3 2. Non-Resident Ordinary Account 1.9 2.0 2.3 3.5 3. Foreign Currency Non-Resident(B) Account 1.1 1.1 -3.8 -3.6 Non-Resident Deposits (1+2+3) 10.4 8.6 7.4 3.2 Source: RBI. deposits held by non-residents from the UAE, the during the same period (Table II.6.4). Commercial US and the UK. borrowings remained the largest component of external debt, with a share of 36.8 per cent, 6. Vulnerability Indicators followed by non-resident deposits (23.1 per cent) II.6.42 India’s external debt (as a ratio to GDP) and short-term trade credit (18.0 per cent). The remained lower than most emerging market peers. accretion to foreign exchange reserves induced Mainly led by general special drawing right (SDR) an improvement in reserve adequacy indicators. allocations by the IMF in August 2021, external This augurs well for mitigating external risks debt recorded an increase of US$ 41.2 billion (i.e., 7.2 per cent) at end-December 2021 over and spillovers. Foreign exchange reserves at end-March 2021; as a ratio to GDP, however, it end-March 2022 provided cover of 10 months of moderated to 20.0 per cent from 21.2 per cent imports projected for 2022-23. Table II.6.4: External Vulnerability Indicators (End-March) (Per cent, unless indicated otherwise) Indicator 2013 2020 2021 End-Dec 2021 1 2 3 4 5 1. External Debt to GDP Ratio 22.4 20.9 21.2 20.0 2. Ratio of Short-term Debt (Original Maturity) to Total Debt 23.6 19.1 17.6 18.6 3. Ratio of Short-term Debt (Residual Maturity) to Total Debt 42.1 42.4 44.1 44.4 4. Ratio of Concessional Debt to Total Debt 11.1 8.8 9.0 8.2 5. Ratio of Reserves to Total Debt 71.3 85.6 100.6 103.0 6. Ratio of Short-term Debt (Original Maturity) to Reserves 33.1 22.4 17.5 18.1 7. Ratio of Short-term Debt (Residual Maturity) to Reserves 59.0 49.6 43.8 43.1 8. Reserve Cover of Imports (in months)* 7.0 12.0 17.4 13.1 9. Debt Service Ratio (Debt Service to Current Receipts) 5.9 6.5 8.2 4.9 10. External Debt (US$ billion) 409.4 558.3 573.7 614.9 11. Net International Investment Position (NIIP) (US$ billion) -326.7 -375.4 -355.3 -357.9 12. NIIP/GDP Ratio -17.8 -14.1 -13.2 -11.7 13. CAB/GDP Ratio -4.8 -0.9 0.9 -1.2 *: Based on merchandise imports of latest four quarters, published in balance of payments statistics. Note: CAB/GDP ratio in column 5 pertains to April-December 2021. Source: RBI and Government of India. 87ANNUAL REPORT 2021-22 II.6.43 India’s foreign exchange reserves at US$ policy measures are also primed to achieve the 607.3 billion at end-March 2022 were bolstered target set for the year. Downside risks emanate by the IMF’s general SDR allocations of SDR from likely slowing of growth in major AEs and 12.57 billion to India in August 2021. In 2021-22, EMEs, elevated energy prices and added supply- India’s reserve accumulation (including valuation side disruptions in a confl ict-ridden geopolitical changes) was to the tune of US$ 30.3 billion. environment. Faster monetary policy tightening 7. Conclusion in major economies on the back of high infl ation in these economies can also impact fi nancial II.6.44 Going forward, the outlook for India’s conditions in emerging markets. Yet, external external sector is beset with both headwinds and vulnerability indicators exhibit resilience and tailwinds. Under the latter, exports, which have shown resilience in a hostile trade environment, strengthening domestic macroeconomic may derive further strength as external demand fundamentals would help the economy withstand and price conditions turn favourable with the spillovers from potential global adverse macro- abatement of geopolitical tensions. Domestic fi nancial shocks. 88THE ANNUAL REPORMT OONNE TTHAER YW OPORLKIICNYG OOPFE TRHAET IROENSSERVE BANK OF INDIA PART TWO: THE WORKING AND OPERATIONS OF THE RESERVE BANK OF INDIA III MONETARY POLICY OPERATIONS The conduct of monetary policy in 2021-22 was guided by the objective of reviving and sustaining growth on a durable basis and continuing to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward. The Reserve Bank maintained surplus liquidity in consonance with this stance. Monetary transmission improved during the year, supported by surplus liquidity and the external benchmark-based regime for loan pricing. III.1 Against the backdrop of a sharp contraction instruments. Liquidity measures targeted at of 6.6 per cent in real gross domestic product sectors ravaged by the second wave of the (GDP) in 2020-21 and the uneven and fragile pandemic such as contact-intensive services, recovery in 2021-22 interrupted by a second the health sector, small business units, micro wave of the pandemic in the fi rst quarter and a and small industries, and other unorganised third wave commencing in late December 2021, sector entities were also put in place. As fi nancial the conduct of monetary policy was challenging. conditions eased, a calibrated restoration of the Intermittent infl ationary pressures from food revised liquidity management framework instituted price spikes, domestic and global supply chain in February 2020 was set in motion through disruptions and global spillovers purveying rebalancing liquidity in a non-disruptive manner imported infl ation despite a large slack in demand away from the fi xed rate reverse repo operations complicated the setting of monetary policy in to market based auctions of variable rate reverse consonance with the accommodative stance. repos (VRRRs). The monetary policy committee (MPC) decided III.3 The external benchmark-linked framework to look through these supply shocks and kept the incentivised banks to transmit these monetary policy repo rate unchanged during 2021-22. The policy signals, contributing to a decline in banks’ MPC also decided to maintain its state-contingent marginal cost of funds-based lending rates accommodative stance through the year. (MCLRs), strengthening monetary transmission. III.2 The Reserve Bank maintained abundant III.4 Against this backdrop, section 2 presents liquidity in the banking system in consonance with the implementation status of the agenda set for this stance. A secondary market G-sec acquisition 2021-22 along with major developments during programme (G-SAP) was implemented to the year, while section 3 sets out the agenda for ensure orderly evolution of the yield curve and 2022-23. Concluding observations are given in the facilitate monetary transmission across fi nancial last section. 89ANNUAL REPORT 2021-22 2. Agenda for 2021-22 approaches. Announcement effects of open market operations (OMOs) on fi nancial markets III.5 In the Annual Report for 2020-21, the were examined in an event study framework. following goals were set for the conduct of Growth-infl ation trade-offs, yield curve behaviour, monetary policy and liquidity management: monetary transmission, drivers of sectoral bank  Understanding the common and credit cycles and leverage and investment in the idiosyncratic components of infl ation corporate sector were examined to strengthen the (Paragraph III.6 ); underpinning of monetary policy analysis. III.7 A customised data template of  Upgrading GDP nowcasting and the commodities was created using data from forecasting framework using high- Agmarknet, based on empirically tested frequency data (Paragraph III.6); relationships with corresponding consumer  Implementing the augmented and price index (CPI) items. The migration of returns recalibrated quarterly projection model to an XBRL reporting format was completed (QPM) to achieve precision in medium- during the year. term forecasts and risk assessment Major Developments (Utkarsh) [Paragraph III.6]; Monetary Policy  Refi ning liquidity forecasting and exploring III.8 The MPC’s fi rst meeting for the fi nancial additional tools for liquidity management year 2021-22 in early April 2021 was held against (Paragraph III.6); the backdrop of a renewed surge in COVID-19  Examining the behaviour of credit cycles infections in some states, imparting uncertainty in India (Paragraph III. 6); to the macroeconomic outlook. Headline infl ation had fi rmed up to 5.0 per cent in February 2021  Strengthening nowcasts of food infl ation from 4.1 per cent in January 2021, with double- (Paragraph III.7); and digit infl ation in a majority of food sub-groups. The  Improving data management by migration projection of real GDP growth for 2021-22 was of returns to an XBRL1 reporting format retained at 10.5 per cent, as set out in the February (Paragraph III.7). 2021 meeting of the MPC, while recognising that the resurgence in COVID-19 infections and the Implementation Status associated uncertainty are risks to the growth III.6 The QPM – the workhorse model to outlook. generate medium-term forecasts and undertake III.9 Headline infl ation was projected at policy scenarios – was augmented by including 5.0 per cent in Q4:2020-21; 5.2 per cent in an external sector block with capital fl ows while Q1:2021-22 and Q2; 4.4 per cent in Q3 and 5.1 capturing macroeconomic linkages and feedbacks. per cent in Q4. The MPC noted that supply side Nowcasting techniques for contemporaneous pressures could persist, although demand-side assessment of underlying economic activity pull remained moderate, and urged the Centre and were upgraded by fi ne-tuning dynamic factor states to mitigate domestic input costs emanating 1 eXtensible Business Reporting Language. 90MONETARY POLICY OPERATIONS from taxes on petrol and diesel and high retail By this time, however, infl ationary pressures had margins. Confronted by the ferocity of the second intensifi ed, with CPI infl ation breaching the upper wave and the associated localised lockdowns, tolerance level during May-June on the back of the MPC unanimously decided to keep the surging prices of food and fuel items. Accordingly, repo rate at 4 per cent and continue with an the CPI infl ation projection was revised upwards accommodative stance. to 5.7 per cent for 2021-22. The MPC assessed these infl ationary pressures to be largely driven by III.10 By the time of the June 2021 meeting, the adverse supply shocks and that the nascent and second wave of COVID-19 had started showing hesitant recovery needed to be nurtured through signs of waning and the adoption of COVID- fi scal, monetary and sectoral policy levers. compatible occupational models by businesses Accordingly, the committee unanimously voted to cushioned the hit to economic activity. Infl ation keep the repo rate at 4 per cent and to continue moderated from 5.5 per cent in March 2021 to with the accommodative stance with a 5-1 vote. 4.3 per cent in April 2021, but the rising trajectory III.12 In the MPC’s fourth bi-monthly meeting in of international commodity prices, especially of October, it noted that domestic economic activity crude, together with logistics costs were adjudged was gaining traction, supported by record kharif to be posing upside risks to the infl ation outlook, foodgrains output and bright rabi prospects. warranting, in the MPC’s view, reductions in Acceleration in the pace of vaccination, a sustained excise duties, cess and taxes imposed by the decline in new infections, and rebound in the Centre and states to contain input cost pressures. pent-up demand for contact intensive services The projection of real GDP growth for 2021-22 brightened the prospects of the recovery. Global was revised downwards to 9.5 per cent while semiconductor and chip shortages, elevated CPI infl ation was projected at 5.1 per cent during commodity prices and input costs, logistics 2021-22 – 5.2 per cent in Q1; 5.4 per cent in Q2; disruptions and potential global fi nancial market 4.7 per cent in Q3; and 5.3 per cent in Q4. The volatility were viewed as key downside risks to MPC decided to retain the prevailing repo rate at domestic growth prospects. Infl ation outcomes 4 per cent and continue with the accommodative turned out to be more favourable than anticipated, stance set out in its April meeting. with CPI infl ation softening during July-August III.11 By August 2021, coinciding with the third 2021 and moving back into the tolerance band. meeting of the MPC for the year, the domestic The infl ation projection was revised to 5.3 per economy was exhibiting signs of revival with the cent during 2021-22 and the MPC recommended ebbing of the second wave and the easing of measures to further ameliorate supply and cost containment measures. Taking stock of resilient pressures for a more durable reduction in infl ation agricultural production and rural demand, pent- and anchoring of infl ation expectations. The up urban demand, buoyant exports and rising MPC also observed that even as the domestic government expenditure, the projection of real economy was showing signs of mending, the GDP was retained at 9.5 per cent for 2021-22.2 external environment was turning more uncertain 2 The projection of 9.5 per cent real GDP growth for 2021-22 was also retained in the subsequent meetings (October and December 2021). The NSO’s First Advances Estimates released in January 2022 estimated the 2021-22 growth at 9.2 per cent, broadly in line with the Reserve Bank’s projection made in June 2021. 91ANNUAL REPORT 2021-22 and challenging. Hence, the domestic recovery supply side interventions by the government, needed to be nurtured assiduously through all increase in domestic production, and prospects of policy channels. The MPC, therefore, decided a good rabi harvest. However, crude oil prices were unanimously to keep the policy repo rate seen to be imparting uncertainty to the outlook. unchanged at 4 per cent. It voted 5 to 1 to continue The projection for CPI infl ation was retained at 5.3 with the accommodative stance. per cent for 2021-22. For 2022-23, CPI infl ation III.13 By the MPC’s December 2021 meeting, was forecast at 4.5 per cent – Q1 at 4.9 per cent, the global situation had altered and risks shifted Q2 at 5.0 per cent, Q3 at 4.0 per cent and Q4 at 4.2 to the downside with a surge in infections across per cent – with risks broadly balanced. Aggregate countries due to the emergence of the Omicron demand was expected to benefi t from the variant. While domestic economic activity improved outlook for rabi crop, the pick-up in non- was evolving in line with the MPC’s October food bank credit, supportive monetary and liquidity assessment, CPI infl ation had edged up in conditions, sustained buoyancy in merchandise October on account of an increase in vegetable exports, improving capacity utilisation, and the prices due to unexpected rainfall that damaged announcements in the Union Budget 2022-23 on crops in several states. The reduction of taxes boosting public infrastructure through enhanced on petrol and diesel announced in November capital expenditure. Global fi nancial market was welcomed as it would bring about a durable volatility, elevated international commodity prices, reduction in infl ation going forward through both especially crude oil, and continuing global supply- direct and indirect effects. Taking these factors side disruptions were seen as downside risks to the into account, CPI infl ation projection was retained outlook. Taking into account these considerations, at 5.3 per cent for 2021-22, noting that infl ation real GDP growth for 2022-23 was projected at prints may remain elevated in Q4:2021-22 but 7.8 per cent – Q1 at 17.2 per cent, Q2 at 7.0 per soften thereafter. With domestic activity just about cent, Q3 at 4.3 per cent and Q4 at 4.5 per cent. catching up with pre-pandemic levels, however, the The MPC noted that the expected moderation in MPC considered it appropriate to wait for growth infl ation in H1:2022-23 and thereafter provided signals to become more entrenched in view of room to remain accommodative. With COVID-19 the likely tightening of global fi nancial conditions, continuing to impart some uncertainty to the the potential resurgence in COVID-19 infections outlook amidst global headwinds, the MPC judged with new mutations, persisting shortages and that the ongoing domestic recovery was still bottlenecks and the widening divergences in policy incomplete and needed continued policy support. actions and stances across the world. Accordingly, Accordingly, the MPC unanimously decided to the MPC unanimously decided to keep the policy keep the policy repo rate unchanged at 4 per cent repo rate unchanged at 4 per cent and to continue and continue with the accommodative stance with with the accommodative stance with a 5 to 1 vote. a 5 to 1 vote. III.14 In the run up to the sixth bi-monthly The Operating Framework: Liquidity Management policy of February 2022, CPI infl ation had moved along the expected trajectory during November- III.15 The operating framework of monetary December 2021. Food prices were expected policy aims at aligning the operating target – the to benefi t from fresh winter crop arrivals, strong weighted average call rate (WACR) – with the policy 92MONETARY POLICY OPERATIONS repo rate through proactive liquidity management. 2021-22, taking the total announced amount of The Reserve Bank maintained surplus liquidity in primary liquidity offered since February 2020 to the banking system during 2021-22 in consonance `17.2 lakh crore (8.7 per cent of nominal GDP with the accommodative stance of monetary policy. of 2020-21). Across the world, US$16.9 trillion or In response to the second wave of the pandemic, 16.4 per cent of global GDP was pledged as fi scal the Reserve Bank announced additional liquidity support and US$19.0 trillion or 18.4 per cent of measures amounting to `3.61 lakh crore during global GDP as monetary support (Box III.1). Box III.1 Extraordinary Central Bank Lending Facilities during the Pandemic Alongside large policy rate cuts, central banks’ conventional Lending support of central banks in the initial days of and unconventional liquidity support became the main the pandemic was not targeted and essentially involved line of defence against the deleterious impact of the increasing the amount and lengthening the maturities of pandemic in almost all jurisdictions.3 The Reserve Bank existing repurchase agreements (Canada, Japan, USA, has taken about 100 odd measures since March 2020, and India). This was supplemented by targeted lending operations, broadening eligible collaterals to include creating congenial monetary and fi nancial conditions and corporate bonds (Chile and Israel) and/or increasing eligible providing regulatory support to mitigate stress and nurture counterparties such as insurance companies (Czech the recovery process (Das, 2021). G-20 central banks’ Republic), pension funds (Columbia) and mutual funds experience reveals that lending operations topped the (USA). Central banks started with new targeted lending hierarchy of policy intervention tools (share of 35-40 per facilities aimed at protecting the vulnerable and small and cent in total monetary support) along with asset purchases, medium enterprises (SMEs), mostly in coordination with foreign exchange interventions and other policy measures, banks/fi nancial institutions (USA, Japan, UK, Mexico, with 60 per cent of these lending operations entailing newly Thailand and India) and sometimes in coordination with established programmes (Chart 1). In the case of India, the government (Brazil and Singapore). Targeted lending share of lending operations was higher than the average operations for health, medical supplies and contact intensive of emerging market economies (EMEs), with three-fourth sectors were a feature of some of the EME central banks, being new measures. namely, China and India. Chart 1: Cross-country Experience of Lending Operations during COVID-19 a. Share of Unconventional Policy Announcements b: Share of New and Existing Lending Operations AEs: Advanced Economies. EMEs: Emerging Market Economies. Note: New schemes include schemes not active before the COVID-19 crisis and introduced subsequently during the pandemic and tools/measures used in the past but inactive at the time of the outbreak of the pandemic. Source: Cantú et. al. (2021). (Contd.) 3 The Reserve Bank of India also undertook several unconventional measures in the wake of COVID-19. For detailed assessment refer to “Unconventional Monetary Policy in Times of COVID-19”, RBI Bulletin, March 2021. 93ANNUAL REPORT 2021-22 Table 1: India’s Unconventional Lending with maximum lending operations benefi tting the targeted Operations during COVID-19 borrowers – especially the MSMEs (Casanova et al., 2021). Lending Operations Announced Amount (` crore) A notable feature of India’s pandemic response is the 2019-20 2020-21 2021-22 Total special liquidity support provided by the Reserve Bank to All India Financial Institutions (AIFIs) in the face of 1 2 3 4 5 acute risk aversion among banks hindering on-lending I. LTRO/TLTROs/SLTROs4 2,25,000 2,25,000 10,000 4,60,000 of central bank liquidity to pandemic affected entities. II. Lending to Mutual Funds/ - 80,000 - 80,000 These lines of credit were channelised to more than 500 NBFCs fi nancial intermediaries/entities (as on March 31, 2022) III. Lending to Emergency - - 65,000 65,000 Health Services/ Contact- [Chart 2], including co-operative banks, regional rural intensive Sectors banks (RRBs), housing fi nance companies (HFCs), IV. Refinancing to AIFIs - 75,000 66,000 1,41,000 microfi nance institutions (MFIs) and small fi nance banks Total 2,25,200 3,80,000 1,41,000 7,46,200 (SFBs).5 Moreover, taking advantage of the Reserve Bank’s special liquidity schemes of `65,000 crore for emergency Source: RBI. health and contact-intensive services, banks deployed Central banks also reopened refi nancing schemes to their own funds to the tune of `15,663 crore during provide pure liquidity support. While these schemes were 2021-22 towards COVID-19 related emergency health services and contact intensive sectors, which effectively mostly common among EMEs including India (Table 1), expanded bank credit to the economy at a time when they were also undertaken elsewhere – the Euro area (long credit growth was subdued. Thus, while in normal times term refi nancing operations) and Switzerland (standing the Reserve Bank abstains from the use of sector specifi c COVID-19 refi nancing facility). Usage of large-scale lending facilities, the usage of refi nance during crisis times targeted lending operations seems to have worked well served well in meeting the funding needs of targeted entities. Chart 2: Refinancing through AIFIs: Loan Disbursements during 2020-2022 a. Aggregate Loan Disbursements: Institution-wise b. Beneficiary Financial Entities (Number) Liquidity Support 2020-21 2021-22 1 2 3 SLF 226 - ASLF 81 - SLF-2 - 218 SLF-3 - 19 Total Entities Benefitted 307 237 SLF: Special Liquidity Facility. *: State Co-operative Agriculture and Rural Development Banks. ASLF: Additional Special Liquidity Facility. Source: SIDBI, NHB and NABARD. References: 1. Cantú, C., P. Cavallino, F. D. Fiore and J. Yetman (2021), ‘A Global Database on Central Banks’ Monetary Responses to COVID-19”, BIS Working Paper no. 934. 2. Casanova C., B. Hardy and M. Onen (2021), ‘COVID-19 Policy Measures to Support Bank Lending’, BIS Quarterly Review. 3. Das, Shaktikanta (2021), ‘Interview with CNBC Asia’, Singapore, Reserve Bank of India, August 26. 4 Long-term repo operations/targeted long-term repo operations/special long-term repo operations. 5 As per NABARD’s Annual Report 2020-21, standing facilities extended to it by the Reserve Bank fuelled initiative to improve the fi nancial health of Rural Financial Institutions (RFIs) by liberalising its refi nance policy to cover RFIs that were otherwise ineligible. 94MONETARY POLICY OPERATIONS III.16 With a view to improving monetary policy Chart III.1: G-SAP – Maturity Profile transmission and enabling a stable and orderly evolution of the yield curve, the Reserve Bank implemented a secondary market G-sec acquisition programme (G-SAP) in April-September 2021. Under the G-SAP, the Reserve Bank provided an upfront commitment on the size of G-sec purchases. The G-SAP allayed market fears and indicated Reserve Bank’s continued support to the market in the face of an enlarged market borrowing programme. Similar to the regular OMOs, G-SAP was confi ned to the purchase of government papers from the secondary market. During Q1, the Reserve Bank conducted three auctions under G-SAP 1.0 and purchased G-secs Note: Residual maturity of securities is as on the date of auction. Source: RBI. [including state development loans (SDLs)] of `1.0 lakh crore, in line with the announced amount. In Q2, six auctions were conducted under G-SAP III.17 To provide further liquidity support to 2.0 aggregating to `1.2 lakh crore. The G-SAP the pandemic-impacted sectors, fi rst, an on-tap 2.0 auctions conducted on September 23 and liquidity window of `50,000 crore was opened in September 30, 2021 for `15,000 crore each were May 2021 – initially available till end-March 2022 accompanied by simultaneous sales of G-secs of but later extended up to end-June 2022 – with identical amount. Under the G-SAP, the Reserve tenors of up to three years at the repo rate to Bank purchased both on the run (liquid) and off boost provision of immediate liquidity for ramping the run (illiquid) securities across the maturity up COVID-19 related healthcare infrastructure spectrum. About two-thirds of the purchases were and services in the country. Second, the Reserve made in the belly of the curve, impacting yields Bank announced a special three-year long-term in a manner that imparted liquidity to most parts repo operation (SLTRO) of `10,000 crore at the of the yield curve, thus benefi tting the entire term repo rate for the small fi nance banks (SFBs) in structure of interest rates (Chart III.1). By ensuring May 2021 to provide further support to small an orderly evolution of the yield curve, G-SAP business units, micro and small industries, and facilitated monetary transmission across fi nancial other unorganised sector entities. Third, a liquidity instruments. Overall, net liquidity injected through window of `15,000 crore was opened in June 2021 OMO purchases, including G-SAP, amounted to (initially available till end-March 2022 but later `2.1 lakh crore during 2021-22. In conjunction with extended up to end-June 2022), with tenors of up the special OMO [operation twist (OT)] auction of to three years at the repo rate to alleviate stress `10,000 crore conducted on May 6, 2021, OTs in contact-intensive sectors. Finally, to ensure amounted to `40,000 crore during 2021-22. continued fl ow of credit to the real economy, the 95ANNUAL REPORT 2021-22 Reserve Bank announced additional liquidity expansion in CiC, net forex sales and OMO support of `66,000 crore for fresh lending during sales. Overall, the liquidity outfl ow on account April and June 2021 to select AIFIs. of CiC expansion (`2.8 lakh crore) and build-up of government cash balances (`0.7 lakh crore) Drivers and Management of Liquidity was more than offset by injection through OMO III.18 In Q1:2021-22, purchases under the purchases (including G-SAP) and forex purchases G-SAP and net forex purchases in the wake of (`2.0 lakh crore), resulting in increased absorption continued capital infl ows augmented banking (`1.2 lakh crore) during 2021-22. system liquidity, while increase in currency in Rebalancing of Liquidity circulation (CiC), build-up of Government of India (GoI) cash balances and the restoration of the III.20 The gradual restoration of liquidity CRR to its pre-pandemic level drained liquidity management operations in sync with the revised (Table III.1). liquidity management framework instituted in III.19 In Q2, surplus liquidity got further February 2020 was a key objective during 2021- enhanced by the usual return of CiC, renewed 22. The CRR was restored to its pre-pandemic vigour of capital infl ows and liquidity injections level of 4.0 per cent of net demand and time through G-SAP 2.0. In Q3 and Q4, increased liabilities (NDTL) in two phases of 0.5 percentage government spending partly compensated for point each, effective the fortnights beginning liquidity drainage emanating from festival-related March 27, 2021 and May 22, 2021. Furthermore, Table III.1: Liquidity – Key Drivers and Management (` crore) 2020-21 Q1:2021-22 Q2: 2021-22 Q3: 2021-22 Q4: 2021-22 1 2 3 4 5 6 Drivers (i) CiC -4,06,452 -1,26,266 54,921 -61,794 -1,48,748 (ii) Net Forex Purchases 5,10,516 1,60,843 1,42,395 -17,242 -79,136 (iii) GoI Cash Balances -1,81,999 -2,23,740 -5,600 1,34,537 19,430 Management (i) Net OMO Purchases 3,13,295 1,38,965 97,960 -15,060 -7,880 (ii) CRR Balances -1,46,617 29,392 -16,470 -77,606 32,996 (iii) Net LAF Operations -1,52,302 -60,759 -2,86,162 60,823 1,65,269 Memo Items 1. Average Daily Injection (LTRO, TLTRO, On tap TLTRO, 1,58,491 82,948 84,487 87,298 91,894 SLTRO and MSF) 2. Average Daily Total Absorption (i+ii) 6,54,645 5,93,181 8,10,096 8,57,638 7,69,234 (i) Fixed Rate Reverse Repo 6,13,700 4,10,747 5,18,241 2,16,635 1,76,706 (ii) Variable Rate Reverse Repo (VRRR) 40,945 1,82,434 2,91,855 6,41,003 5,92,528 3. Average Daily Net Absorption during the Period (2-1) 4,96,154 5,10,233 7,25,609 7,70,340 6,77,340 Note: 1. Infl ow (+)/Outfl ow (-) from the banking system. 2. Data on drivers and management pertain to the last Friday of the respective period. Source: RBI. 96MONETARY POLICY OPERATIONS facilities such as MSF relaxation, on-tap TLTRO the option provided in November 2020. Accordingly, and SLTRO, which were announced with fi nite banks returned `2,434 crore of TLTRO funds in end dates, were terminated as scheduled. In addition to `37,348 crore paid earlier in November an endeavour to re-establish the 14-day VRRR 2020. Given the limited recourse to the marginal as the main liquidity management tool, the standing facility (MSF) window due to surplus Reserve Bank progressively enhanced the size liquidity conditions, the borrowing limit under of the VRRR auctions through a pre-announced the MSF was restored to the pre-pandemic level schedule from `2.0 lakh crore during April-July of 2 per cent of NDTL from 3 per cent, effective 2021 to `7.5 lakh crore by end-December 2021. January 1, 2022. These operations were complemented by the III.22 Temporary liquidity tightness on account of 28-day VRRRs and fi ne-tuning operations of 3-8 larger than anticipated collections under the goods day maturity. Refl ecting these developments, the and services (GST) tax resulted in the overnight amount absorbed under the fi xed rate reverse rates breaching the repo rate on January 21, repo reduced signifi cantly, averaging `2.0 lakh 2022. To assuage market concerns, the Reserve crore during H2:2021-22 as compared with `4.6 Bank conducted three variable rate repo (VRR) lakh crore during H1:2021-22 (Chart III.2). auctions of 1-3-day maturity, cumulatively injecting III.21 In December 2021, the Reserve Bank `2.0 lakh crore during January 20-24, 2022 which provided one more option to banks to prepay the eased overnight rates. These operations exemplify outstanding amount of funds availed under the the fl exibility and agility of the revised liquidity targeted long-term repo operations in addition to management framework instituted in February 2020. Chart III.2: Surplus Liquidity - Absorption under LAF III.23 With increased amount absorbed under the VRRR auctions at higher cut-offs, the effective reverse repo rate6 moved higher, from an average of 3.38 per cent in Q2 to 3.83 per cent in Q4 (Chart III.3a). The higher cut-offs in the VRRR auctions nudged money market rates upwards across the spectrum. The overnight segment rates – the weighted average call rate (WACR), the tri-party repo rate and the market repo rate – which traded below the reverse repo rate during H1:2021-22, gradually moved upwards in H2. Similarly, the rates on the 3-month T-bill, certifi cates of deposits (CDs) and commercial paper issuances by non- banking fi nancial companies (CP-NBFCs) evolved Source: RBI. in sync with the weighted average reverse repo 6 The weighted average of the fi xed rate reverse repo rate and the VRRR auctions of varying maturity with the weights being the amounts absorbed under the fi xed and variable rate windows. 97ANNUAL REPORT 2021-22 Chart III.3: VRRR Auctions and Movement in Money Market Rates a. VRRR Auctions and Effective Reverse Repo Rate b. Policy Corridor and Money Market Rates Source: RBI, Bloomberg and RBI staff calculations. rate, with their spreads over the reverse repo be conducted, if required; and (iv) effective March rate ruling higher by 26 bps, 38 bps and 83 bps, 1, 2022, the window for fi xed rate reverse repo respectively, during H2:2021-22 as against 1 bp, 8 and the MSF operations would be available only bps and 28 bps during H1:2021-22 (Chart III.3b). during 17.30-23.59 hours on all days as against 09.00-23.59 hours instituted earlier (from March III.24 With the progressive return of normalcy, 30, 2020) to deal with the pandemic. Accordingly, including transient demand for liquidity from the market participants were advised to shift their Reserve Bank, and in order to make the revised balances out of the fi xed rate reverse repo into liquidity management framework more fl exible VRRR auctions and avail the automated sweep- and agile, it was decided in February 2022 in and sweep-out (ASISO) facility in the e-Kuber that (i) variable rate repo (VRR) operations of portal for operational convenience.7 varying tenors will be conducted as and when Monetary Policy Transmission warranted by the evolving liquidity and fi nancial conditions within the CRR maintenance cycle; (ii) III.25 Monetary transmission is the process VRRs and VRRRs of 14-day tenor will operate through which changes in the policy repo rate are as the main liquidity management tool based transmitted through the structure of interest rates on liquidity conditions and will be conducted to across various market segments to changes in coincide with the CRR maintenance cycle; (iii) banks’ deposit and lending rates, which, in turn, these main operations will be supported by fi ne- infl uence aggregate spending behaviour, and tuning operations to tide over any unanticipated eventually to the fi nal goals – infl ation and growth. liquidity changes during the reserve maintenance Monetary transmission to deposit and lending period while auctions of longer maturity will also rates improved further in 2021-22, facilitated by 7 To provide greater fl exibility to banks in managing their day-end CRR balances, ASISO was introduced in August 2020 as an optional facility under which banks pre-set a specifi c (or range) amount that they wish to maintain at the end of the day. Any shortfall or excess balances maintained will automatically trigger MSF or reverse repo bids, as the case may be, under the ASISO facility. 98MONETARY POLICY OPERATIONS Table III.2: Transmission to Deposit and Lending Interest Rates (Variation in basis points) Period Repo Term Deposit Rates Lending Rates Rate Median Term WADTDR – 1-Year Median WALR - WALR - Fresh Deposit Rate – Outstanding MCLR Outstanding Rupee Loans Fresh Deposits Deposits Rupee Loans 1 2 3 4 5 6 7 April 2019 to March 2020 -185 -48 -51 -60 -31 -99 April 2020 to March 2021 -40 -137 -110 -90 -82 -78 April 2021 to March 2022 0 0 -25 -5 -36 -26 Easing Cycle February 2019 to March 2022 -250 -208 -188 -155 -150 -229 Memo: February 2019 to September 2019 -110 -9 -8 -30 0 -43 (Pre-External Benchmark Period) October 2019 to March 2022 -140 -180 -180 -128 -150 -186 (External Benchmark Period) WADTDR: Weighted Average Domestic Term Deposit Rate. WALR: Weighted Average Lending Rate. MCLR: Marginal Cost of Funds-based Lending Rate. Source: Special Monthly Return VIAB, RBI and Banks’ websites. the lar ge systemic surplus liquidity and subdued to external benchmark for loan pricing. The share credit demand (Table III.2). of external benchmark-linked loans in total outstanding fl oating rate loans has increased III.26 The external benchmark-based loan pricing8 has also hastened the pace of from 9.3 per cent in March 2020 to 39.2 per cent transmission to deposit rates and other lending in December 2021 and augurs well for more rates. As banks are required to reduce their effi cient transmission going ahead. lending rates in accordance with the movement III.27 Bank-group wise analysis indicates that in the benchmark rates, this necessitates a public sector banks exhibited higher pass-through downward adjustment in their deposit rates for to lending rates vis-à-vis private sector banks in the protection of their net interest margins (NIMs). easing cycle, i.e., February 2019 to March 2022 This brings forth a softening of banks’ cost (Chart III.4). Transmission to lending and deposit of funds, contributing to a moderation in their rates was higher in the case of foreign banks, as a MCLRs and loans linked to MCLRs. Thus, the impact of introduction of external benchmark- greater proportion of lower duration deposits in their based pricing of loans on monetary transmission liabilities enabled relatively quicker adjustments in has also encompassed sectors not directly linked these rates in response to policy rate changes. 8 The Reserve Bank mandated all SCBs (excluding regional rural banks) to link all new fl oating rate personal or retail loans and fl oating rate loans to micro and small enterprises (MSEs) to the policy repo rate or 3-month T-bill rate or 6-month T-bill rate or any other benchmark market interest rate published by Financial Benchmarks India Private Ltd. (FBIL), effective October 1, 2019. It was extended to medium enterprises, effective April 1, 2020. 99ANNUAL REPORT 2021-22 Chart III.4: Variation in Deposit and Lending Rates of SCBs across Bank Groups a. February 2019 - March 2022 b. April 2021 - March 2022 WADTDR: Weighted Average Domestic Term Deposit Rate. WALR: Weighted Average Lending Rate. SCBs: Scheduled Commercial Banks. Source: RBI. Sectoral Lending Rates External Benchmark III.28 During 2021-22, the decline in WALR on III.29 Among the available options for external outstanding loans has been broad-based across benchmark, a majority of banks, i.e., 39 out of 76 sectors, with sharp declines observed for the banks, have adopted the Reserve Bank’s policy credit card segment followed by other personal repo rate as the external benchmark for fl oating loans, infrastructure, vehicles and large industry rate loans to the retail and MSME sectors as at (Table III.3). end-March 2022 (Table III.4). Twelve banks have adopted sector-specifi c benchmarks. Table III.3: Sector-wise WALR of SCBs (Excluding RRBs) - Outstanding Rupee Loans (Per cent) End-Month Agriculture Industry MSMEs Infrastructure Trade Professional Personal Loans Rupee (Large) Services Export Credit Education Vehicle Housing Other$ Credit Card 1 2 3 4 5 6 7 8 9 10 11 12 13 Mar-20 10.07 9.22 10.51 9.67 8.92 9.90 28.90 10.53 10.01 8.59 12.05 7.31 Mar-21 9.68 8.27 9.73 8.87 8.51 8.44 31.90 9.47 9.59 7.55 10.94 6.76 Jun-21 9.58 8.24 9.61 8.68 8.38 8.23 30.49 9.47 9.38 7.56 10.98 6.51 Dec-21 9.42 7.99 9.33 8.51 8.20 8.26 30.67 9.32 9.24 7.52 10.53 6.95 Feb-22 9.38 7.93 9.27 8.33 8.15 8.06 30.54 9.32 9.10 7.48 10.40 7.14 Mar-22 9.35 7.76 9.28 8.31 8.14 8.11 30.51 9.30 9.06 7.46 10.22 6.55 Variation (Percentage points) 2020-21 -0.39 -0.95 -0.78 -0.80 -0.41 -1.46 3.00 -1.06 -0.42 -1.04 -1.11 -0.55 2021-22 -0.33 -0.51 -0.45 -0.56 -0.37 -0.33 -1.39 -0.17 -0.53 -0.09 -0.72 -0.21 $: Other than housing, vehicle, education and credit card loans. Source: Special Monthly Return VIAB, RBI. 100MONETARY POLICY OPERATIONS Table III.4: External Benchmarks of Chart III.5: Transmission to WALR (Fresh Loans) Scheduled Commercial Banks - March 2022 on Personal Loans and Loans to MSMEs (October 2019 - March 2022) Bank Group Policy CD OISMIBOR 3-Month Sector Total Repo T Bill Specific Rate Benchmark* 1 2 3 4 5 6 7 8 Public 12 - - - - - 12 Sector Banks (12) Private 17 1 - - - 3 21 Banks (21) Foreign 10 - 1 2 6 9 28 Banks (43)# SCBs (76)# 39 1 1 2 6 12 61 CD: Certifi cate of Deposit. OIS: Overnight Index Swaps. -: Nil. MIBOR: Mumbai Inter-Bank Overnight Rate. *: Sector specifi c benchmarks include MIBOR, OIS, 10-year G-sec, and CD rates. #: Fifteen foreign banks reported nil. Source: RBI. Note: Figures in parentheses refer to the number of banks that responded to the survey. Source: RBI. the spreads charged were lower for private sector banks than for PSBs. III.30 In the case of loans linked to the policy III.31 A signifi cant improvement has been repo rate, the spread in respect of fresh rupee observed in transmission since October 2019 in loans (i.e., WALR over the repo rate) was the sectors where new fl oating rate loans have been highest for education loans, followed by MSME mandatorily linked to the external benchmark loans (Table III.5). Among the domestic bank (Chart III.5). The decline was the sharpest in the groups, the spreads charged by public sector case of other personal loans (224 bps), followed banks (PSBs) for housing, education and other by vehicle loans (209 bps) and MSME loans (200 personal loans were lower than those of private bps). Over the same period, the decline in WALR sector banks, while for vehicle and MSME loans, on fresh rupee loans across all sectors was lower at 186 bps. Table III.5: Loans Linked to External Benchmark – Spread of WALR (Fresh Rupee 3. Agenda for 2022-23 Loans) over Repo Rate (March 2022) (Percentage points) III.32 The Department would support the conduct and formulation of monetary policy Bank Group Personal Loans MSME Loans with high quality analysis of infl ation and growth Housing Vehicle Education Other Personal dynamics and their outlook, liquidity, and credit Loans conditions. Against this backdrop, the Department 1 2 3 4 5 6 would undertake the following: Public Sector Banks 2.85 3.23 4.28 3.17 4.32 Private Sector Banks 3.47 2.79 5.45 6.06 4.12  Prepare an economy-wide credit conditions Domestic Banks 3.15 3.06 4.51 3.36 4.23 index and anlyse its relationship with key Source: RBI. macroeconomic variables; 101ANNUAL REPORT 2021-22  Evaluate drivers of infl ation expectations Evolving uncertainties on the horizon, particularly and their role in infl ation dynamics; and on account of the future course of the COVID-19 virus, the pace of monetary policy normalisation  Study the investment behaviour of in major advanced economies, global commodity corporates/fi rms to understand constraints price dynamics and the fallout of geopolitical on investment. tensions will continue to shape the trajectory of policy going forward. The Reserve Bank will 4. Conclusion continue to manage and rebalance liquidity in III.33 Looking ahead, the conduct of monetary a manner that is conducive to entrenching the policy will continue to be guided by the objective recovery and fostering macroeconomic and of achieving the medium-term target for consumer fi nancial stability, while maintaining adequate price index (CPI) infl ation of 4 per cent within a liquidity to meet the needs of the productive band of +/- 2 per cent, while supporting growth. sectors of the economy. 102CRECREDDITI DTEL IDVEREY ALNDI FVINEANCRIAYL IN CALUNSIODN IV FINANCIAL INCLUSION The Reserve Bank continued to take further strides in line with the National Strategy for Financial Inclusion (NSFI) making specific efforts to improve credit delivery and financial inclusion. It also scaled up the Centre for Financial Literacy (CFL) project by establishing 1,107 Centres for Financial Literacy besides helping in the inclusion of financial education in the school curriculum. It is also planning to strengthen the ecosystem for digital financial services that will support provision of last mile access and expand the bouquet of financial products at affordable cost with ease of use. These efforts are being complemented by strengthening consumer protection for redressal of customer grievances. The Reserve Bank also introduced a Financial Inclusion Index (FI-Index) that will help monitor progress in terms of access, usage, and quality. IV.1 The Reserve Bank continued its endeavour area. The FI-Index will be published annually in of ensuring ease of access to banking services July every year. for all sections of people across the country, and IV.3 The National Strategy for Financial further strengthening the credit delivery system to Inclusion (NSFI): 2019-24 lays down several cater to the needs of all productive sectors of the milestones and action plans to be implemented for economy, particularly agriculture and micro and enhancing fi nancial inclusion during the period of small enterprises (MSEs). A number of initiatives coverage. The key achievement under NSFI during were taken during 2021-22 to improve credit the year was ensuring the availability of a banking delivery and promote fi nancial inclusion. outlet within a 5 km radius of every village/hamlet IV.2 As announced in the Statement on of 500 households in hilly areas, in 99.94 per cent Developmental and Regulatory Policies in the fi rst of the identifi ed villages. bi-monthly Monetary Policy Statement for 2021-22 IV.4 The National Strategy for Financial (April 7, 2021), the Reserve Bank has constructed Education (NSFE): 2020-25 intends to realise a composite Financial Inclusion Index1 (FI- the vision of a fi nancially aware and empowered Index) to capture the extent of fi nancial inclusion India by helping the people of the country to across the country and also to serve as a tool for develop adequate knowledge, skills, attitudes calibrating future policy interventions for greater and behaviour which are needed to manage fi nancial inclusion. The index is responsive to their money better and to plan for the future. The ease of access, availability and usage of services, recommendations in the strategy document are and quality of services. The FI-Index has been being implemented by the National Centre for constructed without any ‘base year’ and as such Financial Education (NCFE) in consultation with it refl ects the cumulative efforts of all stakeholders various stakeholders. The progress made thereof over the years toward fi nancial inclusion. The is periodically monitored by the Sub-Committee of annual FI-Index for the period ending March 2021 the Financial Stability and Development Council stood at 53.9 as against 43.4 for the period ending (FSDC-SC). The key achievements under the March 2017, capturing the progress made in this NSFE during the year, include developing fi nancial 1 Reserve Bank’s press release dated August 17, 2021 on ‘Reserve Bank of India Introduces the Financial Inclusion Index’. 103ANNUAL REPORT 2021-22 literacy content on basic fi nancial education by the deepen and sustain the fi nancial inclusion NCFE, involving the community in disseminating process at the national level. The NSFI fi nancial literacy in a sustainable manner and lays down action plans and milestones, leveraging technology and social media to with specifi c timelines, and suggests broad disseminate fi nancial education and awareness, recommendations to achieve the same in a apart from effective inter-regulatory coordination. holistic manner, with six recommendations required to be implemented during 2021-22. IV.5 Against this backdrop, the rest of the The recommendations, inter alia, focused on chapter is organised into three sections. The creation of necessary infrastructure to support implementation status of the agenda for 2021- the digital ecosystem, strengthening inter- 22 is presented in section 2. It also covers the regulatory coordination for customer grievance performance of credit fl ow to priority sectors and redressal, while leveraging technology platforms developments with respect to fi nancial inclusion and creating innovative approaches. and fi nancial literacy. The agenda for 2022-23 IV.8 Signifi cant headway has been made in is provided in section 3. The chapter has been the area of strengthening digital infrastructure by summarised at the end. way of institutionalising the Payment Infrastructure Development Fund (PIDF), launch of Digital 2. Agenda for 2021-22 Payment Index (DPI), implementation and scaling IV.6 Last year, the Department had set out the up the pilot project on expanding and deepening following goals under Utkarsh: of digital payments ecosystem and laying of  Implementation of the milestones under Optical Fibre Cable (OFC) under the Bharat Net NSFI: 2019-24 (Paragraph IV.7-IV.8); project of the Government of India (GoI) to provide broadband connectivity to all 2.5 lakh Gram  Monitor implementation of Panchayats across the country. With regard to recommendations of the “Expert inter-regulatory coordination relating to customer Committee on Micro, Small and Medium grievances, Sachet portal, having representation Enterprises (MSMEs)” [Paragraph IV.9]; of all the sectoral regulators and the government,  Expansion of the CFL project by setting provides a common platform for such coordination. up 1,199 Centres for Financial Literacy In a further impetus to redressal of grievances, all (CFLs) covering 3,592 blocks across the sectoral regulators have set up toll-free helpline country and increasing fi nancial education numbers. levels across the country (Paragraph IV.9 The Expert Committee on MSMEs IV.10); and (Chair: Shri U. K. Sinha) had made 37 broad  Complete the end-line impact assessment recommendations. Out of 21 recommendations survey of the pilot project on CFL pertaining to the Reserve Bank, 13 have been implemented, six have not been found feasible (Paragraph IV.10 and IV.27). for implementation after examination and two are Implementation Status under consideration by the Reserve Bank and the IV.7 The NSFI was developed in consonance government. The two major recommendations with all the concerned stakeholders to implemented during the year, include (i) increase 104CREDIT DELIVERY AND FINANCIAL INCLUSION in the limit of collateral free loans to self-help and other funds administered by the National groups (SHGs) under Deendayal Antyodaya Bank for Agriculture and Rural Development Yojana-National Rural Livelihoods Mission (DAY- (NABARD), Small Industries Development Bank NRLM) from `10 lakh to `20 lakh; and (ii) issuance of India, Micro Units Development & Refi nance of guidelines on Scale-Based Regulation (SBR) Agency Ltd. and National Housing Bank. for Non-Banking Financial Companies (NBFCs). IV.12 The total trading volume of priority sector IV.10 The key fi ndings of the end-line survey of lending certifi cates (PSLCs) registered a growth of 12.4 per cent and stood at `6.62 lakh crore in the pilot CFL project, conducted across 80 blocks 2021-22 as compared to 25.9 per cent growth during the year to assess its effi cacy, are covered during the previous year. Among the four PSLC in paragraph IV.26. As on March 31, 2022, a total categories, the highest trading was observed in of 1,107 CFLs were set up across the country, PSLC-general and PSLC-small and marginal details of which are presented in Box IV.1. farmers with the transaction volumes being `2.70 Major Developments lakh crore and `2.29 lakh crore, respectively, in Credit Delivery 2021-22. Lending by Banks to NBFCs for On-Lending Priority Sector IV.13 Recognising the role played by NBFCs in IV.11 The priority sector lending (PSL) for providing credit to the sectors at the bottom of the scheduled commercial banks (SCBs) stood at pyramid, which contribute signifi cantly in terms 42.8 per cent as on March 31, 2022. All bank of exports and employment, and with a view to groups achieved the prescribed PSL target of 40 augmenting the liquidity position of the NBFCs, per cent during 2021-22 (Table IV.1). In case any the dispensation provided to banks to classify bank falls short in achieving priority sector targets/ their lending to NBFCs [other than microfi nance sub-targets, they are advised to contribute towards institutions (MFIs)] for ‘on-lending’ to the agriculture the Rural Infrastructure Development Fund (RIDF) and MSE sectors as PSL was extended up to March 31, 2022. Table IV.1: Achievement of Priority Sector PSL - Lending by Small Finance Banks (SFBs) to Lending Targets (` crore) NBFC-MFI for On-Lending Financial Year Public Sector Private Sector Foreign IV.14 In view of the pandemic and to address Banks Banks Banks the liquidity concerns of smaller MFIs, fresh credit 1 2 3 4 extended by SFBs to registered NBFC-MFIs and 2020-21 24,16,750 14,33,674 1,99,969 other MFIs (societies, trusts, etc.) was allowed to (41.06) (40.62) (41.02) 2021-22* 26,23,666 16,87,138 1,94,031 be classifi ed under PSL, provided these institutions (42.45) (43.27) (42.28) are members of the Reserve Bank recognised *: Data are provisional. Self-Regulatory Organisation (SRO). The above Note: Figures in parentheses are percentage to adjusted net bank benefi t is applicable to MFIs having a gross loan credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher. portfolio of up to `500 crore as on March 31, 2021. Source: Priority sector returns submitted by SCBs. Under the scheme which extended up to March 105ANNUAL REPORT 2021-22 Table IV.2: Targets and Achievements for Agricultural Credit (` crore) Financial Year Commercial Banks Rural Co-operative Banks RRBs Total Target Achievement Target Achievement Target Achievement Target Achievement 1 2 3 4 5 6 7 8 9 2020-21 10,81,978 11,94,704 2,25,946 1,90,682 1,92,076 1,90,012 15,00,000 15,75,398 2021-22* 12,05,488 12,91,454 2,30,543 2,17,848 2,13,968 2,00,590 16,50,000 17,09,893 *: Data are provisional. Source: NABARD. 31, 2022, SFBs were permitted to lend up to 10 and rural co-operative banks. During 2021-22, per cent of their total PSL portfolio as on March against the target of `16.5 lakh crore, banks 31, 2021. achieved 104 per cent of the target (`17.09 lakh PSL - Increase in Limits for Bank Lending crore) as on March 31, 2022, of which, SCBs, against Negotiable Warehouse Receipts (NWRs)/ RRBs and rural co-operative banks achieved electronic Negotiable Warehouse Receipts 107 per cent, 93.7 per cent and 94.5 per cent, (eNWRs) respectively, of their targets (Table IV.2). IV.15 In order to ensure a greater fl ow of credit IV.17 The Kisan Credit Card (KCC) provides to the farmers against pledge/hypothecation of adequate and timely bank credit to farmers agricultural produce and to encourage the use under a single window for cultivation and other of NWR/eNWR issued by warehouses registered requirements, including consumption, investment, and regulated by Warehouse Development and and insurance (Table IV.3). Regulatory Authority, the PSL limit for loans against NWRs/eNWRs, for a period not exceeding Relief Measures for Natural Calamities 12 months was increased from `50 lakh to `75 IV.18 Currently, the National Disaster lakh per borrower. Management Framework of the GoI covers 12 Flow of Credit to Agriculture types of natural calamities under its ambit, viz., IV.16 The GoI sets the agricultural credit target cyclone; drought; earthquake; fi re; fl oods; tsunami; every year for SCBs, regional rural banks (RRBs) hailstorm; landslide; avalanche; cloud burst; pest Table IV.3: Kisan Credit Card (KCC) Scheme (Number in lakh, Amount in ` crore) Financial Year Number of Outstanding Outstanding Outstanding Total Operative KCCs Crop Loan Term Loan Loan for Animal Husbandry & Fisheries 1 2 3 4 5 6 2020-21 306.96 4,13,903 36,161 6,673 4,56,736 2021-22* 268.71# 4,33,413 29,309 13,561 4,76,283 *: Data are provisional. #: The number of operative KCC accounts does not include non performing asset (NPA) accounts. As NPA accounts have increased during the year vis-à-vis last year, the number of operative KCCs has come down. Source: Public sector banks, private sector banks and small fi nance banks. 106CREDIT DELIVERY AND FINANCIAL INCLUSION Table IV.4: Relief Measures for the government. On a year-on-year basis, the Natural Calamities outstanding credit to MSMEs by SCBs increased (Number in lakh, Amount in ` crore) by 13.4 per cent in March 2022 (10.6 per cent a Financial Year Loans Restructured/ Fresh Finance/ year ago) [Table IV.5]. Rescheduled Relending Provided No. of Amount No. of Amount Financial Inclusion Accounts Accounts 1 2 3 4 5 Assignment of Lead Bank Responsibility 2020-21 1.58 2,486 11.77 18,377 IV.20 The assignment of lead bank responsibility 2021-22* 0.26 6,500 0.10 12,758 to a designated bank in every district is undertaken *: Data are provisional. Source: State Level Bankers’ Committees (SLBCs). by the Reserve Bank. As at end March 2022, 12 public sector banks and one private sector bank were assigned lead bank responsibility, covering attack; and cold wave/frost. Accordingly, the 734 districts across the country. Reserve Bank has mandated banks to provide relief where the crop loss assessed is 33 per cent Universal Access to Financial Services in Every or more in the areas affected by these calamities. Village The relief measures by banks, inter alia, include IV.21 Providing banking access to every village restructuring/rescheduling of existing loans and within a 5 km radius/ hamlet of 500 households in sanctioning fresh loans as per the emerging hilly areas is one of the key objectives of the NSFI: requirement of the eligible borrowers. During 2019-24. The milestone has been fully achieved 2021-22, natural calamities were declared by in 25 states and 7 UTs as on March 31, 2022 and three states, viz., Maharashtra, Karnataka and 99.94 per cent of the identifi ed villages/hamlets Rajasthan, where fi nancial assistance in terms of across the country have been covered. E fforts are fresh loans and some dispensation by way of loan restructuring were made available to the affected on to achieve the target for the remaining villages/ people (Table IV.4). hamlets. Bank Credit to the MSME Sector Financial Inclusion Plan IV.19 Increasing credit fl ow to the MSMEs has IV.22 To ensure a systematic approach towards been a policy priority for the Reserve Bank and increasing the level of fi nancial inclusion in a Table IV.5: Bank Credit to MSMEs (Number in lakh, Amount in ` crore) Year Micro Enterprises Small Enterprises Medium Enterprises MSMEs No. of Amount No. of Amount No. of Amount No. of Amount Accounts Outstanding Accounts Outstanding Accounts Outstanding Accounts Outstanding 1 2 3 4 5 6 7 8 9 2020-21 387.93 8,21,027.77 27.82 6,62,998.50 4.44 2,99,898.53 420.19 17,83,924.80 2021-22* 239.81 8,87,800.05 22.07 7,25,822.77 3.23 4,09,011.46 265.10# 20,22,634.29 *: Data are provisional. #: There is a signifi cant decrease in number of accounts due to mandatory registration on Udyam portal under new MSME defi nition. Source: Priority sector returns submitted by SCBs. 107ANNUAL REPORT 2021-22 sustainable manner, banks were advised to put in Table IV.6: Financial Inclusion Plan: place Financial Inclusion Plans (FIPs). These FIPs A Progress Report capture banks’ achievements on parameters such Particulars Mar 2010 Dec 2020 Dec 2021$ as the number of banking outlets [branches and 1 2 3 4 business correspondents (BCs)], basic savings Banking Outlets in Villages- bank deposit accounts (BSBDAs), overdraft (OD) Branches 33,378 55,073 53,249 Banking Outlets in facilities availed in these accounts, transactions Villages>2000*-BCs 8,390 8,49,955 15,18,496^ in KCCs and general credit cards (GCCs) and Banking Outlets in transactions through the Business Correspondents Villages<2000*-BCs 25,784 3,44,685 3,26,236 Total Banking Outlets in - Information and Communication Technology Villages – BCs 34,174 11,94,640 18,44,732^ (BC-ICT) channel. The progress made on these Banking Outlets in Villages - Other Modes 142 3,464 2,542 parameters as at the end of December 2021 is set Banking Outlets in Villages out in Table IV.6. -Total 67,694 12,53,177 19,00,523 Urban Locations Covered Financial Inclusion Index (FI-Index) Through BCs 447 3,24,507 14,12,529^ BSBDA - Through Branches IV.23 To capture the extent of fi nancial inclusion (No. in lakh) 600 2,712 2,712 across the country, the Reserve Bank has BSBDA - Through Branches constructed a composite FI-Index with three sub- (Amt. in crore) 4,400 1,21,219 1,18,625 BSBDA - Through BCs indices, viz., FI-Access, FI-Usage and FI-Quality, (No. in lakh) 130 3,672 3,919 incorporating details of banking, investments, BSBDA - Through BCs (Amt. in crore) 1,100 78,284 95,021 insurance, postal as well as the pension sector in BSBDA - Total (No. in lakh) 735 6,384 6,631 consultation with the government and respective BSBDA - Total sectoral regulators. The FI-Index computed for (Amt. in crore) 5,500 1,99,503 2,13,646 end-March 2021 stood at 53.9 as against 43.4 OD Facility Availed in BSBDAs (No. in lakh) 2 59 64 for end-March 2017, registering a compound OD Facility Availed in BSBDAs annual growth rate (CAGR) of 5.5 per cent. Of the (Amt. in crore) 10 505 556 KCC - Total (No. in lakh) 240 490 473 three sub-indices, the sub-index for Access has KCC - Total (Amt. in crore) 1,24,000 6,79,064 6,93,596 increased over the same period, from 61.7 to 73.3. GCC - Total (No. in lakh) 10 198 87 Although, the sub-index for Usage and Quality GCC - Total (Amt. in crore) 3,500 1,75,053 1,99,145 have risen in value from 30.8 to 43.0 and from 48.5 ICT-A/Cs-BC-Total Transactions (No. in lakh)# 270 23,289 21,095 to 50.7, respectively, these have remained below ICT-A/Cs-BC-Total the overall FI-Index. The index values indicate the Transactions (Amt. in crore)# 700 6,14,987 6,62,211 scope for improvement under usage and quality *: Village population. #: Transactions during the year. dimensions of fi nancial inclusion. $: Provisional data. ^: There is a signifi cant increase in data reported by few private sector banks. Financial Literacy Source: FIP returns submitted by public sector banks, private sector banks and regional rural banks. Inclusion of Financial Education in the School Curriculum goals of NSFE: 2020-25. The content for the IV.24 Developing fi nancial literacy content fi nancial education workbooks for classes VI-X for school children is one of the strategic was prepared by Central Board of Secondary 108CREDIT DELIVERY AND FINANCIAL INCLUSION Education (CBSE) in consultation with National  Respondents who have had any exposure Institute of Securities Markets (NISM), NCFE to the activities conducted under the and all the four fi nancial sector regulators2. So CFL programme were more likely to use far, 19 state educational boards have included/ savings accounts in banks; this effect was partially included modules on fi nancial education stronger for individuals attending the CFL in their school curriculum. Efforts are being made programme (i.e., having “active” exposure). by NCFE in coordination with the regional offi ces  Households’ need for training is primarily of the Reserve Bank to cover the remaining state in aspects that can be regarded as “fi rst educational boards. order” business – opening an account, Activities Conducted by Financial Literacy Centres fi lling forms, accessing bank services and (FLCs) government programmes and fi nancial planning. By comparison, a very small IV.25 As at the end of December 2021, there number expressed a desire for training to were 1,495 fi nancial literacy centres (FLCs)3 in use Automated Teller Machines (ATMs), the country. A total of 73,900 fi nancial literacy online transactions, understanding activities were conducted by the FLCs during investments, etc. 2021-22 (up to December 31, 2021). With a view to ensuring continued dissemination of Expanding the Reach of CFL Project Across the fi nancial education across the country during Country the pandemic, regional offi ces of the Reserve IV.27 Consequent to the implementation of the Bank undertook fi nancial education programmes pilot CFL project in 100 blocks (including 20 CFLs through virtual mode and leveraged local cable in tribal blocks), steps were initiated during the TV and community radio to spread fi nancial year to expand t he reach of CFLs to all blocks in awareness messages. the country in a phased manner (Box IV.1). End-line Survey of Pilot CFL Project Observing Financial Literacy Week 2022 IV.26 The end-line survey of the pilot CFL IV.28 The Financial Literacy Week (FLW) is project across 80 blocks was conducted to assess an initiative of the Reserve Bank to promote its effi cacy. The key fi ndings were as follows: awareness among the masses/various sections  Households that were exposed to of the population on key topics through a focused the programme showed a statistically campaign during the week every year. In 2021- signifi cant higher score for fi nancial 22, FLW was observed during February 14 -18, literacy than those who were not exposed 2022 on the theme of “Go Digital, Go Secure”, to the programme. with focus on convenience of digital transactions, 2 The workbooks have also been placed on the website of NCFE. 3 FLCs are established by banks and are manned by the fi nancial literacy counsellors. The CFL project is the Reserve Bank’s endeavour to bring together non-government organisations (NGOs) and banks to enable innovative and community led participative approaches to strengthen fi nancial literacy at the grassroot levels. The CFL project was piloted in 2017 (also refer to Box IV.1). Based on the experience gathered through a rigorous impact assessment exercise, the CFL project is being scaled up across the country in a phased manner. 109ANNUAL REPORT 2021-22 Box IV.1 Expanding the Reach of CFL Project Across the Country The CFL pilot project on fi nancial literacy was initiated by Based on the experience gained from the pilot project, the Reserve Bank in 2017 in nine states across 80 blocks through feedback received from the stakeholders (banks in collaboration with eight sponsor banks and six NGOs for and NGOs) and to promote fi nancial literacy at grassroot a three-year period, with funding support from Financial level in a sustainable and participative manner, in line with Inclusion Fund (FIF) of NABARD and the respective sponsor NSFI: 2019-24, the project is being scaled up across the banks. The objective was to adopt community led innovative country in a phased manner to cover the entire country by and participatory approaches to fi nancial literacy. The 2024 with each CFL covering three blocks. Under Phase I project was subsequently extended to 20 tribal/economically of the scaled-up CFL project, 10 NGOs are associated with backward blocks in three states in 2019 with funding from operationalisation with funding support from DEA Fund, FIF the Depositor Education and Awareness (DEA) Fund and and 13 sponsor banks. As on March 31, 2022, a total of sponsor banks. 1,107 CFLs were operationalised across the country. Source: RBI. security of digital transactions and protection of  Implementation of the milestones under customers. During this week, banks were advised NSFE: 2020-25 by undertaking capacity to disseminate information and create awareness building of intermediaries involved in amongst their customers and the general public. dissemination of fi nancial education; and Further, the Reserve Bank also undertook a  Scaling up of CFLs to cover the entire centralised mass media campaign during February country (Utkarsh). 2022 to disseminate essential fi nancial awareness messages on the theme to the general public. 4. Conclusion IV.30 In sum, during the year, the Reserve Bank 3. Agenda for 2022-23 continued with its focus towards fi nancial inclusion IV.29 The Department will pursue the following by scaling up the CFL project across the country goals towards achieving greater fi nancial inclusion and taking forward the NSFI goals by working and credit delivery: in close coordination with the stakeholders  Implementation of milestones under concerned. The FI-Index was developed as a NSFI: 2019-24 by leveraging on the metric to measure progress on fi nancial inclusion. developments in the FinTech space to Going ahead, the implementation of the various encourage fi nancial service providers milestones under NSFI and NSFE would continue to adopt innovative approaches for to be pursued to sustain the momentum of fi nancial strengthening outreach (Utkarsh); inclusion. 110FINANCIAL MARKETS AND V FINANFCORIEAIGNL E XMCHAANGRE KMAENATGESME NATND FOREIGN EXCHANGE MANAGEMENT The Reserve Bank continued its efforts to develop and deepen various segments of the financial markets by broadening participation, easing access, strengthening the regulatory framework, and improving the financial market infrastructure. Measures to enhance the ease of doing business and to reduce compliance burden through rationalisation of various regulations relating to foreign exchange were also undertaken during the year. V.1 During 2021-22, the Reserve Bank 2. FINANCIAL MARKETS REGULATION continued with its endeavour to develop fi nancial DEPARTMENT (FMRD) markets in terms of easing access, broadening V.3 The Financial Markets Regulation participation, and also designing a principle- Department (FMRD) is entrusted with the based regulatory framework for the over the development, regulation and surveillance of counter (OTC) derivatives market, while enabling money, government securities (G-secs), interest a safe and sound transition from the London rate derivatives, foreign exchange and credit Interbank Offered Rate (LIBOR) regime through derivatives markets. The Department undertook a roadmap. Liquidity management operations several measures in pursuance of this mandate to involved both conventional and unconventional fulfi l the objectives set out for 2021-22. measures for ensuring the availability of Agenda for 2021-22 adequate liquidity in the system. The Reserve Bank continued to facilitate external trade and V.4 The Department had set out the following payments and promote orderly development goals for 2021-22: of the foreign exchange markets, with ongoing  Issue of draft directions for implementing efforts to enhance the ease of doing business the exchange of initial margin on non- and also reduce the compliance burden for centrally cleared derivatives (NCCDs) in regulated entities. Several policy measures were India by the second quarter of 2021-22 also undertaken to alleviate stress caused on (Utkarsh) [Paragraph V. 5]; external trade and payments due to COVID-19.  Launch of a government securities lending V.2 Against this backdrop, the rest of the and borrowing mechanism (GSLBM) to chapter is structured into four sections. The augment ‘special repos’ by the Clearing development and regulation of fi nancial markets Corporation of India Ltd. (CCIL) in the are covered in section 2. The Reserve Bank’s second quarter of 2021-22 (Paragraph market operations are discussed in section 3. V.6); and In section 4, the focus is on external trade and payments and measures relating to liberalisation  Strengthening of aggregation and and development. Concluding observations are transparency under the Legal Entity set out in the last section. Identifi er (LEI) requirements for reporting 111ANNUAL REPORT 2021-22 of derivative transactions by implementing notice and term money markets and to issue the Unique Transaction Identifi er (UTI) CDs. Participants were allowed the fl exibility of framework in India in line with the progress setting their own lending limits in the call, notice made internationally in this regard and term money markets within extant prudential (Paragraph V.7). regulatory norms. Issuers were permitted to buy back their CDs before maturity to provide them Implementation Status with greater fl exibility in liquidity management. A V.5 The Directions for mandating margin separate prudential limit of 225 per cent of net requirements for NCCDs will be phased in during owned fund as at the end of the previous fi nancial 2022-23 taking cognisance of the extension in year was stipulated for borrowings by standalone timelines by one year for the implementation of primary dealers in the term money markets. margin requirements globally in the wake of the Revised Directions on the call, notice and term pandemic. money markets and CDs were issued on April 1, V.6 Directions to enable the GSLBM will be 2021 and June 4, 2021, respectively. issued after completion of the ongoing market Ease of Doing Business for Foreign Portfolio consultations and completion of the development Investors in the Debt Market of certain aspects of legal and market infrastructure. V.9 The regulatory framework for non-resident investment in the debt market was fi ne-tuned to V.7 Globally, the progress with regard to the implementation of the UTI has been gradual encourage greater participation and to facilitate on account of certain evolving standards. The long term stable debt fl ows: implementation of UTI in India has accordingly  On June 4, 2021, Authorised Dealer been calibrated to take cognisance of the progress (AD) category-1 banks were permitted made internationally in this regard. to lend to Foreign Portfolio Investors Major Initiatives (FPIs) for placing margins with the CCIL for the settlement of transactions in Easing Access and Broadening Participation in government securities within their credit the Money Market risk management frameworks. On June 7, V.8 Several measures were undertaken 2021, FPIs/custodian banks were provided during the year to develop money markets with an extended time window for reporting such as for call/notice/term money, commercial their government securities transactions papers (CPs), certifi cates of deposit (CDs) and to Negotiated Dealing System-Order non-convertible debentures (NCDs) of original Matching (NDS-OM). maturity of less than a year. Regulations were reviewed after due consultation with the public/  In pursuance of announcement in the stakeholders, with a view to bringing greater Union Budget 2021-22, directions were consistency across these instruments in terms issued on November 8, 2021 to permit of issuers, investors and participants. The FPIs to invest in debt securities issued by participant base was expanded by permitting Infrastructure Investment Trusts (InvITs) regional rural banks (RRBs) to access the call, and Real Estate Investment Trusts (REITs). 112FINANCIAL MARKETS AND FOREIGN EXCHANGE MANAGEMENT  Directions were issued on February 10, the segmentation between onshore and offshore 2022, increasing the investment limit under markets and improving the effi ciency of price the Voluntary Retention Route (VRR) by discovery, Directions were issued on February 10, `1,00,000 crore to `2,50,000 crore with 2022, allowing market-makers having Authorised effect from April 1, 2022. Dealer Category-I (AD Cat-I) licence under FEMA, 1999 to undertake transactions in the offshore Creating Principle-based Regulatory Framework Foreign Currency Settled Overnight Indexed for Over the Counter (OTC) Derivative Market Swap (FCS-OIS) market with non-residents and V.10 The “Comprehensive Guidelines on other market-makers through their branches in Derivatives (CGD)” were reviewed during the year India, foreign branches or International Financial with the objectives of (i) creating a principle-based Services Centre (IFSC) Banking Units. regulatory framework; (ii) addressing overlaps Roadmap for LIBOR Transition between the CGD and other Directions; and (iii) adding new provisions to cater to the increasing V.13 With a view to enabling an orderly, safe sophistication of derivative markets in line with and sound transition from the LIBOR regime, international best practices. After taking into banks and other Reserve Bank-regulated entities account feedback from the public/stakeholders, were advised on July 8, 2021 to (i) cease entering the Reserve Bank of India (Market-makers in OTC into new fi nancial contracts that reference LIBOR Derivatives) Directions, 2021, were issued on and instead use any widely accepted alternative September 16, 2021. The Directions set out the reference rate (ARR) as soon as practicable and in regulatory requirements pertaining to governance any event by December 31, 2021; (ii) incorporate arrangements, risk management and customer provisions for fallbacks to ARRs in fi nancial suitability and appropriateness for OTC derivative contracts that reference LIBOR and the maturity business. of which falls after the cessation of the LIBOR Review of Credit Default Swaps (CDS) Guidelines setting; (iii) undertake a comprehensive review of all direct and indirect LIBOR exposures and V.11 Guidelines for Credit Default Swaps (CDS) put in place a framework to mitigate risks arising were reviewed, and revised Directions (Credit from such exposures; and (iv) continue efforts to Derivatives) were issued on February 10, 2022. sensitise clients about the transition. The details The Guidelines permit non-retail users such relating to the roadmap of LIBOR transition are as regulated fi nancial entities and FPIs to sell presented in Box V.1. protection. They also allow non-retail users to buy protection for hedging or expressing their views on Agenda for 2022-23 credit risk while retail users are permitted to buy V.14 For the year 2022-23, the Department has protection only for hedging. set the following goals: Permitting Banks to Deal in Offshore Foreign  Directions for introducing variation margin Currency Settled Rupee Derivatives Market requirements for NCCDs in India will be V.12 With a view to further deepening the interest issued in the fi rst half of 2022-23 (Utkarsh); rate derivatives market in the country, removing and 113ANNUAL REPORT 2021-22 Box V.1 Roadmap for LIBOR Transition The year 2022 marks the beginning of the cessation of which mature after the cessation of LIBOR; (b) cease publication of LIBOR, the fi nancial benchmark which has entering into new fi nancial contracts that reference LIBOR been used widely so far in the global fi nancial system. as a benchmark (including MIFOR) and transact in widely Extensive consultations and discussions across the globe accepted ARR as soon as practicable and in any event by and in India have ensured a reasonably smooth transition December 31, 2021, and (c) ensure client sensitisation into a post-LIBOR regime. All non-USD LIBOR settings, and on issues around LIBOR transition. Certain specifi c USD LIBOR settings of 1-week and 2-months ceased to transactions referenced to USD LIBOR are permitted after be published after December 31, 2021. The publication of December 31, 2021 for the purpose of managing the risks remaining USD LIBOR settings will cease on June 30, 2023. around the LIBOR transition. Alternative reference rates (ARRs) [e.g., Secured Overnight Reform of MIFOR Financing Rate (SOFR) and Sterling Overnight Index MIFOR, the domestic benchmark that references USD Average (SONIA)] are overnight secured/unsecured rates LIBOR, has been reformed by the Financial Benchmarks and unlike LIBOR (which was poll based), they are based India Pvt. Ltd. (FBIL) in consultation with the rates and on transacted verifi able rates with a wide participant base methodology workstream of IBA. Publication of adjusted (both banks and non-banks). Unlike the forward-looking MIFOR (which can be used as a fallback for legacy contracts LIBOR, ARRs are backward-looking as they are obtained that reference MIFOR) and the modifi ed MIFOR (which can by compounding the daily overnight rates. be used for new fi nancial contracts) has commenced. The Contracts referencing LIBOR and whose maturity extend modifi ed MIFOR has been included in the ISDA defi nitions. beyond the cessation of the LIBOR will have to adopt Market participants have started using modifi ed MIFOR in fallbacks. Fallback templates published by various industry transactions. Adjusted MIFOR has also been included in the bodies such as the International Swaps and Derivatives ISDA IBOR fallback protocol/supplement. Association (ISDA), Asia Pacifi c Loan Markets Association Other regulatory initiatives include measures to make (APLMA) and Indian Banks’ Association (IBA) typically provision for use of ARRs in export credit, FCNR (B) include a spread adjustment to ensure comparability deposits, external commercial borrowings (ECBs) and trade between the term LIBOR and term ARR1. credit. To take into account differences in credit and term Regulatory Initiatives in India premia between LIBOR and the ARRs, the all-in-cost ceiling has been revised upwards by 100 basis points (bps) for With respect to the LIBOR benchmark, the challenges for existing ECBs/trade credits (TCs) and by 50 bps for new India are similar to those faced by other jurisdictions. The ECBs/TCs. As the change in reference rate from LIBOR is Reserve Bank and other authorities have taken various a “force majeure” event, it has been clarifi ed that changes regulatory steps to ensure a smooth LIBOR transition. in the terms of a derivative contract on account of changes The Reserve Bank issued an advisory on July 8, 2021 to in reference rate from LIBOR/LIBOR-related benchmarks to its regulated entities to (a) ensure adoption of fallbacks an ARR will not be treated as restructuring. in fi nancial contracts that reference LIBOR [including Mumbai Interbank Forward Outright Rate (MIFOR)] and Source: RBI.  Revised Directions on Rupee Interest greater product innovation, ease non- Rate Derivatives (IRD) will be issued in resident access to the domestic market 2022-23, after reviewing the feedback and rationalise procedures. obtained from public with a view to allow 1 Unlike LIBOR, term ARR does not include a term premia and credit premia. 114FINANCIAL MARKETS AND FOREIGN EXCHANGE MANAGEMENT 3. FINANCIAL MARKETS OPERATIONS rupee. While robust foreign portfolio investment DEPARTMENT (FMOD) infl ows into Indian equity markets supported the rupee towards the start of the year, these fl ows V.15 The Financial Markets Operations moderated towards the second half due to drying Department (FMOD) is entrusted with two up of overall fl ows to emerging market economies primary responsibilities: conduct of the liquidity in response to rising prospects of tightening of management operations of the Reserve Bank monetary conditions in the US, besides renewed consistent with the stance of monetary policy; and uncertainty associated with the Omicron variant of ensuring orderly conditions in the forex market COVID-19. through operations in onshore and offshore V.19 The Reserve Bank engaged in the forex markets. market through operations in the onshore/offshore Agenda 2021-22 OTC and exchange traded currency derivatives (ETCD) segments in order to maintain orderly V.16 During the year, the Department had set market conditions by containing excessive volatility out the following goals: in the exchange rate.  To carry out liquidity management Research/Analytical Studies operations effectively using all available V.20 The Department carried out research/ liquidity management tools, in line with analytical studies on several topical issues such the stance of monetary policy (Utkarsh) as management of exchange rate volatility during [Paragraph V.17]; COVID-19; impact of the pandemic on factors  To continue to conduct foreign exchange determining the spread of weighted average call operations in an effective manner to curb rate (WACR) from repo rate; fi xed price open undue volatility in the USD/INR exchange market operations; and barometer for fi nancial rate (Paragraph V.18 - V.19); and markets.  To undertake policy-oriented research on Agenda for 2022-23 fi nancial markets (Paragraph V.20). V.21 During the year 2022-23, the Department Implementation Status plans to achieve the following goals: Liquidity Management  To carry out liquidity management operations effectively using all available V.17 Details relating to liquidity management liquidity management tools as may be operations encompassing money and G-sec necessary, in line with the stance of markets are covered in Chapter III of this Report. monetary policy (Utkarsh); Foreign Exchange Market  To continue to conduct foreign exchange V.18 During the year, the rupee traded with a operations in an effective manner to curb undue volatility in the USD/INR exchange depreciating bias, refl ecting broad-based gains rate; and by the US dollar. A rally in crude prices and bouts of risk-off sentiments due to the spread  To undertake policy-oriented research on of new COVID-19 variants also weighed on the fi nancial markets. 115ANNUAL REPORT 2021-22 4. FOREIGN EXCHANGE DEPARTMENT (FED) (SPECTRA) and Authorised Person (AP) connect (Utkarsh) [Paragraph V.28]; V.22 The Foreign Exchange Department (FED) is entrusted with the responsibility of fulfi lling the  Issue a revised Master Direction on Foreign Investment in India as Foreign objectives envisaged under the Foreign Exchange Exchange Management (Non-debt Management Act (FEMA), 1999. With its ongoing Instruments) Rules have been notifi ed by efforts to enhance the ease of doing business and the Government (Paragraph V.29); and reduce the compliance burden, the Department strives to facilitate external trade and payments  Conduct awareness programmes and and also promote orderly development of the create digital content on an ongoing basis (Utkarsh) [Paragraph V.30]. foreign exchange markets. Implementation Status V.23 During the year, the Department continued its efforts to review/rationalise the Rationalisation of FEMA Guidelines extant regulations/rules/notifi cations issued under V.25 During the year, a review of the existing the FEMA as part of the ongoing process of guidance note on computation matrix for aligning the regulatory framework with prevailing calculation of compounding amount under FEMA macroeconomic conditions and the evolving was initiated with a view to have a simple and business practices and models. The Department standard guidance matrix. A proposal to amend also took several steps and measures to alleviate Foreign Exchange (Compounding Proceedings) stress caused on external trade and payments Rules with a view to enable electronic and other due to COVID-19. online modes of payment of compounding fees is under consideration and is in line with Utkarsh Agenda for 2021-22 2022, which, inter alia, emphasises deepening of V.24 The Department had set out the following digital payments. goals for 2021-22: V.26 While setting up of Alternative Investment  Continue rationalisation of the FEMA Funds (AIFs) in an overseas jurisdiction, including International Financial Services Centres (IFSCs) regulations by consolidating existing in India, is under the automatic route as per the regulations of similar subjects, remove overseas direct investment (ODI) guidelines, the hard-coding to obviate frequent issuance status of sponsor contribution to these AIFs under of amendment notifi cations and aligning ODI guidelines was not well-defi ned. To provide defi nitions across notifi cations/regulations clarity in this regard, fi nancial contribution from an (Paragraph V.25 - V.26); Indian sponsor to an AIF set up in an overseas  Take the exercise of rationalising the jurisdiction, including IFSCs in India, is now overseas investment regulations forward treated as overseas direct investment. (Paragraph V.27); Rationalisation of Overseas Investment Regulations  Timely completion of ongoing software projects, viz., Software Platform for V.27 The overseas investment regulations External Commercial Borrowings and were reviewed during the year. The draft rules/ Trade Credits Reporting and Approval regulations were placed on the Reserve Bank’s 116FINANCIAL MARKETS AND FOREIGN EXCHANGE MANAGEMENT website for public comments. Based on the various fi nancial literacy programmes, exhibitions, feedback/suggestions received, the modifi ed draft seminars and conferences, for different target has been forwarded to the Government of India for groups. its fi nalisation. Major Initiatives Ongoing Software Projects, viz., SPECTRA and Redefi ning Benchmark Rate for External AP Connect Borrowings V.28 In its endeavour to automate the complete V.31 In view of the imminent discontinuance of lifecycle of external commercial borrowings LIBOR as a benchmark rate, the benchmark rate (ECBs) and trade credits, the Department is in the in case of foreign currency external commercial process of implementing the SPECTRA project. borrowings (FCY ECB) and trade credit (TC) has SPECTRA would encompass the lifecycle of been redefi ned. The benchmark rate now refers to ECB/trade credits, from receipt of application to any widely accepted interbank rate or alternative approval stage either at the level of Authorised reference rate (ARR) of 6-month tenor, applicable Dealer (AD) Bank or the Reserve Bank, as well to the currency of borrowing (also refer to Box V.1). as reporting of transactions. It will incorporate all Further, AD category-I banks have been permitted policy provisions related to ECBs and trade credits. to use any other widely accepted/ARR in the The development of the software has since been currency in place of LIBOR in respect of import/ completed and the user acceptance testing (UAT)2 export transactions. is near completion. Also, the software project, ‘AP Connect’, relating to licensing, renewal, reporting, Legal Entity Identifi er (LEI) cancellation, and inspection of full-fl edged money V.32 For ease of identifi cation of parties changers (FFMCs)/upgraded FFMCs, has been undertaking cross border fi nancial transactions, developed and UAT has been completed. AD category-I banks have been directed to Master Direction on Foreign Investment in India obtain legal entity identifi er (LEI) number from the resident entities (non-individuals) in respect V.29 The Master Direction on Foreign of capital or current account transactions of `50 Investment in India has been updated in view of crore and above (per transaction) under FEMA, the Foreign Exchange Management (Non-debt 1999, with effect from October 1, 2022. Banks Instruments) Rules, 2019 (NDI Rules) issued by have also been advised to encourage concerned the Government of India. entities to voluntarily furnish LEI, while undertaking Conducting Awareness Programmes and Creation transactions even before October 1, 2022. Further, of Digital Content to avoid disruptions, the banks have been directed V.30 With a view to familiarise the public and to process cross-border fi nancial transactions stakeholders on FEMA, 1999, a circular has been even in case of non-availability of LEI information, issued to the regional offi ces (ROs) on conduct of in respect of non-resident counterparts/overseas 2 User Acceptance Test is a phase subsequent to completion of development of a software project. The end-users test the software in terms of functionalities and can fl ag defects or give suggestions for improving the software, especially the critical components. 117ANNUAL REPORT 2021-22 entities. The LEI, once obtained by an entity, is hard-coding to obviate frequent issuance required to be reported in all transactions of that of amendment notifi cations and aligning entity, irrespective of transaction size. defi nitions across notifi cations/regulations; Measures to Alleviate COVID-19 Related Stress  Implementation of the revised computation matrix for compounding of contraventions V.33 Borrowers are permitted to park unutilised under FEMA 1999 (Utkarsh); ECB proceeds in term deposits with AD category-I banks in India for a maximum period of 12  A comprehensive review of the Liberalised months. To provide relief to borrowers, a one-time Remittance Scheme (LRS) to address relaxation was provided on April 7, 2021, allowing various issues and inconsistencies in the unutilised ECB proceeds drawn down on or before scheme; March 1, 2020 to be parked in term deposits with  To continue with automation of process of AD category-I banks in India prospectively up to submission of various returns for regulatory March 1, 2022. compliance by leveraging technology; Authorised Persons and Remittances  Conducting awareness programmes and V.34 The Reserve Bank, in public interest and creation of digital content on an ongoing in consultation with the central government, has basis (Utkarsh); and decided that Indian passport holders as well as  To continue to delegate more powers to persons of Indian origin carrying the Overseas AD banks and regional offi ces (ROs) for Citizen of India Card along with their passports faster implementation of policy changes. travelling to Gurdwara Darbar Sahib, Kartarpur, Narowal, Pakistan through the Sri Kartarpur Sahib 5. CONCLUSION Corridor, shall be allowed to carry outside and bring into India at the time of his/her return, only V.36 In sum, the Reserve Bank employed Indian currency notes and/or foreign currency in several conventional and unconventional USD, the total value of which should not exceed measures to provide adequate liquidity to `11,000. aid economic recovery that was interrupted by successive waves of the pandemic. Apart Agenda for 2022-23 from targeting liquidity to specifi c sectors and V.35 The Department’s strategy for 2022-23 rebalancing of surplus liquidity, the Reserve is to focus on consolidating and carrying forward Bank also ensured stable and orderly evolution all the above initiatives. The emphasis will remain of the yield curve through committed purchases on ensuring that the FEMA operating framework of pre-announced quantum of G-secs in the is in conformity with the needs of the evolving secondary market. The liquidity measures along macroeconomic environment. Accordingly, the with the Reserve Bank’s forward guidance and Department has formulated the following strategic comfortable foreign exchange reserve cover action plan for 2022-23: engendered stability in fi nancial markets. At  Continue rationalisation of the FEMA the same time, the Reserve Bank pushed the regulations by consolidating existing fi nancial market development agenda forward, regulations of similar subjects, remove keeping also in view global developments in 118FINANCIAL MARKETS AND FOREIGN EXCHANGE MANAGEMENT market practices, such as LIBOR transition. Going foreign exchange regulations and make strides in forward, the Reserve Bank has set an agenda strengthening market infrastructure. The fi nancial for furthering fi nancial market reforms, covering market operations will continue to be aligned money, government securities and foreign with the stance of the monetary policy, while the exchange market, focusing on derivatives and foreign exchange operations will continue to curb bond markets. It also plans to further rationalise undue volatility in the exchange rate of the rupee. 119REGULATIONAN,N USALU REPPOERTR 202V1-2I2SION AND VI FINANCIAL STABILITY Building a resilient and stable financial system remained the primary objective during the year that was marked by the re-emergence of successive waves of the COVID-19 pandemic. Accordingly, several regulatory and supervisory measures were fine-tuned to address transient issues with due consideration to the normalising economic activity. Further, in alignment with the long-term objective, the regulatory and supervisory framework was streamlined across regulated/supervised entities and strengthened to maintain conformity with global best practices. Also, consistency in enforcement actions was ensured during the year, helped by engaging with all stakeholders. Harnessing technology for customer service/grievance redressal, strengthening fraud risk management and consumer protection were concurrent objectives during the year. VI.1 The chapter discusses regulatory and VI.2 In other areas, a revised regulatory supervisory measures undertaken during the year framework for non-banking fi nancial companies to strengthen the fi nancial system and to preserve (NBFCs) - called the ‘scale-based regulation’ - fi nancial stability. As part of the overall objective has been put in place, considering their growing of aligning the regulatory/supervisory framework size, complexity and interconnectedness. The new with global best practices, important strides in the regulatory structure for NBFCs comprises of four areas of risk management, compliance function, layers based on their size, activity, and perceived consumer education and protection in banks were riskiness, and encompasses different facets made during the year. Regulatory response to the of regulation covering capital requirements, COVID-19 pandemic has been further fi ne-tuned to governance standards and prudential regulation, incorporate the evolving challenges. A Sustainable amongst others, and will be effective from October Finance Group (SFG) was set up within the 1, 2022. To introduce activity-based regulation Department of Regulation (DoR) in May 2021 to in the microfi nance sector and to further lead the Reserve Bank’s efforts and regulatory strengthen the customer protection measures initiatives on climate risk and sustainable fi nance. for microfi nance borrowers, a comprehensive Smooth transition from the LIBOR benchmark regulatory framework for microfi nance loans of was facilitated during the year, and some of the all regulated entities (REs) of the Reserve Bank recommendations of the Internal Working Group was issued on March 14, 2022 which has become on ownership and capital structure of private effective from April 1, 2022. Moreover, guidelines sector banks have been accepted while others on the distribution of dividends by NBFCs were are under examination. The process of submitting fi nalised during the year. statutory returns and supervisory disclosures by banks witnessed further automation during the VI.3 In order to facilitate development of a year. A new FinTech Department was set up, robust market in credit risk transfer and greater effective January 4, 2022, to exclusively focus investor participation in stressed loans, revised on the evolving FinTech segment and to identify guidelines on ‘Securitisation of Standard Assets’ opportunities and challenges while promoting and ‘Transfer of Loan Exposures’ were issued on innovations. September 24, 2021. 120REGULATION, SUPERVISION AND FINANCIAL STABILITY VI.4 In the supervisory sphere, the newly created FinTech Department during the year. Reserve Bank continued with its endeavour of Section 4 covers several supervisory measures strengthening the existing frameworks under a undertaken by the DoS and enforcement actions unifi ed Department of Supervision (DoS) in which carried out by the Enforcement Department (EFD) the supervision of banks, urban cooperative during the year. Section 5 highlights the role banks (UCBs), and NBFCs is being undertaken in played by the Consumer Education and Protection a holistic manner. Technology has been effectively Department (CEPD) and the Deposit Insurance leveraged in several aspects across off-site and Credit Guarantee Corporation (DICGC) surveillance, on-site assessment, development in protecting consumer interests, spreading of Early Warning Signals (EWS) and fraud risk awareness and upholding consumer confi dence. management. Additionally, a technology vision These departments have also set out agenda for document for UCBs was released, laying out 2022-23 in their respective sections. Concluding a fi ve-pillared strategic approach. For NBFCs, observations are set out in the last section. the supervisory reporting system has been rationalised and redesigned. The data capabilities 2. FINANCIAL STABILITY UNIT (FSU) of the Reserve Bank will be further upgraded VI.7 The mandate of the Financial Stability Unit through the revamped data warehouse, viz., (FSU) is to monitor the stability and soundness Centralised Information Management System (CIMS). On the other hand, the College of of the fi nancial system by examining risks to Supervisors (CoS) organised a wide range fi nancial stability, undertaking macro-prudential of programmes to enhance the skill sets of surveillance through systemic stress tests, supervisory and regulatory resources during the fi nancial network analysis and by disseminating year. early warning information and analysis through the Financial Stability Report (FSR). It also VI.5 The process of setting up an Umbrella functions as the secretariat to the Sub-Committee Organisation (UO) for the UCBs is crystallising in of the Financial Stability and Development Council the cooperative banking space. Other initiatives (FSDC), an institutional mechanism of regulators taken during the year, such as the adoption of ‘One Nation - One Ombudsman’ system under for maintaining fi nancial stability and monitoring the “Reserve Bank – Integrated Ombudsman macro-prudential regulation in the country. Scheme” (RB-IOS), 2021 and the amendment Agenda for 2021-22 to the Deposit Insurance and Credit Guarantee VI.8 The Department had set out the following Corporation (DICGC) Act, 1961, are expected to goals for 2021-22: enhance customer protection and also facilitate maintaining fi nancial stability. • Strengthening the stress testing framework/methodology by incorporating VI.6 The rest of this chapter is divided into fi ve evolving best practices (Utkarsh) sections. Section 2 deals with the mandate and [Paragraph VI.9]; functions of the Financial Stability Unit (FSU). Section 3 addresses various regulatory measures • Conducting macro-prudential surveillance undertaken by the DoR along with activities of the (Paragraph VI.10); 121ANNUAL REPORT 2021-22 • Publishing the FSR on a timely and VI.11 The FSDC-Sub Committee held two updated basis (Paragraph VI.10); and meetings in 2021-22, both in the virtual format owing to the second and third waves of the • Conducting meetings of the FSDC Sub- COVID-19 pandemic. In the meeting held in Committee (FSDC-SC) [Paragraph VI.11]. April 2021, the Sub-Committee discussed Implementation Status major developments in the domestic and global VI.9 As part of strengthening the current stress economy against the backdrop of the second testing framework, a revised framework for multi wave of COVID-19 pandemic. It also deliberated factor macro prudential stress test was developed. on various inter-regulatory issues, reviewed the This involved modifying and testing the satellite activities of the technical groups under its purview models for projection of gross non-performing and evaluated the functioning of the State Level assets (GNPA) ratios, components of profi t after Coordination Committees (SLCCs) in various tax and sectoral probability of default. Refi ning the states/union territories (UTs). The members stress testing framework with real-time data is in committed to remain watchful and proactive in progress. the face of evolving challenges brought on by the resurgence of the pandemic. The Sub-Committee, VI.10 Two editions of the FSR, refl ecting the in its meeting held in January 2022, reviewed collective assessment of the Sub-Committee major developments in global and domestic of the FSDC on the balance of risks around economy as well as in various segments of the fi nancial stability, were released during the year. fi nancial system and discussed the assessments The 23rd issue of the FSR, brought out on July of members about the scenario emerging from the 1, 2021 highlighted global policy responses third wave of the COVID-19 pandemic. The Sub- of regulators and governments to contain the Committee also discussed the use of Aadhaar severity of the pandemic’s toll on fi nancial markets based e-KYC and Aadhaar Enabled Payment and institutions. It emphasised the need for System by REs. augmenting capital in the domestic banking sector Agenda for 2022-23 to support investment demand in the economy, going forward. The 24th edition of the FSR was VI.12 In the year ahead, FSU will focus on the released on December 29, 2021. It drew attention following: to persistent infl ationary pressures and shifts • Implementation of the revised stress in monetary policy stances globally. Noting the testing framework and publication of the relatively improved health of the domestic banking results in FSR (Utkarsh); sector, it pointed to emerging signs of stress in the • Carrying out sensitivity analyses, covering micro, small and medium enterprises (MSMEs) the impact of housing price movements on and microfi nance segments. The macro stress bank capital; test results in both editions of the FSR indicated • Conduct of macro-prudential surveillance; that scheduled commercial banks (SCBs) have • Publication of half-yearly FSRs; and suffi cient capital buffers, at the aggregate as well as individual level, even in severe stress scenarios. • Conduct of meetings of the FSDC-SC. 122REGULATION, SUPERVISION AND FINANCIAL STABILITY 3. REGULATION OF FINANCIAL act as UO. The UO is required to apply to INTERMEDIARIES the Reserve Bank for obtaining certifi cate of registration as NBFC (Utkarsh) Department of Regulation (DoR) [Paragraph VI.17]; VI.13 The Department of Regulation (DoR) (cid:129) Discussion Paper on Consolidation is the nodal Department for regulation of of UCB Sector: An expert committee commercial banks, cooperative banks, NBFCs, on UCBs, set up in February 2021, is Credit Information Companies (CICs) and All examining, inter alia, the prospects of India Financial Institutions (AIFIs), for ensuring a consolidation in the UCB sector as one healthy and competitive fi nancial system, which of its terms of reference. Further action provides cost effective and inclusive fi nancial in the matter will be taken based on services. The regulatory framework is fi ne-tuned the recommendations of the committee as per the requirements of the Indian economy, (Utkarsh) [Paragraph VI.18]; while adapting to international best practices. • Finalise scale-based regulatory Agenda for 2021-22 framework for NBFCs given the increasing VI.14 The Department had set out the following signifi cance of NBFCs in the fi nancial goals in 2021-22: system (Paragraph VI.19); • Issuing draft guidelines on capital charge • Review of regulatory framework applicable for credit risk (standardised approach), to Non-Banking Financial Company- market risk, operational risk and output Microfi nance Institutions (NBFC- fl oor, as part of convergence of the MFIs) and harmonising the regulatory Reserve Bank’s regulations with Basel III frameworks for various regulated lenders standards (Paragraph VI.15); in the microfi nance space (Paragraph VI.20); and • Issue of fi nal guidelines on securitisation of standard assets and issue of fi nal • Comprehensive review of the regulatory guidelines on transfer of loan exposures and legal framework of Asset (Paragraph VI.16); Reconstruction Companies (ARCs) so as to realise their potential in resolving (cid:129) Setting up of an Umbrella Organisation stressed assets of the fi nancial sector (UO) for UCBs: The Reserve Bank (Paragraph VI.21). had advised National Federation of Implementation Status Urban Cooperative Banks and Credit Societies Limited (NAFCUB) to establish VI.15 As part of convergence of its regulations UO for UCBs. Accordingly, a company with Basel III standards, the Reserve Bank issued named National Cooperative Finance the draft ‘Master Direction on Minimum Capital and Development Corporation Limited Requirements for Operational Risk’ for public (NCFDC) was incorporated on April 18, comments on December 15, 2021. Further, draft 2020 as a non-government public limited guidelines on the other risk categories and output company under the Companies Act 2013, fl oor are expected to be issued by June 2022, having its registered offi ce in New Delhi to followed by fi nal guidelines in September 2022. 123ANNUAL REPORT 2021-22 VI.16 Master Direction - Reserve Bank of India VI.21 A Committee under the chairmanship of (Transfer of Loan Exposures) Directions, 2021 Shri Sudarshan Sen, former Executive Director, and Master Direction - Reserve Bank of India Reserve Bank of India was constituted to undertake (Securitisation of Standard Assets) Directions, a comprehensive review of the regulatory and 2021 were issued on September 24, 2021. legal framework of ARCs. The Committee’s report was released for public comments on November Setting up of an Umbrella Organisation (UO) for 2, 2021. Recommendations of the Committee are UCBs being examined. VI.17 National Cooperative Finance and Major Developments Development Corporation Limited (NCFDC) Regulatory Response to the COVID-19 Pandemic has been advised to resubmit its application for registration as NBFC along with details of the VI.22 Resolution Framework 2.0 : In order to capital raising plan. address the fi nancial diffi culties arising from the second wave of COVID-19 in the fi rst quarter of Discussion Paper on Consolidation of UCB Sector 2021-22 on small borrowers, the Reserve Bank VI.18 The issue of consolidation in the UCB had announced the Resolution Framework 2.0 sector was one of the terms of the reference of the dated May 5, 2021, subsequently revised on June Expert Committee on UCBs. The Committee has, 4, 2021, which permitted lending institutions to however, recommended consolidation of UCBs to restructure personal loans as well as loans to be primarily voluntary. The Committee has further individuals for business purposes, MSMEs, and recommended that scale in the UCB sector may other small businesses with aggregate exposure be achieved by networking of the smaller UCBs up to `50 crore, without a downgrade in the through the UO, for which the Reserve Bank has asset classifi cation, subject to certain conditions. already given 'in principle' regulatory approval to The facility, available to eligible borrowers who the NAFCUB. The work of setting up the UO by did not restructure their accounts under earlier the NAFCUB is in progress. restructuring schemes, was to be invoked up to September 30, 2021. VI.19 An integrated circular was issued on VI.23 Resolution Framework for COVID- October 22, 2021 regarding "Scale Based 19-related Stress – Financial Parameters – Regulation (SBR): A Revised Regulatory Revised Timelines for Compliance: In view of the Framework for NBFCs". This circular contains resurgence of the COVID-19 pandemic in 2021 regulatory instructions on matters relating to and recognising the diffi culties it may pose for the capital requirements, governance standards, borrowers in meeting the operational parameters, prudential regulation, and disclosures applicable it was decided to defer the target date to October to NBFCs in different layers. 1, 2022 for meeting the specifi ed thresholds VI.20 A comprehensive regulatory framework for in respect of the four operational parameters, microfi nance loans was issued on March 14, 2022 viz., total debt/earnings before interest, taxes, which has been made applicable to all regulated depreciation and amortisation (EBITDA), current entities lending in the microfi nance sector. ratio, debt service coverage ratio (DSCR), and 124REGULATION, SUPERVISION AND FINANCIAL STABILITY average DSCR (ADSCR), as part of resolution (Ind-AS) by NBFCs, have also been provided plan in respect of eligible borrowers under the therein. Resolution Framework for COVID-19 related VI.25 Further, in order to increase awareness stress issued on August 6, 2020. However, the amongst the borrowers on the concept of asset target date for achieving the total outside liabilities classifi cation of loan accounts, the circular to adjusted tangible net worth (TOL/ATNW) ratio, dated November 12, 2021 also required lending as crystallised in terms of the resolution plan, institutions to put in place consumer education remained unchanged as on March 31, 2022. literature on their websites, explaining with examples, the concepts of date of overdue, Prudential Norms on Income Recognition, Asset SMA and NPA classifi cation and upgradation, Classifi cation and Provisioning (IRACP) Pertaining with a specifi c reference to day-end process. to Advances Lending institutions were also advised to consider VI.24 In order to ensure uniformity in the displaying such consumer education literature in implementation of IRACP norms across all lending their branches by means of posters and/or other institutions, certain aspects of the extant regulatory appropriate media. Additionally, they were also guidelines were clarifi ed and/or harmonised advised to ensure that their front-line offi cers educate borrowers about all these concepts, vide circular dated November 12, 2021. The with respect to loans availed by them at the time circular elucidated the following: specifi cation of of sanction/disbursal/renewal of loans. These due date/repayment date; operational aspect of instructions shall be complied with at the earliest, classifi cation of an account as special mention but not later than March 31, 2022. account (SMA) and non-performing asset (NPA); defi nition of 'out of order'; aligning 90 days Guidelines on Securitisation of Standard Assets delinquency norm for NPA classifi cation in case VI.26 The direc tions on ‘Securitisation of of interest payments; upgradation of accounts Standard Assets’ issued on September 24, 2021, classifi ed as NPAs; and income recognition policy focusing on traditional securitisation structures, for loans with moratorium on payment of interest. have rationalised the regulatory framework. Subsequently, vide circular dated February 15, The requirements on minimum holding period 2022, NBFCs were allowed time up to September and minimum retention requirement have been considerably simplifi ed, while the capital 30, 2022 to put in place the necessary systems to requirements for securitisation exposures have implement the provision relating to upgrade of NPA been converged with the Basel III requirements, accounts. Also, clarifi cations on certain queries including the concessional capital regime in case received from various stakeholders regarding of simple, transparent, and comparable (STC) applicability of ‘out of order’ defi nition to overdraft securitisations. The guidelines also stipulate (OD) accounts given for non-business purposes, requirements for various facility providers upgradation of NPAs in case of borrowers having to provide a robust support ecosystem for multiple credit facilities from a lending institution, securitisation. impact of November 12, 2021 circular on reporting Guidelines on Transfer of Loan Exposures of credit information to Central Repository of Information on Large Credits (CRILC) and on the VI.27 A robust secondary market in loans can implementation of Indian Accounting Standards be an important mechanism for management of 125ANNUAL REPORT 2021-22 credit exposures by lending institutions. It also fence the operations of branches of a foreign creates additional avenues for raising liquidity. The bank in India. Against this background, Large Master Directions on Transfer of Loan Exposures Exposure Framework (LEF) was made applicable issued on September 24, 2021 lay down the to exposures of foreign bank branches on their comprehensive regulatory framework for transfer Head Offi ce (HO). In order to address the issue of of loan exposures by banks, NBFCs and AIFIs. In additional capital burden on such banks due to the particular, an enabling framework has been put introduction of LEF, instructions on a Credit Risk in place for transfer of stressed loan exposures Mitigation (CRM) mechanism for the foreign bank to a wider set of market participants, subject to branches were issued on September 9, 2021, specifi ed conditions. which allowed the gross exposure of foreign bank branches to HO (including overseas branches) Scale Based Regulation - A Revised Regulatory to be offset with the CRM, while reckoning LEF Framework for NBFCs limits, subject to certain conditions. The CRM VI.28 The contribution of NBFCs towards can comprise cash/unencumbered approved supporting real economic activity and acting as securities held under Section 11(2)(b)(i) of the a supplemental channel of credit intermediation Banking Regulation Act,1949, the sources of alongside banks is well recognised. Higher risk which should be interest-free funds from HO or appetite of NBFCs has, however, contributed remittable surplus retained in the Indian books over time to their size, complexity, and (reserves). Foreign bank branches were permitted interconnectedness, thus, making some of to exclude all derivative contracts executed prior the entities systemically signifi cant that pose to April 1, 2019 (grandfathering), while computing potential threat to fi nancial stability. Pursuant to derivative exposure on the HO. the announcement made in the Statement on Opening of Current Accounts by Banks - Need for Developmental and Regulatory Policies dated Discipline December 4, 2020 on the issue, a discussion VI.30 In order to enforce credit discipline paper titled ‘Revised Regulatory Framework for amongst the borrowers as well as to facilitate NBFCs – A Scale-based Approach’ was issued better monitoring by the lenders, instructions on for public comments on January 22, 2021. Based the manner of opening of cash credit/overdraft on the inputs received from various stakeholders, (CC/OD) and current/collection accounts by banks a revised regulatory framework for NBFCs was were issued on August 6, 2020. The guidelines put in place on October 22, 2021. The revised were revised on October 29, 2021, thereby regulatory framework provides for a layered allowing borrowers, to whom the exposure of the structure for NBFCs based upon their size, activity, banking system is less than `5 crore, to open and perceived riskiness, and will be applicable current accounts and CC/OD accounts without from October 1, 2022. any restrictions. Further, a borrower with CC/OD Large Exposure Framework (LEF) - Credit Risk facility is permitted to maintain current accounts Mitigation (CRM) with any one of the banks with which it has CC/ VI.29 In the absence of a formal cross-border OD facility. Other lending banks were permitted to resolution regime, there was a need to ring- open collection accounts for such customers. 126REGULATION, SUPERVISION AND FINANCIAL STABILITY Report of the Working Group on Digital Lending Review of Instructions on Gold Metal Loan including Lending through Online Platforms and VI.32 Gold (Metal) Loans (GML) are extended Mobile Apps by nominated/designated banks to exporters or VI.31 The Report of the Working Group (WG) domestic manufacturers of gold jewellery. So far, on ‘Digital Lending including Lending through borrowers had no option to use physical gold to Online Platforms and Mobile Applications’ was repay the outstanding loan as they were required placed in public domain on November 18, 2021. to repay the amount only in INR representing It offers a holistic roadmap for development of the value of the borrowed gold. The guidelines digital lending ecosystem, based on the principles in this regard were reviewed and banks are now of technology neutrality, principle-backed required to provide an option to borrowers to repay a part of the GML in physical gold in lots of regulation while addressing regulatory arbitrage. one kilogram (kg) or more, provided the GML was The key recommendations of the report include extended out of locally sourced/gold monetisation (i) restricting balance sheet lending by Digital scheme (GMS)-linked gold and the gold used for Lending Apps (DLAs) only to REs of the Reserve repayment conforms to the prescribed standards, Bank or entities registered under any other law and is delivered on behalf of the borrower to the for specifi cally undertaking lending business; (ii) lending bank directly by a refi ner or a central enacting a separate legislation to prevent illegal agency acceptable to the bank, without the digital lending activities; (iii) treating Buy Now Pay borrower’s involvement. Banks were also advised Later (BNPL) as part of balance sheet lending and to suitably incorporate the above aspects into their prohibition on unregulated entities from offering lending policy and continue to monitor the end- First Loss Default Guarantee (FLDG); (iv) setting use of funds lent under GML. up of a Self-Regulatory Organisation (SRO) for the digital lending ecosystem; (v) setting up of a Foreign Currency (Non-Resident) Accounts Digital India Trust Agency (DIGITA) to verify the (Banks) Scheme [FCNR (B)] – LIBOR Transition DLAs and maintain a public register of all the VI.33 The Financial Conduct Authority (FCA), verifi ed apps; (vi) loan servicing and re-payments UK had announced the cessation of LIBOR mandatorily through bank account/fully KYC benchmark effective December 31, 2021. compliant pre-paid instrument (PPI) account; (vii) Globally, fi nancial markets are moving towards prescription of baseline technology standards for the adoption of Alternative Reference Rates DLAs; (viii) use of explainable and ethical artifi cial (ARRs) like SOFR (USD), SONIA (GBP), intelligence (AI); (ix) informed and explicit consent TONAR (JPY), ESTR (Euro) and SONAR (CHF), for data collection; (x) key fact statement for loan as the new benchmark in place of LIBOR. These in standardised format; (xi) anti-predatory lending ARRs are administered/supported by the central policy; and (xii) code of conduct for recovery. banks of the respective countries. In view of The report has elicited feedback from a range the imminent cessation of LIBOR benchmark, of stakeholders. The implementation framework the extant instructions were amended to permit would require close inter-agency coordination, banks to offer interest rates on FCNR (B) deposits including the government. using widely accepted ‘Overnight ARR for the 127ANNUAL REPORT 2021-22 respective currency’ with upward revision in the Notifi cation of Housing Finance Companies (HFCs) interest rates’ ceiling by 50 bps. as ‘Financial Institution’ under Securitisation and Reconstruction of Financial Assets and Export Credit in Foreign Currency - Benchmark Enforcement of Security Interest (SARFAESI) Act, Rate 2002 VI.34 In view of the impending discontinuance VI.37 Earlier, for notifi cation as ‘Financial of LIBOR as a benchmark rate after December Institution’ under Section 2(1)(m)(iv) of SARFAESI 2021, banks were permitted to extend export Act, 2002 for the purpose of enforcement credit using any other widely accepted ARR in the of security interest in secured debts, HFCs currency concerned. complying with certain prescribed norms such as Restructuring of Derivative Contracts – LIBOR compliance with minimum supervisory rating, no Transition adverse report from other authorities, etc., were VI.35 For derivative contracts, as per extant required to apply on an individual entity basis. instructions, a change in any of the parameters of Post simplifi cation of the procedure of notifi cation the original contract is treated as restructuring and of HFCs as ‘Financial Institution’ under SARFAESI the resultant change in the mark-to-market value of Act, 2002 by the Government of India (GoI) vide the contract on the date of restructuring is required Gazette Notifi cation No. S.O. 2405(E) dated June to be cash settled. Since the change in reference 17, 2021, all HFCs, having assets worth `100 rate from LIBOR is a "force majeure" event, banks crore and above, were notifi ed as ‘Financial were advised that change in reference rate from Institution’ under SARFAESI Act, 2002. Hence, the LIBOR/LIBOR-related benchmarks to an ARR previously prescribed criteria for such notifi cation would not be treated as restructuring. of HFCs were withdrawn. Report of the Committee to Review the Working of Notifi cations on Registration of Factors and Asset Reconstruction Companies (ARCs) Registration of Assignment of Receivables for Factoring Transactions on TReDS Platform VI.36 Against the backdrop of a signifi cant build-up of non-performing assets in the fi nancial VI.38 Subsequent to amendment to Factoring system and concerns over the performance of Regulation Act, 2011, the Reserve Bank has ARCs, the Reserve Bank had set up an external issued requisite regulations pertaining to the Committee (Chairman: Shri Sudarshan Sen, manner of granting the certifi cate of registration former Executive Director, RBI) to review, inter (CoR) to companies which propose to undertake alia, the existing legal and regulatory framework factoring business. In addition to NBFC-Factors, applicable to ARCs and recommend measures to all non-deposit taking NBFC-investment and credit enhance their effi cacy and to improve liquidity in companies (NBFC-ICCs) with asset size of 1,000 and trading of security receipts. The Committee crore and above have been allowed to undertake after extensive deliberations with stakeholders, factoring business, subject to satisfaction of certain submitted its report, which was released on the conditions; and other NBFCs can undertake Reserve Bank’s website on November 2, 2021 for factoring business by seeking registration as public comments. The recommendations of the NBFC-Factors. Further, the Reserve Bank has Committee are being examined. issued regulations on registration of assignment of 128REGULATION, SUPERVISION AND FINANCIAL STABILITY receivables with central registry by TReDS entities, the fi nancial market, it was decided to formulate in case of factoring transactions undertaken on guidelines on dividend distribution by NBFCs. TReDS platform. These steps are expected to Accordingly, a draft circular on ‘Declaration of enhance the scope of entities eligible to undertake Dividends by NBFCs’ was issued on December 9, factoring transactions and would also help in 2020, for public comments. Based on the feedback increased fl ow of credit to MSMEs. received, fi nal guidelines were issued vide circular dated June 24, 2021. Discussion Paper on Review of Prudential Norms for Investment Portfolio of Banks Implementation of Net Stable Funding Ratio (NSFR) Guidelines VI.39 Extant regulatory instructions on classifi cation and valuation of investment portfolio VI.41 The fi nal guidelines regarding ‘Basel III by SCBs are largely based on a framework Framework on Liquidity Standards – Net Stable introduced in October 2000, drawing upon the then Funding Ratio (NSFR)’ were issued on May 17, prevailing global standards and best practices. In 2018 and were scheduled to come into effect view of the subsequent signifi cant developments in from April 1, 2020. However, due to uncertainty on account of COVID-19, the implementation of global standards on classifi cation, measurement, these guidelines was deferred progressively till and valuation of investments, the linkages with the October 1, 2021. Accordingly, the guidelines on capital adequacy framework as well as progress NSFR have come into effect from October 1, 2021. in the domestic fi nancial markets, there is a need to review and update these norms. Accordingly, a Review of the Threshold Limit for Small Business discussion paper covering all the relevant aspects Customers under Liquidity Standards was placed in the public domain for comments on VI.42 With the objective to better align the January 14, 2022. The discussion paper proposes Reserve Bank’s guidelines with the Basel investment portfolio to be characterised in three Committee on Banking Supervision (BCBS) categories, viz., Held to Maturity (HTM), Available standard and enable banks to manage liquidity for Sale (AFS) and Fair Value through Profi t and risk more effectively, the threshold limit for Loss Account (FVPTL), within which the Held for deposits and other extensions of funds made Trading (HFT) will be a sub-category. It proposes, by non-fi nancial small business customers were inter alia, symmetric recognition of unrealised gains increased from `5 crore to `7.5 crore for the and losses, with concerns on such recognition purpose of maintenance of Liquidity Coverage addressed through prudential fi lters on regulatory Ratio (LCR) and NSFR. capital and dividend distribution supplemented by Investment in Umbrella Organisation (UO) by enhanced disclosures. Primary (Urban) Cooperative Banks Declaration of Dividend by NBFCs VI.43 In order to facilitate investment in capital of VI.40 Unlike banks, there are currently no UO of UCB Sector by primary (urban) cooperative guidelines in place with regard to the distribution of banks, it has been clarifi ed that investment in UO dividend by NBFCs. Keeping in view the increasing by UCBs shall be exempted from prudential limits signifi cance of NBFCs in the fi nancial system prescribed for investment in non-SLR securities and their inter-linkages with other segments of and unlisted securities. 129ANNUAL REPORT 2021-22 Developments Related to the Sustainable Finance risks in their business strategies as also in their Group governance and risk management frameworks, the Reserve Bank is preparing a consultative VI.44 In May 2021, the Reserve Bank set discussion paper. In line with the international best up a Sustainable Finance Group (SFG) within practices, banks will be guided to adopt a forward- DoR, tasked with spearheading its efforts and looking, comprehensive and strategic approach regulatory initiatives in the area of climate risk and to climate-related risks. During January 2022, the sustainable fi nance. The SFG would coordinate SFG has also undertaken a survey on climate with other national and international agencies risk and sustainable fi nance among public sector on issues relating to climate change. Moreover, banks, private sector banks and leading foreign the group would be instrumental in suggesting banks in India. The feedback from the survey strategies and evolving a regulatory framework, would help inform the regulatory and supervisory including appropriate disclosures, which could be approach of the Reserve Bank to climate risk prescribed for banks and other regulated entities and sustainable fi nance as also help fi ne-tune its (REs) to propagate sustainable practices and capacity building and awareness measures in this mitigate climate related risks in the Indian context. regard. VI.45 The SFG represents the Reserve Bank Simplifi cation of the ‘Periodic Updation of KYC’ in the bilateral India-UK Sustainable Finance Process Forum which was set up in 2020 to drive forward a deeper cooperation between India and the UK on VI.48 The periodic updation of the Know Your sustainable fi nance. It also represents the Reserve Customer (KYC) information is to be carried out by Bank on the G20 Sustainable Finance Working REs at least once in 2 years, 8 years and 10 years Group, International Platform on Sustainable for high-risk, medium-risk and low-risk customers, Finance, the Financial Stability Board’s (FSB’s) respectively. This process has been simplifi ed to Working Group on Climate Risk and the Work a signifi cant extent vide amendment dated May Stream on Climate-related Disclosures. The 10, 2021 to the Master Direction on KYC dated Reserve Bank is also a member of the Task Force February 25, 2016. For instance, in case of no- on Climate-related Financial Risks set up by the change in KYC details, a self-declaration can be BCBS. furnished by the customer. Self-declaration can be provided using various channels, including VI.46 The Reserve Bank was featured in the fi rst digital channels such as customer’s email, mobile, Sustainable Regulation Annual Report published ATMs, online banking/internet banking and by the World-Wide Fund for Nature (WWF) on mobile application of REs. The self-declaration October 28, 2021. According to the report, with provision in case of no-change in KYC details growing awareness about the fi nancial impact of has also been introduced for Legal Entities (LEs) climate change, central banks are increasingly similar to that for individual customers. Further, taking steps to create a more sustainable fi nancial in case of a change only in the address details system. of the individual customer, a self-declaration of VI.47 To assess the progress of the REs in the new address has been allowed. The declared managing climate risk and also to sensitise them address shall have to be verifi ed by REs through to incorporate climate-related and environmental positive confi rmation within two months, by means 130REGULATION, SUPERVISION AND FINANCIAL STABILITY such as address verifi cation letter, contact point VI.51 Accordingly, vide circular dated September verifi cation, etc. Certain additional measures have 13, 2021, the Reserve Bank enabled all the been introduced such as (i) verifi cation of existing NBFCs, payment system providers and payment PAN number at the time of periodic updation on system participants desirous of obtaining Aadhaar KYC; (ii) migration of legacy accounts opened Authentication Licence - KYC User Agency on the basis of old documents to current norms, (KUA) Licence or sub-KUA Licence (to perform as per extant Prevention of Money Laundering authentication through a KUA), issued by the (PML) rules; (iii) REs to provide acknowledgement UIDAI, to submit their application to the DoR for to customers both at the time of submission of onward submission to UIDAI after due diligence. KYC documents (or self-declaration) and after Recommendations of the Internal Working Group updation of KYC documents in their record; and to Review Extant Ownership Guidelines and (iv) REs have been instructed to consider making Corporate Structure for Indian Private Sector available the facility of periodic updation of KYC Banks at any branch. Risk-based approach for periodic updation of KYC has been mandated for REs. VI.52 An Internal Working Group constituted Therefore, any additional measures apart from on June 12, 2020 to review extant ownership the above shall have to be clearly specifi ed by guidelines and corporate structure for Indian private REs in their internal KYC policy, duly approved sector banks has made 33 recommendations. The by the Board of Directors or any committee of the Reserve Bank has accepted 21 recommendations Board to which such power has been delegated. (some with partial modifi cations) including the In addition to the above, Video based Customer recommendations on increasing the promoter Identifi cation Process (V-CIP) has been extended holding to 26 per cent of paid-up voting equity share for periodic updation of KYC. capital, reporting of pledge of shares by promoters, increasing minimum initial capital requirement VI.49 These simplifi ed measures will not only for licensing new banks, and relaxation of listing provide convenience to the customers to comply norms for small fi nance banks (SFBs) to be set up with the requirements of periodic updation of in future. The remaining 12 recommendations are KYC but will also enable REs to update the KYC under examination. A press release in this regard records on time. was issued on November 26, 2021. Aadhaar e-KYC Authentication Licence for Non- bank Entities Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the VI.50 In terms of Section 11A of the PML Act, Board dated April 26, 2021 2002, entities other than banking companies may, by notifi cation of the central government, be VI.53 A discussion paper on ‘Governance in permitted to carry out authentication of client’s Commercial Banks in India’ was issued by the Aadhaar number using e-KYC facility provided Reserve Bank on June 11, 2020 to review the by the Unique Identifi cation Authority of India framework for governance in the commercial (UIDAI). Such notifi cation shall be issued only banks. Based on the feedback received, a after consultation with UIDAI and the appropriate comprehensive review of the framework has been regulator. carried out, and a Master Direction on Governance 131ANNUAL REPORT 2021-22 will be issued in due course. In the interim, due to death, applicable interest rate is 0.125 per to address a few operative aspects received cent higher than those for premature closure due through such feedback, instructions regarding the to loan default. chair and meetings of the board, composition of Submission of Form IX on eXtensible Business certain committees of the board, age, tenure and Reporting Language (XBRL) Live Site remuneration of directors, and appointment of the VI.56 In order to improve the effi ciency of Form whole-time directors (WTDs) have been issued on IX return (on unclaimed deposits) submission, the April 26, 2021. hard copy/paper submission of Form IX return has Guidelines on Compensation of Whole Time been dispensed with, effective from December Directors/Chief Executive Offi cers/ Material Risk 31, 2021. Accordingly, all commercial banks have Takers and Control Function Staff – Clarifi cation been advised to submit the captioned return in dated August 30, 2021 electronic form on XBRL live site, using digital VI.54 On August 30, 2021 a clarifi cation was signature of one authorised offi cial of the bank. issued, in respect of the share-linked instruments Revised Instructions on Safe Deposits Locker/ including employee stock ownership plans Safe Custody Article Facility Provided by Banks (ESOPs), granted after the accounting period VI.57 The instructions on providing safe deposit ending March 31, 2021, advising that the fair value of such instruments should be recognised as an locker/safe custody article facility by banks have expense, beginning with the accounting period for been revised on August 18, 2021, in public interest. which the approval has been granted. The revisions mainly relate to enhancement of safety/security aspects, need for a model locker Amendments in Gold Monetisation Scheme agreement and disclosure of terms and conditions (GMS), 2015 on the websites of banks. The revised instructions VI.55 The Master Directions on Gold Monetisation have come into force from January 1, 2022 (except Scheme, 2015 dated October 22, 2015 did not where otherwise specifi ed) and are applicable contain specifi c instructions to designated banks to both new and existing safe deposit lockers for calculation of interest in case of premature and safe custody articles facility with the banks. closure of Medium- and Long-Term Government Banks have been given time till January 1, 2023 Deposit (MLTGD) under GMS before/after lock- to renew their locker agreements with the existing in period in case of death of the depositor and customers. also in case of default of loan taken against Appointment of Chief Risk Offi cer in Primary MLTGD certifi cate. The requisite amendments (Urban) Cooperative Banks in the Master Directions were carried out vide circular dated October 28, 2021 to include details VI.58 With the growing complexities in the of applicable interest rates, based on the actual cooperative sector and the increase in their size period for which the deposit has run (divided into and scope of business, primary (urban) cooperative various time buckets). Being premature closure in banks (UCBs) face diverse and greater degree nature, the applicable interest rates are lower than of risks in their operations. Accordingly, UCBs those applicable to MLTGD deposits in normal having asset size of `5,000 crore or above have course. Nonetheless, in case of premature closure been advised vide circular dated June 25, 2021 132REGULATION, SUPERVISION AND FINANCIAL STABILITY to appoint a chief risk offi cer. They have also been COVID-19 pandemic, the timeline for submission advised to set up a risk management committee of of returns under Section 31 of Banking Regulation the Board in order to provide the required level of Act 1949 [As Applicable to Cooperative Societies attention on various aspects of risk management. (AACS)] for the fi nancial year ended March 31, 2021, was extended by three months, i.e., till Amalgamation of District Central Cooperative September 30, 2021. Banks (DCCBs) with State Cooperative Bank (StCB) Caution Notice to Public on the Use of the Word “Bank/Banker/Banking” by Cooperative Societies VI.59 On May 24, 2021, the Reserve Bank issued a circular on voluntary amalgamation of DCCBs VI.62 Members of public were cautioned through with StCB under the provisions of Section 44A, a press release dated November 22, 2021 that read with Section 56 of the Banking Regulation some of the cooperative societies are using the (BR) Act, 1949 as amended vide BR (Amendment) word “Bank” which is in violation of Section 7 Act, 2020 (39 of 2020). The circular was issued for of Banking Regulation (BR) Act and are also dissemination of the amended statutory provisions accepting deposits from non-members/nominal and consequent changes in the procedure/ members/associate members which tantamount indicative benchmarks for amalgamation of to conducting banking business in violation of DCCBs with StCB. the provisions of the BR Act, 1949. The BR Act, 1949 was amended by the BR (Amendment) Act, Appointment of Managing Director (MD)/ 2020 making cooperative societies ineligible to Whole-Time Director (WTD) in Primary (Urban) use the words “bank”, “banker”, or “banking” as Cooperative Banks part of their names, except as permitted under the VI.60 A circular on the appointment of MD/WTD provisions of BR Act, 1949 or by the Reserve Bank. in UCBs was issued by the Reserve Bank on June Accordingly, it was notifi ed that such societies 25, 2021. The circular prescribes eligibility, ‘fi t and have neither been issued any licence under the proper’ criteria, etc., for the post of MD/WTD in BR Act, 1949 nor have they been authorised by UCBs. It also advises UCBs to seek the Reserve the Reserve Bank for doing banking business. The Bank’s prior approval (and process thereof) for insurance cover from the Deposit Insurance and appointment/re-appointment/termination of MD/ Credit Guarantee Corporation (DICGC) is also not WTD. This circular was issued to enhance the available for deposits placed with these societies. governance standards in UCBs and to give effect It was advised to exercise caution and carry out to the provisions of the BR (Amendment) Act, due diligence of such cooperative societies if they 2020. claim to be a bank and to look for banking licence Submission of Returns under Section 31 of the issued by the Reserve Bank before dealing with Banking Regulation Act, 1949 (AACS) – Extension them. of Time VI.63 State governments were also informed VI.61 Considering the diffi culties faced by about the provisions under the BR Act, 1949 and cooperative banks (i.e., UCBs, state cooperative were requested to take necessary steps/actions banks and central cooperative banks) due to the to refrain/stop such entities within the State from 133ANNUAL REPORT 2021-22 using the word “bank”, “banker”, or “banking” as VI.66 Initiation of Resolution Process of Reliance part of their names or in connection with their Capital Ltd (RCL): Due to defaults in meeting business and to ensure that deposits from non- payment obligations and supervisory concerns, members/nominal members/associate members in exercise of powers conferred by Section 45-IE are not accepted by them. of the Reserve Bank of India Act, 1934, in public interest, the Reserve Bank superseded the Board Resolution of NBFCs under the Insolvency and of Directors of RCL on November 29, 2021 and Bankruptcy Code (IBC), 2016 appointed an Administrator. Subsequently, the VI.64 Completion of Resolution of Dewan application fi led by the Reserve Bank to initiate Housing Finance Corporation Limited (DHFL): CIRP against RCL under IBC, 2016 and Insolvency Post supersession of the Board of Directors and Bankruptcy (Insolvency and Liquidation of DHFL and appointment of Administrator in Proceedings of Financial Service Providers and November 2019, the Reserve Bank had initiated Application to Adjudication Authority) Rules, 2019 Corporate Insolvency Resolution Process (CIRP) was admitted by NCLT, Mumbai on December 6, under the IBC against DHFL in December 2019. 2021. Presently, the CIRP is undergoing as per With the approval of resolution plan of Piramal provisions of IBC, 2016 and related laws. Group by the National Company Law Tribunal Amendment in DICGC Act (NCLT), Mumbai in June 2021, the resolution process has been formally completed. VI.67 GoI has notifi ed the DICGC (Amendment) Act, 2021 on August 13, 2021. As per the timeline VI.65 Initiation of Resolution Process of Two prescribed in the amended Act, DICGC is liable SREI Group NBFCs [SREI Infrastructure Finance to pay an amount equivalent to the deposits Limited (SIFL) and SREI Equipment Finance outstanding (up to a maximum of `5 lakh) within Limited (SEFL)]: Due to serious supervisory 90 days of placing the bank under restrictions. concerns and default to creditors, the Reserve The Act also provides that in case the Reserve Bank superseded the Board of Directors of SIFL Bank is in the process of fi nalising a scheme of and SEFL. Post supersession and appointment of amalgamation of the insured bank with another Administrator on October 4, 2021, applications for banking institution or a scheme of compromise initiation of CIRP under IBC, 2016 and Insolvency or arrangement or reconstruction and the same and Bankruptcy (Insolvency and Liquidation is communicated to DICGC, then the date of Proceedings of Financial Service Providers and repayment can be extended by a period not Application to Adjudication Authority) Rules, exceeding 90 days (also refer to Box VI.5). 2019 have been admitted by NCLT, Kolkata on Resolution of Punjab and Maharashtra Cooperative October 8, 2021. Subsequently, the Administrator Bank Limited, Mumbai (PMC Bank Ltd.) has moved an application for group insolvency with NCLT under the integrated Committee of VI.68 The PMC Bank Ltd. had received binding Creditors (CoC). NCLT, Kolkata has approved the offers from investors for its reconstruction, in said application in February 2022. Presently, the response to the Expression of Interest (EOI) dated CIRP is progressing as per the provisions of IBC, November 3, 2020. After careful consideration, the 2016 and related laws. proposal from Centrum Financial Services Limited 134REGULATION, SUPERVISION AND FINANCIAL STABILITY (CFSL) along with Resilient Innovation Private bank (USFB). The scheme was sanctioned and Limited was found to be prima facie feasible. notifi ed by the GoI under Section 45 of BR Act, Accordingly, in specifi c pursuance to their offer effective date of amalgamation being January 25, dated February 1, 2021 in response to the EOI, 2022. the Reserve Bank, on June 18, 2021, granted “in- Regulatory Framework for Microfi nance Loans principle” approval, valid for 120 days, to CFSL to VI.69 A comprehensive regulatory framework for set up a SFB under its general guidelines dated December 5, 2019 for ‘on tap’ licensing of SFBs microfi nance loans was issued on March 14, 2022 in the private sector. Subsequently, Unity Small wherein uniform guidelines have been put in place Finance Bank Limited (USFB), with CFSL as the for microfi nance loans provided by all REs of the promoter, was granted banking licence on October Reserve Bank. This framework introduces activity- 12, 2021, which commenced its operations based regulation in the microfi nance sector and effective November 1, 2021. The Reserve Bank, is intended to address the concerns regarding on November 22, 2021, placed in public domain, over-indebtedness of small borrowers, enhance a draft scheme of amalgamation of the PMC the customer protection measures, and enable Bank Ltd. with USFB, inviting suggestions from the competitive forces to bring down the interest members, depositors, and other creditors of rates by empowering the borrowers to make an transferor bank (PMC Bank Ltd.) and transferee informed decision (Box VI.1). Box VI.1 Regulatory Framework for Microfi nance Loans Based on the recommendations of the Malegam Committee1, 2021 for feedback from all the stakeholders. Based on the a comprehensive regulatory framework for NBFC-MFIs was feedback received, a comprehensive regulatory framework issued in 2011. This framework, inter alia, included certain for microfi nance loans applicable to all REs was issued customer protection measures for microfi nance borrowers, on March 14, 2022. Besides introducing activity-based viz., limits on maximum loan amount and number of lenders, regulation in the microfi nance sector, this framework is intended to deleverage the microfi nance borrowers, enhance loans without collateral, no pre-payment penalty, fl exibility the customer protection measures, enable the competitive of repayment periodicity, regulatory ceiling on interest rates, forces to bring down the interest rates and provide fl exibility etc. Over the years, the landscape of microfi nance sector to the REs to meet the credit needs of the microfi nance has changed signifi cantly due to conversion/merger of borrower comprehensively. some of the large NBFC-MFIs to/with banks. Consequently, the share of NBFC-MFIs in the overall microfi nance sector Deleveraging of Microfi nance Borrowers has now come down to 35 per cent. However, the customer To address the concerns of over-indebtedness of protection measures as applicable to NBFC-MFIs are not microfi nance borrowers, a common defi nition of applicable to other lenders extending microfi nance loans to ‘microfi nance loans’ for all REs, viz., collateral-free loan the same borrowers. given to a household having annual household income up to `3,00,000 has been introduced to identify the target In this context, the Reserve Bank had released a consultative set of borrowers with certainty. Further, loan repayments document on ‘Regulation of Microfi nance’ on June 14, (Contd.) 1 In the wake of Andhra Pradesh microfi nance crisis, a sub-committee of the Central Board of Directors of the Reserve Bank was constituted in October 2010 to study issues and concerns in the microfi nance sector under the Chairmanship of Shri Y.H. Malegam. The report was submitted to the Reserve Bank on January 19, 2011. 135ANNUAL REPORT 2021-22 of the household have been capped at 50 per cent of the interest rates charged by them. These specifi c measures, household income, thus linking the eligible loan amount to supplemented with other measures, viz., no pre-payment the borrowers’ repayment capacity. Besides protecting the penalty (to provide borrowers with the option to switch small borrowers from the perils of overleveraging, these between lenders), cap on repayment obligations as a measures are also expected to further fi nancial inclusion percentage of household income (thus nudging the lenders by requiring the lenders to venture into new geographies to to lower interest rates to keep the instalments within the expand their business. prescribed cap), keeping a check on the borrowers’ over- indebtedness (thus bringing down their credit risk premium, Enhancement of Customer Protection Measures driving lenders to enter into new areas to expand their To ensure borrowers’ protection from coercive recovery business thus increasing competition in low-competition practices, this framework, inter alia, requires a mechanism areas), reducing the minimum threshold of microfi nance by REs for engaging with borrowers facing repayment loans for NBFC-MFIs from 85 per cent of net assets to 75 related diffi culties, prohibition on harsh recovery practices, per cent of total assets (thus lowering their concentration recovery at a designated/central designated place to risk and in turn, cost of funds) and increasing the maximum be decided mutually by the borrower and the RE, due threshold on microfi nance loans for NBFCs other than diligence process for engagement of recovery agents and NBFC-MFIs from 10 per cent to 25 per cent of total assets a dedicated mechanism for redressal of recovery related (thus increasing competition) are expected to increase price grievances. Besides, certain customer protection measures competition and lower interest rates in the microfi nance applicable only to NBFC-MFIs, viz., no pre-payment penalty, sector. no requirement of collateral and fl exibility of repayment Flexibility to Design Products/Services periodicity for microfi nance loans have been extended to all Certain product specifi c requirements for microfi nance loans REs. of NBFC-MFIs such as limits on loan amount (overall limit Pricing of Microfi nance Loans of `1,25,000 along with a sub-limit of `75,000 in fi rst cycle), tenure of loan (minimum tenure of 24 months for loans above A standardised and simplifi ed factsheet on pricing of `30,000), purpose of loan (minimum 50 per cent of loans for microfi nance loans has been introduced to enhance the income generation activities) have been withdrawn. This will borrowers’ price-sensitivity, thus empowering them to make provide fl exibility to NBFC-MFIs to customise their products informed decisions. A uniform methodology for calculation of and services to meet the needs of microfi nance borrowers effective annualised interest rate has also been prescribed in a comprehensive manner. to maintain comparability across lenders. Besides, all REs are required to display minimum, maximum, and average Source: RBI. Fair Valuation of Banks’ Investment in Re- fair value arrived as above shall be immediately capitalisation Bonds recognised in the profi t and loss account. VI.70 At present, the investments classifi ed under Agenda for 2022-23 HTM portfolio are valued at acquisition cost. It is VI.71 For the year ahead, the Department will expected that the acquisition of such instruments focus on the following key deliverables: shall be at the fair value of the security at the time of its acquisition. Accordingly, it has been clarifi ed, • Convergence with Basel III standards and vide circular dated March 31, 2022, that banks’ issuance of fi nal guidelines for computation investment in special securities received from the of capital charge for credit risk, market GoI towards banks’ recapitalisation requirement risk, and operational risk; from 2021-22 onwards shall be recognised at fair value/market value on initial recognition in HTM. • Issue of discussion paper on expected Any difference between the acquisition cost and loss approach for provisioning; 136REGULATION, SUPERVISION AND FINANCIAL STABILITY • Issuance of guidelines on securitisation of FinTech Department non-performing assets; VI.72 The FinTech Division2, which was operating • Issue of discussion paper on climate risk within the Department of Payment and Settlement and sustainable fi nance; Systems (DPSS) since July 2020, is now made a • Issuance of guidelines on prudential and full-fl edged Department effective January 4, 2022, conduct issues associated with digital with a view to give further focus to the area and lending; facilitate innovation in FinTech sector (Box VI.2). The Department will not only promote innovation • Issuance of guidelines on fi nancial in the sector, but also identify the challenges and statements - presentation and disclosure opportunities associated with it and address them for rural cooperative banks; in a timely manner. The Department will also • Issuance of part II of the guidelines on provide a framework for further research on the raising capital funds for primary (urban) subject that can aid policy interventions by the cooperative banks; Reserve Bank. Accordingly, all matters related • Guidance note on principles for sound to the facilitation of constructive innovations and management of operational risk and incubations in the FinTech sector, which may have principles for operational resilience; and wider implications for the fi nancial sector/markets • Review of the following guidelines: (a) and also falling under the purview of the Reserve prudential framework for resolution Bank, will now be examined by the Department. of stressed assets; (b) restructuring Further, issues related to inter-regulatory of projects under implementation by coordination and international coordination on aligning it with prudential framework; FinTech would also fall in its domain. (c) investment guidelines and fi nancial Major Initiatives statements’ formats for UCBs; (d) dividend declaration policy of commercial banks; Regulatory Sandbox - Cohorts (Utkarsh) (e) liquidity management framework for VI.73 Under the fi rst cohort of the Regulatory commercial banks and UCBs; (f) capital Sandbox on “Retail Payments”, products and adequacy framework for SFBs and services encompassing technologies like Near Payments Banks (PBs); (g) instructions on Field Communication (NFC), sound waves and credit and debit cards; (h) instructions on Interactive Voice Response (IVR) were tested. All inoperative accounts, centralised hosting six products were found viable within the boundary of data on inoperative/unclaimed deposit accounts; and (i) recommendations of the conditions defi ned during testing. Under the second Expert Committee on the primary (urban) cohort with theme ‘Cross-border Payments’, eight cooperative banks and taking steps to entities underwent testing. The third cohort with issue regulatory instructions based on theme ‘MSME lending’ was opened in October these recommendations. 2021. The theme for fourth cohort - ‘Prevention and 2 FinTech Unit was set up in the Department of Regulation (DoR) in June 2018 for acting as a central point of contact in the Reserve Bank for all activities related to FinTech. 137ANNUAL REPORT 2021-22 Box VI.2 Facilitating the FinTech Innovation: The Reserve Bank’s Approach The traditional fi nancial landscape has witnessed a Working Group on Digital Lending (November 18, 2021) is fundamental change in its structure and way of functioning, another exercise to enable the creation of a comprehensive mostly driven by the widespread adoption of technology regulatory framework for the digital space. in the last decade. FinTech has disrupted the Banking, The Reserve Bank has also assumed non-conventional Financial Services, and Insurance (BFSI) segment in its central banking role through its initiatives such as regulatory way of product structuring, back-end analytics, delivery of sandbox, establishment of the Reserve Bank Innovation services, etc. As expected, such innovation fi rst disrupts Hub, conducting hackathon, etc. With a view to give focused the market and once it establishes its constructive role, the attention to its initiatives and to deal with emerging issues in regulators and authorities step in to regulate the space to the dynamically changing fi nancial landscape, the Reserve nurture the innovation in a sustainable manner and to also Bank has set up a FinTech Department. Having a single mitigate any associated risks. Even though innovations touchpoint for all issues related to facilitation of constructive claim to thrive best when free of regulations, regulations/ innovations and incubations in the FinTech sector will legislations are needed for sustainable growth of a sector. certainly bring the required convergence needed to have a With increasing impact of the FinTech segment on both unifi ed approach regarding the sector. macro (fi nancial stability and cyber security) and micro levels In parallel, the central bank, while encouraging innovation, is (consumer protection and fi nancial inclusion), it becomes also factoring in the emerging risks in the FinTech segment. pertinent to keep facilitating innovation while also bringing Greater use of technology accentuates the concerns related regulatory order in the FinTech space. Balancing such to cyber security. Further, the involvement of BigTechs in the innovation with regulation has been the Reserve Bank’s BFSI segment also brings along the systemic risks. All of nuanced approach that has been dynamically evolving the above have implications for fi nancial stability and it is along with market developments. the endeavour of the Reserve Bank to mitigate such risks To deal with the unique developments in the sector, through careful choice of technology and frameworks, while the Reserve Bank has also made conscious efforts to providing an impetus to the FinTech in a wide array of useful reinvent its primary role as innovation facilitator. Some of applications in the fi nancial service industry. the examples of direct FinTech regulation by the Reserve To handle the above issues, the Reserve Bank’s approach Bank have been in the form of regulations for Non-Banking will have to balance innovation with regulation, without Financial Company – Peer to Peer (NBFC-P2P) platforms, compromising on any of the principles of risk management. Account Aggregators, Trade Receivables Discounting System (TReDS) platforms, etc. The latest Report of the Source: RBI. Mitigation of Financial Frauds’ - was announced. under examination. The introduction of CBDC has ‘On Tap’ application facility for themes of closed been announced in the Union Budget 2022-23 and cohort was also enabled. an appropriate amendment to the RBI Act, 1934 has been included in the Finance Bill, 2022. The Central Bank Digital Currency (CBDC) Finance Bill, 2022 has been enacted, providing a VI.74 The Reserve Bank has been exploring the legal framework for the launch of CBDC. pros and cons of introduction of CBDC in India. HARBINGER 2021 The design of CBDC needs to be in conformity with the stated objectives of monetary policy, VI.75 The Reserve Bank launched its fi rst global fi nancial stability and effi cient operations of hackathon ‘H ARBINGER 2021 - Innovation for currency and payment systems. Accordingly, the Transformation’ in November 2021, with the appropriate design elements of CBDCs that could following four problem statements: (a) innovative, be implemented with little, or no disruption are easy-to-use, non-mobile digital payment solutions 138REGULATION, SUPERVISION AND FINANCIAL STABILITY for converting small-ticket cash transactions to • Facilitating setting up of 75 digital banking digital mode; (b) context-based retail payments units in 75 districts of the country; and to remove the physical act of payment from • Ensuring execution of key projects of payment experience; (c) alternate authentication importance through the Reserve Bank mechanism for digital payments; and (d) social Innovation Hub. media analysis monitoring tool for detection of digital payment fraud and disruption. The 4. SUPERVISION OF FINANCIAL hackathon has received encouraging response INTERMEDIARIES from domestic and international contestants. Department of Supervision (DoS) Reserve Bank Innovation Hub VI.79 The Department of Supervision (DoS) is VI.76 To foster innovation in a sustainable entrusted with the responsibility of supervising all manner and through an institutional set-up, the SCBs [excluding regional rural banks (RRBs)], Reserve Bank Innovation Hub (RBIH) was set-up Local Area Banks (LABs), Payments Banks (PBs), as a wholly owned subsidiary of the Reserve Bank. SFBs, CICs, AIFIs, UCBs, NBFCs [excluding The Hub has an independent Board with eminent Housing Finance Companies (HFCs)] and ARCs. members from industry and academia and has its headquarters in Bengaluru. Commercial Banks VI.77 The Hub will collaborate with fi nancial VI.80 The Department took a number of sector institutions, technology, industry and measures to further strengthen both on-site and academic institutions and will coordinate efforts for off-site supervision of the SCBs (excluding RRBs), exchange of ideas and development of prototypes LABs, PBs, SFBs, CICs and AIFIs during the year. related to fi nancial innovations for creating an Agenda for 2021-22 eco-system that would focus on promoting access VI.81 The Department had set out the following to fi nancial services and products and would goals for supervision of SCBs during the year: further fi nancial inclusion. It would also develop the required internal infrastructure to promote • Strengthening the on-site assessment FinTech research and facilitate engagement with of oversight and assurance functions, innovators and start-ups. including risk and compliance culture, as also business strategy/model (Utkarsh) Agenda for 2022-23 [Paragraph VI.82]; VI.78 In 2022-23, the Department will focus on • Adoption of innovative and scalable the following goals: SupTech to enhance the effi ciency and • Implementation of the roadmap laid down effi cacy of supervisory processes by by ‘Vision and Strategy Document on modifying its capacity and capability FinTech’ (Utkarsh); (Utkarsh) [Paragraph VI.83]; • Exploring policy framework for digital • Streamlining the process of data collection banking, FinTech and BigTechs; from all banks and their off-site assessment • Phased introduction of CBDC (Utkarsh); and on-site supervision of select banks 139ANNUAL REPORT 2021-22 based on the outcome of risk-based model surveillance have been made more structured and developed for KYC/anti money laundering are being continuously refi ned. (AML) supervision (Paragraph VI.84); and Supervising KYC/AML Compliance • Enhancement of Fraud Risk Management VI.84 An analytical model has been developed System, including improving effi cacy of for risk scoring and profi ling of banks based on the EWS Framework, strengthening fraud KYC/AML data submitted by them. The risk scores governance and response system, arrived at through the model form the basis for augmenting the data analysis for off-site and on-site assessment of banks and are monitoring of transactions, introduction of provided as an input for risk-based supervision dedicated Market Intelligence (MI) Unit for (RBS) of them. frauds and implementation of automated Strengthening Fraud Risk Management unique system generated number for each fraud (Paragraph VI.85 - VI.86). VI.85 During 2021-22, the Reserve Bank carried out a study on the implementation of EWS Implementation Status framework in select SCBs, in collaboration with Oversight and Assurance Functions in Banks Reserve Bank Information Technology Private VI.82 Assessment of oversight, assurance Limited (ReBIT). Further, the effectiveness of EWS functions and business model/strategy continue was assessed in select banks by using Machine to be the core areas of focus in supervision. Learning (ML) algorithms. Recognising the primacy of good governance and VI.86 In order to make the analysis of fraud robust internal controls in the functioning of sound data more effective and result oriented, several fi nancial entities, the Reserve Bank now accords improvements like unifi ed fraud reporting system greater weight to the quality of governance and for all SEs, generation of data dashboards and assurance functions in its supervisory assessment. system generated unique identity number for The Reserve Bank’s guidelines in the areas of frauds reported by SEs are being implemented risk management, compliance, internal audit and under the CIMS project. Further, the revised statutory audit aim to impart greater independence Central Fraud Registry (CFR) under the CIMS is and effi cacy to the various wings of assurance slated to have enhanced search capabilities and function in supervised entities (SEs). will provide Application Programming Interface SupTech (API) capabilities for seamless fraud related data transfers from/to reporting entities. VI.83 An integrated supervisory data structure for the entities supervised by the Reserve Bank has Other Initiatives been developed by consolidating and optimising Fraud Analysis the present framework of returns. Data collection from the banks is being further rationalised as part VI.87 An assessment of bank group-wise fraud of Centralised Information Management System cases over the last three years indicates that while (CIMS). While technology has been leveraged in private sector banks reported maximum number of strengthening and expanding the scope of off- frauds, public sector banks contributed maximum site analytics, market intelligence and off-site to the fraud amount (Table VI.1). Frauds have 140REGULATION, SUPERVISION AND FINANCIAL STABILITY Table VI.1: Fraud Cases – Bank Group-wise (Amount in ` crore) Bank Group/Institution 2019-20 2020-21 2021-22 Number of Frauds Amount Involved Number of Frauds Amount Involved Number of Frauds Amount Involved 1 2 3 4 5 6 7 Public Sector Banks 4,410 1,48,224 2,901 81,901 3,078 40,282 (50.7) (79.9) (39.4) (59.2) (33.8) (66.7) Private Sector Banks 3,065 34,211 3,710 46,335 5,334 17,588 (35.2) (18.5) (50.4) (33.5) (58.6) (29.1) Foreign Banks 1,026 972 520 3,280 494 1,206 (11.8) (0.5) (7.1) (2.4) (5.5) (2.0) Financial Institutions 15 2,048 24 6,663 10 1,305 (0.2) (1.1) (0.3) (4.9) (0.1) (2.2) Small Finance Banks 147 11 114 30 155 30 (1.7) - (1.6) - (1.7) - Payments Banks 38 2 88 2 30 1 (0.4) - (1.2) - (0.3) - Local Area Banks 2 - 2 - 2 2 - - - - - - Total 8,703 1,85,468 7,359 1,38,211 9,103 60,414 (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) -: Nil/negligible. Note: 1. Figures in parentheses represent the percentage share of the total. 2. The above data is in respect of frauds of `1 lakh and above reported during the period. 3. The figures reported by banks & FIs are subject to change based on revisions filed by them. 4. Frauds reported in a year could have occurred several years prior to the year of reporting. 5. Amounts involved reported do not reflect the amount of loss incurred. Depending on recoveries, the loss incurred gets reduced. Further, the entire amount involved is not necessarily diverted. Source: RBI Supervisory Returns. been occurring predominantly in the loan portfolio driven NPA identifi cation, with a view to ensuring (advances category), both in terms of number prompt and error-free recognition of asset and value (Table VI.2). While the number of frauds impairment. reported by private sector banks were mainly on Agenda for 2022-23 account of small value card/internet frauds, the VI.90 The Department has identifi ed the fraud amount reported by public sector banks was following goals for supervision of SCBs/AIFIs in mainly in loan portfolio. 2022-23: VI.88 An analysis of the vintage of frauds reported • Generate supervisory dashboards for during 2020-21 and 2021-22 shows a signifi cant senior management of the Reserve Bank time-lag between the date of occurrence of a fraud (Utkarsh); and its detection (Table VI.3). 93.73 per cent of the • Back-testing of Early Warning Indicator frauds in 2021-22 by value occurred in previous (EWI) model to assess its predictive fi nancial years as against 91.71 per cent recorded power/creating a new EWI framework for in 2020-21. SCBs; and Prompt Recognition of Impaired Assets • Undertaking process audit of SCBs to VI.89 The Reserve Bank continues to remain identify weaknesses and initiate remedial engaged with the SCBs in implementing system measures. 141ANNUAL REPORT 2021-22 Table VI.2: Frauds Cases- Area of Operations (Amount in ` crore) Area of Operation 2019-20 2020-21 2021-22 Number of Frauds Amount Involved Number of Frauds Amount Involved Number of Frauds Amount Involved 1 2 3 4 5 6 7 Advances 4,608 1,81,942 3,497 1,36,812 3,839 58,328 (52.9) (98.1) (47.5) (99.0) (42.2) (96.5) Off-balance Sheet 34 2,445 23 535 21 1077 (0.4) (1.4) (0.3) (0.4) (0.2) (1.8) Forex Transactions 8 54 4 129 7 7 (0.1) - (0.1) (0.1) (0.1) - Card/Internet 2,677 129 2,545 119 3,596 155 (30.7) (0.1) (34.6) (0.1) (39.5) (0.2) Deposits 530 616 504 434 471 493 (6.1) (0.3) (6.8) (0.3) (5.2) (0.8) Inter-Branch Accounts 2 - 2 - 3 2 - - - - - - Cash 371 63 329 39 649 93 (4.3) - (4.5) - (7.1) (0.2) Cheques/DDs, etc. 201 39 163 85 201 158 (2.3) - (2.2) (0.1) (2.2) (0.3) Clearing Accounts 22 7 14 4 16 1 (0.3) - (0.2) - (0.2) - Others 250 173 278 54 300 100 (2.9) (0.1) (3.8) - (3.3) (0.2) Total 8,703 1,85,468 7,359 1,38,211 9,103 60,414 (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) -: Nil/negligible. Note: 1. Figures in parentheses represent the percentage share of the total. 2. Refer to footnotes 2-5 of Table VI.1. Source: RBI Supervisory Returns. Table VI.3: Vintage of Frauds Reported in Urban Cooperative Banks (UCBs) 2020-21 and 2021-22 VI.91 The Department undertook continuous (Amount involved >= `1 lakh) monitoring of the UCBs during the year to ensure 2020-21 2021-22 the development of a safe and well-managed Occurrence of Amount Occurrence of Amount Fraud Involved Fraud Involved cooperative banking sector. (` crore) (` crore) 1 2 3 4 Agenda for 2021-22 Before 2011-12 6,371 Before 2012-13 10,930 VI.92 The Department had set out the following 2011-12 4,365 2012-13 3,272 goals for supervision of UCBs in 2021-22: 2012-13 5,016 2013-14 7,270 2013-14 16,143 2014-15 3,451 • Conduct information technology (IT)/cyber 2014-15 14,635 2015-16 4,661 2015-16 14,167 2016-17 5,620 security examination of select scheduled 2016-17 14,486 2017-18 7,346 UCBs (Utkarsh) [Paragraph VI.93 - VI.95]; 2017-18 17,293 2018-19 5,448 2018-19 12,851 2019-20 4,912 • Developing the risk-based approach for 2019-20 21,432 2020-21 3,719 KYC/AML supervision of select UCBs 2020-21 11,452 2021-22 3,785 Total 1,38,211 Total 60,414 (Paragraph VI.96); and Note: Refer to footnotes 3 and 5 of Table VI.1. • Strengthening EWS and stress testing Source: RBI Supervisory Returns. framework for UCBs (Paragraph VI.97). 142REGULATION, SUPERVISION AND FINANCIAL STABILITY Implementation Status during the year to identify vulnerabilities. An EWS and a stress testing framework have been Cyber Security and IT Examination of UCBs developed to capture and analyse the early VI.93 The technology vision document for indicators of stress in the UCB segment. cyber security, which was released for UCBs on September 24, 2020, envisages achieving Agenda for 2022-23 its objective through a fi ve-pillared strategic VI.98 The Department has identifi ed the approach named as GUARD, viz., Governance following goals for supervision of UCBs in 2022- Oversight, Utile Technology Investment, 23: Appropriate Regulation and Supervision, Robust • Roll out of Key Risk Indicators (KRIs) for Collaboration, and Developing necessary IT and UCBs to assess the cyber security risk cyber security skills set. profi le; VI.94 During the year, initiatives were taken to enhance the monitoring of cyber security • Extending IT Examination progressively to resilience of UCBs, including completion of cyber UCBs with asset size below `5,000 crore security examination of select scheduled UCBs. or mandating external IT reviews; and An exercise for ascertaining the implementation • Analysing inter-connectedness of of mandatory Society for Worldwide Interbank UCBs with companies from directorship Financial Telecommunications (SWIFT) system perspective. related controls was conducted for applicable UCBs. As an outcome of the exercise, UCBs Non-Banking Financial Companies (NBFCs) concerned were advised to plug in the gaps VI.99 The Department continued to effectively observed on a priority basis. monitor the NBFCs (excluding HFCs) and ARCs VI.95 To address risks emanating from IT and registered with the Reserve Bank, with the cyber-related issues in UCBs, a system for their IT objective to protect the interests of depositors and examination has been introduced in collaboration customers, while ensuring fi nancial stability. with ReBIT, that complements the regular Agenda for 2021-22 inspection process. During 2021-22, the Reserve Bank conducted IT examination of all nine UCBs VI.100 The Department had identifi ed the with asset size of `5,000 crore and above. following goals for supervision of NBFCs in 2021-22: KYC/AML Supervision of UCBs • Designing supervisory reporting system VI.96 In 2021-22, data templates were designed under Indian Accounting Standards (Ind- and shared with select UCBs (having asset size of AS) [Utkarsh] (Paragraph VI.101); `1,000 crore and above) for data collection. This shall be utilised for generating the risk scores and • Implementation of Central Fraud Registry risk profi ling of UCBs. (CFR) for NBFCs (Utkarsh) [Paragraph Early Warning System and Stress Testing VI.102]; Framework • Strengthening market intelligence (MI) and VI.97 As part of the forward-looking assessment off-site supervisory assessment of NBFCs of stress, various supervisory tools were designed (Paragraph VI.103 - VI.104); 143ANNUAL REPORT 2021-22 • Developing the risk-based approach for VI.104 Systemically important NBFCs as well as KYC/AML supervision of select NBFCs deposit taking NBFCs are closely monitored for (Paragraph VI.105); and any incipient signs of weakness and wherever required, the Reserve Bank undertakes on-site • Monitoring effectiveness of customer examination/scrutiny to assess their position. service provided by NBFCs (Paragraph Weakness/defi ciencies observed are immediately VI.106). taken up with the management of the NBFCs for Implementation Status time-bound corrective action. The Reserve Bank Rationalisation of Supervisory Reporting System also maintains oversight on the corrective actions taken by the companies. VI.101 In order to enhance the effectiveness of off-site assessment and the quality of data KYC/AML Supervision of NBFCs collection of NBFCs, COSMOS returns of NBFCs VI.105 Data templates were designed and shared have been rationalised and redesigned in the new with select NBFCs for data collection in 2021-22. XBRL system. Also, the NBFC returns have been These data will be utilised for generating the risk redesigned to align with Ind-AS accounting norms scores and risk profi ling of NBFCs. and the same will be implemented in the CIMS portal. Further, differentiated MIS reports have Customer Service by NBFCs been designed for off-site surveillance of NBFCs VI.106 The compliance with prescribed guidelines on an ongoing basis in the CIMS portal. is checked during onsite assessment on sample Central Fraud Registry (CFR) for NBFCs basis and non-compliances, if any, are brought out in inspection reports of respective NBFCs. VI.102 An XBRL based platform has been Adherence to Fair Practices Code and quality of developed during the year for online reporting of customer services were also scrutinised for digital frauds by NBFCs. Meanwhile, the development of lending NBFCs and NBFCs attached to digital unifi ed fraud reporting format for all SEs (including NBFCs) under CIMS project has commenced. The lenders having substantial customer interface, on unifi ed fraud reporting format hosts an automated a sample basis. system of assigning unique ID for all individual Agenda for 2022-23 accounts, which have been reported as frauds. VI.107 The Department has identifi ed the Enhanced Supervisory Assessment following goals for supervision of NBFCs in VI.103 The Reserve Bank has set-up a centralised 2022-23: supervisory intelligence cell which prepares a • Review the supervisory framework and monthly MI report for SEs (including NBFCs) by the return format for NBFCs under Ind-AS consolidating information from various external based on the regulatory guidance in the sources (brokers reports, rating downgrades matter (Utkarsh); and negative news mapped with internal CRILC data), internal sources (Sachet portal and monthly • Make changes in sectoral assessment complaint analysis) and inputs received from other in the context of recently released scale- sources. based regulatory framework for NBFCs; 144REGULATION, SUPERVISION AND FINANCIAL STABILITY • Roll out KRIs for NBFCs to assess their up-skilling are required, benchmark the cyber security risk profi le through off-site programmes with international standards/ design of KRIs; and best practices, and develop appropriate teaching methods (Paragraph VI.114). • Roll out of IT examination for select NBFCs. Implementation Status Supervisory Measures for All Supervised IT and Cyber Security Related Developments Entities (SEs) VI.110 The Reserve Bank has advised all SCBs VI.108 A unifi ed DoS has been operationalised in (excluding foreign banks and RRBs) to identify which the supervision of banks, UCBs and NBFCs critical infrastructure as per the National Critical is being undertaken in a holistic manner under one Information Infrastructure Protection Centre umbrella Department. This will improve handling (NCIIPC) guidelines issued in 2019. Cyber KRI of issues arising from regulatory/supervisory return has been revised to capture cyber risks arbitrage, interconnectedness and information faced by banks in a better manner. asymmetry. VI.111 The Reserve Bank has taken several Agenda for 2021-22 steps to enhance monitoring of cyber security VI.109 The Department had set out the following preparedness of SEs. Master Directions on Digital supervisory goals for all SEs in 2021-22: Payment Security Controls have been issued. Guidelines on usage of new technology, i.e., cloud • Strengthening cyber security monitoring services and security, and information technology mechanism for SEs (Utkarsh) [Paragraph governance, risk, controls and assurance VI.110 - VI.111]; practices are being drafted for placing on the • Issuing of guidelines on IT governance, Reserve Bank’s website for public comments. risk, controls and assurance practices Further, the Reserve Bank conducted a phishing (Paragraph VI.110 - VI.111); simulation exercise for select SEs to assess email • Integrate supervisory data structure for security and cyber security preparedness. Based the Reserve Bank’s REs by reviewing and on the exercise, the SEs whose systems needed consolidating the present framework of attention, were advised to implement a defi nitive returns (Utkarsh) [Paragraph VI.112]; action plan with specifi c timelines. • Introduce supervisory data analytics with Supervisory Data Analytics the capability for market surveillance, VI.112 The offsite supervisory data are currently misconduct analysis, micro/macro used in a variety of ways to aid policy formulation, prudential analysis (Utkarsh) [Paragraph identify incipient stress, ascertain status of VI.113]; and borrowers across lenders, and check compliance • The CoS, under the guidance of Academic to regulatory stipulations, among others. In Advisory Council (AAC), will plan and addition to CRILC and CFR, the data capabilities develop curricula of all programmes based of the Reserve Bank are being further upgraded on identifi ed areas where skill building/ through the revamped data warehouse, viz., 145ANNUAL REPORT 2021-22 CIMS. New integrated return formats have a forward-looking dimension for identifi cation been developed after thorough review and of vulnerable areas. During the year, a micro- rationalisation of the extant return formats. prudential analytical study as an input to the RBS model along with macro-prudential analysis was VI.113 The Reserve Bank has developed a system conducted for identifi cation of stressed sectors. for early identifi cation of vulnerabilities to take Market surveillance and misconduct analysis are timely and proactive action. It has been deploying also being undertaken on an ongoing basis. data analytics to the quarterly offsite returns to College of Supervisors (CoS) provide an effective and more comprehensive inputs to onsite supervisory teams. An early VI.114 In order to enhance the skill set of warning framework - which tracks macroeconomic supervisory and regulatory personnel, the College variables, and market and banking indicators of Supervisors was set up in May 2020. During - complements the analysis. Bank-wise as well the year, a total of 43 training programmes were as system-wide supervisory stress testing adds conducted by CoS (Box VI.3). Box VI.3 Supervisory Skilling and Empowerment After the creation of the unifi ed Department of Supervision include programmes on: nuanced techniques of on-site (DoS) and the unifi ed Department of Regulation (DoR), supervision, off-site surveillance of fi nancial entities for various initiatives were taken to enable supervisors to smelling “distress” early, digital business models, use of undertake ongoing surveillance of the fi nancial system by analytics for supervision and regulation, technological creating the enabling framework, internal processes, work foundations and building blocks of FinTech, RegTech & environment and the right skill sets in sync with the growing SupTech, leadership, team building & communication complexities in the fi nancial business. skills in supervisory processes, etc. During 2021-22, more than 1,700 participants benefi tted through 43 training The Reserve Bank has set up a College of Supervisors programmes. The focus of CoS is also to upskill the (CoS) to augment and reinforce supervisory skills among newly recruited personnel by way of foundation courses its regulatory and supervisory personnel, both at entry to develop them suitably and enable them to face newer level and on a continuous basis. Initially promulgated in complex challenges in the future. The programmes were virtual mode in May 2020, the college has been formally imparted with the help of the best Indian and global faculty operationalised with effect from January 2021. The college using an interactive, case-study based pedagogy. Further, is headed by a full-time Director, who is supported by a as part of continuous learning programmes, CoS has also six-member Academic Advisory Council (AAC), which organised thematic webinars, topical panel discussions guides in identifying areas where skill building/up-skilling is and fi re side ‘discussion with the authors’. required, plans and develops curricula for all programmes, benchmarks the programmes with international standards/ Going forward, CoS purports to deploy advanced learning best practices, develops appropriate learning methods, etc. tools and offer e-learning modules and certifi cation courses, besides continuing to impart training in virtual and physical CoS has conducted programmes, workshops and seminars modes. A total of 55 programmes and 12 seminars/webinars on a wide range of topics relevant for the offi cers dealing have been planned for the year 2022-23, including select with its regulatory, supervisory, enforcement and fi nancial collaborative learning programmes with international stability functions at the Reserve Bank and at a few other institutions such as ECB, IMF, BIS, etc. jurisdictions and to those in the functions of risk, compliance and audit in the Reserve Bank regulated entities. These Source: RBI. 146REGULATION, SUPERVISION AND FINANCIAL STABILITY Major Developments new data items, wherever warranted, to capture the key developments related to the UCBs’ major Conduct of KYC/AML and Fraud Governance business areas. The rationalised set of returns are Related Workshops purported to be rolled out in the CIMS portal. VI.115 In order to give further impetus to Strengthening Audit Mechanism for UCBs strengthening the KYC/AML and Fraud Governance framework in the banks, UCBs and VI.119 Beginning with 2021-22, the Reserve Bank NBFCs, several workshops were conducted for all has prescribed additional certifi cation/reporting requirements for the statutory auditors of UCBs. the banks and select UCBs/NBFCs through virtual Nineteen certifi cation/reporting requirements modes in November 2021 and in February 2022. were prescribed for the year 2021-22. These The workshops for banks were also attended by requirements were conveyed to UCBs for their the offi cials of Indian Banks’ Association (IBA). submission to the Reserve Bank. Further, the Reserve Bank conducted several workshops for the senior management of NBFCs Risk Based Internal Audit (RBIA) Guidelines for and UCBs, for sensitising them on better fraud Select HFCs and NBFCs management, including monitoring and reporting. VI.120 RBIA guidelines were extended to all Revised Prompt Corrective Action (PCA) deposit-taking HFCs and non-deposit taking HFCs Framework for SCBs with asset size of `5,000 crore and above vide circular dated June 11, 2021. The circular intends, VI.116 A revised PCA framework was issued inter alia, to provide the essential requirements with an objective to enable timely supervisory for a robust internal audit function, which includes intervention and to require SEs to initiate and suffi cient authority, stature, independence, implement remedial measures in a judicious resources and professional competence, so as to manner, to contain build-up of risks and to put the align these requirements in larger NBFCs/UCBs identifi ed entities on a path of restoration of their with those stipulated for SCBs. It is expected that fi nancial health. The revised PCA framework is the adoption of RBIA by such entities would help also intended to act as a tool for effective market to enhance the quality and effectiveness of their discipline. internal audit system. PCA Framework for NBFCs Harmonised Guidelines on Appointment of VI.117 Considering the growing size of NBFCs Statutory Central Auditors (SCAs)/Statutory and their substantial interconnectedness with Auditors (SAs) other segments of the fi nancial system, a PCA VI.121 The Department issued harmonised framework for NBFCs was introduced to further guidelines on appointment of SCAs/SAs of strengthen the supervisory tools applicable to commercial banks (excluding RRBs), UCBs and them. NBFCs (including HFCs) vide circular dated April Rationalisation of Extant Off-site Returns of UCBs 27, 2021. These guidelines provide necessary VI.118 A Working Group (WG) has reviewed instructions regarding the number of auditors, and re-designed the regulatory and supervisory their eligibility criteria, tenure, and rotation, while returns for UCBs. The exercise, inter alia, included ensuring the independence of auditors. These reduction in the number of returns and addition of guidelines will also ensure that the statutory 147ANNUAL REPORT 2021-22 auditors are appointed in a timely, transparent, workshop with overseas regulators for sharing and effective manner and strengthen the audit of best practices and recent developments in system in REs. supervision. Core Financial Services Solution for NBFCs Agenda for 2022-23 VI.122 During the year, the Reserve Bank VI.125 The Department proposes to achieve mandated certain categories of NBFCs to the following goals for supervision of all SEs in implement ‘Core Financial Services Solution 2022-23: (CFSS)’, akin to the Core Banking Solution • Implementation of risk-based approach (CBS) adopted by banks, which shall provide for (RBA) for KYC/AML supervision of select seamless customer interface in digital offerings UCBs and NBFCs; and transactions relating to products and services with anywhere/anytime facility, enable integration • Issue of guidelines on compliance function of NBFCs’ functions, provide centralised database and appointment of Chief Compliance Offi cers (CCOs) in NBFCs and UCBs; and accounting records, and be able to generate suitable MIS, both for internal purposes and • Unifi ed fraud reporting system for all regulatory reporting. SEs; Various Analytical Studies • Undertaking cyber security enhancement measures; VI.123 During the year, the Department conducted various analytical studies on contemporary • Further strengthening of audit mechanisms topics such as assessment of climate change in SEs; and related risks for banks, payment system data, • Scaling-up of operations of the CoS National Automated Clearing House (NACH), for capacity development and skill Legal Entity Identifi er (LEI), corporate insolvency enhancement of supervisory staff. regime, effectiveness of macroprudential policies, Enforcement Department (EFD) prediction of fi rst time NPAs, Ind-AS accounting norms’ impact on NBFCs, digitisation in UCBs, VI.126 Enforcement Department was set up in etc. April 2017 with a view to separate enforcement action from supervisory process and to put in place Supervisory Colleges for Internationally Active a structured, rule-based approach to identify and Banks process the violations by the REs of the applicable VI.124 The Reserve Bank monitors the overseas statutes and the rules, regulations, guidelines and operations of Indian banks through a system of orders made, directions issued, and conditions offsite returns and teleconferences with overseas imposed thereunder by the Reserve Bank, and regulators. For banks that are internationally enforce the same consistently across the Reserve active, there is a system of supervisory colleges, Bank. The objective of enforcement is to ensure which provides a forum for exchanging supervisory compliance by the REs with laws, within the concerns and developments in different overarching principle of ensuring fi nancial stability, jurisdictions. In addition, the Department holds public interest and consumer protection. 148REGULATION, SUPERVISION AND FINANCIAL STABILITY Agenda for 2021-22 Implementation Status VI.128 The Department is endeavouring to VI.127 The Department had set out the following implement business process application by June goals for 2021-22: 2022. • Implementation of the EFD’s business VI.129 Enforcement policy and SOPs are process application and database of in the process of being reviewed, based on enforcement actions (Utkarsh) [Paragraph the experience gained by the Department in VI.128]; the previous years, and also to include credit • Review of enforcement policy and information companies (non-bank and non- NBFC) under the framework. standard operating procedures (SOPs); and examining undertaking of enforcement VI.130 In order to improve coordination between action against credit information EFD and the regulatory and supervisory companies (non-bank and non-NBFC) departments, the Department has put in place a [Paragraph VI.129]; mechanism for interaction on an ongoing basis and also a coordination structure at the level of Chief • Review of existing practices and (business) General Manager of the departments. Further, processes to identify bottlenecks affecting the Department has also designed messaging timeliness in enforcement action and templates for sharing of information, which improving coordination with DoS and DoR, would obviate the need for collecting additional to shorten the time taken for enforcement information from regulated entities and internal action (Paragraph VI.130); departments while processing cases. • Increased interaction and trainings aimed VI.131 With a view to ensure consistency in at improving consistency in decisions enforcement actions, training sessions were across regional offi ces (ROs) and putting conducted for the ROs of the Department. in place an arrangement for sharing of Additionally, an information sharing mechanism information across EFD, ROs, as also with between CO and ROs was put in place for sharing the central offi ce (CO) [Paragraph VI.131]; of enforcement actions and best practices. and VI.132 A formal coordination mechanism with NABARD and NHB was put in place to facilitate • Improving coordination with the effective undertaking of enforcement action National Bank for Agriculture and Rural against the REs, which were supervised by these Development (NABARD) and putting in institutions. place a coordination mechanism with Other Initiative the National Housing Bank (NHB) to facilitate effectual undertaking of VI.133 During April 2021-March 2022, the enforcement action against HFCs Department undertook enforcement action (Paragraph VI.132). against 182 REs (189 penalties) and imposed 149ANNUAL REPORT 2021-22 an aggregate penalty of `65.32 crore for non- business process application so as to compliance3 with provisions/contravention of improve the compliance culture in REs; certain directions issued by the Reserve Bank and from time to time through various circulars • The Department will examine the (Table VI.4). feasibility of a scale-based approach to Agenda for 2022-23 enforcement. VI.134 For the year ahead, the Department proposes to achieve the following goals: 5. CONSUMER EDUCATION AND PROTECTION • Towards facilitating improvement in compliance culture by REs, a system of Consumer Education and Protection preparing report on enforcement actions Department (CEPD) at half yearly intervals for dissemination of VI.135 The Consumer Education and Protection additional information amongst REs shall be put in place; Department (CEPD) frames policy guidelines for protection of the interests of customers of the • Seminars focused on sensitisation of Reserve Bank regulated entities; monitors the compliance offi cers of REs shall also be functioning of grievance redress mechanism of organised; REs; undertakes oversight on the performance of • The Department will provide inputs for the ombudsman offi ces as well as “the Reserve compliance testing of REs to DOS, NHB Bank-Integrated Ombudsman Scheme, 2021” and NABARD for frequently observed (RB-IOS); and creates public awareness on safe contraventions identifi ed using the banking practices, extant regulations on customer Table VI.4: Enforcement Actions service and protection, as also the avenues for (April 2021-March 2022) redress of customer complaints. Regulated Entity No. of Penalties Total Penalty (` crore) Agenda for 2021-22 1 2 3 VI.136 The Department had set out the following Public Sector Banks 13 17.55 Private Sector Banks 16 29.38 goals under Utkarsh for 2021-22: Cooperative Banks 145 12.10 Foreign Banks 4 4.25 • Formulating policy/scheme for handling Payments Banks - - complaints not covered under the Small Finance Banks 1 1.0 ombudsman schemes (Paragraph VI.137); NBFCs 10 1.03 Total 189 65.32 • Efforts for inclusion of safe banking -: Nil. practices in educational curriculum Source: RBI. (Paragraph VI.138); and 3 Illustratively, some of them include exposure norms and IRAC norms; Reserve Bank of India [know your customer (KYC)] Directions, 2016; Reserve Bank of India (frauds classifi cation and reporting by commercial banks and select FIs) Directions, 2016; circulars on cyber security framework in banks; membership of credit information companies (CICs); lending to NBFCs; depositor education and awareness fund scheme, 2014; Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016; and master circular on board of directors-UCBs. 150REGULATION, SUPERVISION AND FINANCIAL STABILITY • Extension of Internal Ombudsman (IO) Financial Inclusion and Development Department scheme to fi nancially sound and well (FIDD) of the Reserve Bank. managed UCBs and RRBs (Paragraph VI.139 The proposal to bring in select UCBs and VI.139). RRBs under the ambit of IO scheme was thoroughly Implementation Status examined. It was decided that the volume and nature of customer complaints received against VI.137 The erstwhile ombudsman schemes4 of UCBs and RRBs do not warrant institutionalising the Reserve Bank have been merged into RB-IOS an IO mechanism for these entities at present. with effect from November 12, 2021. There are two The volume and nature of customer complaints sets of complaints that do not fall under the RB- IOS: (i) complaints against entities not covered against REs of the Reserve Bank are monitored under RB-IOS (i.e., non-scheduled UCBs having on a regular basis and a review on the requirement deposit size of less than `50 crore, NBFCs with for IO in UCBs and RRBs would be undertaken asset size below `100 crore, All India Financial again, if required, at a future date. Institutions, Credit Information Companies, etc.), Major Developments which are handled by the Consumer Education Launch of the RB-IOS, 2021 and Protection Cells (CEPCs) set up at the ROs of the Reserve Bank across the country; and (ii) VI.140 In terms of the recommendations of an complaints appearing in the exclusion list of the in-house committee to review the functioning of RB-IOS (complaints against management, policy the ombudsman schemes, the three erstwhile matters, etc.). Such complaints are forwarded to ombudsman schemes, namely, (i) Banking the regulatory/supervisory departments of the Ombudsman Scheme, 2006; (ii) Ombudsman Reserve Bank or to the concerned regulators/ Scheme for Non-Banking Financial Companies, authorities, as the case may be, under advice to 2018; and (iii) Ombudsman Scheme for Digital the complainant. Detailed guidelines for handling Transactions, 2019 were integrated into a single the complaints not covered under the RB-IOS are scheme, viz., RB-IOS, 2021, which was launched in place. on November 12, 2021 by the Hon’ble Prime VI.138 The Department had formulated a detailed Minister of India (Box VI.4). This scheme has framework for fi nancial education with a focus been framed in exercise of the powers conferred on customer protection in September 2020. upon the Reserve Bank under Section 35A of Content for enhancing fi nancial awareness and the Banking Regulation Act, 1949 (10 of 1949), “safe banking practices”, have been taken up for Section 45L of the Reserve Bank of India Act, inclusion in the education curriculum of school 1934 (2 of 1934), and Section 18 of the Payment students in coordination with the National Centre and Settlement Systems (PSS) Act, 2007 for Financial Education (NCFE) through the (51 of 2007). 4 Refer to Paragraph VI.140. 151ANNUAL REPORT 2021-22 Box VI.4 New Initiatives towards Strengthening of Grievance Redress Mechanism for Customers of Regulated Entities The Reserve Bank has continuously been taking steps against these REs are now admissible as against a specifi c to increase the fi nancial ease and convenience for the list of grounds under the erstwhile schemes. common man. One important step in this direction is the A facility for attending conciliation meetings on virtual mode adoption of ‘One Nation – One Ombudsman’ system under has also been enabled to aid complainants to present the “Reserve Bank - Integrated Ombudsman Scheme” themselves from any remote location. The new scheme has (RB-IOS), 2021, launched by the Hon’ble Prime Minister delegated powers to the newly introduced position of Deputy of India on November 12, 2021. The Scheme integrates Ombudsman for resolution of certain types of complaints in the three erstwhile ombudsman schemes of the Reserve order to improve the turn-around time for redress. Bank and intends to cover, in a phased manner, all REs to resolve their customers’ grievances in time, without any A Contact Centre with a toll-free number (14448) has hassle. been operationalised at the CRPC to assist complainants in lodging complaints and providing information pertaining In th e words of the Hon’ble Prime Minister, “the strength to their complaints/grievance redress mechanism of the of democracy is determined by how strong, sensitive and Reserve Bank, in nine regional languages, apart from Hindi proactive the grievance redress system is. With the RB-IOS, and English. 2021, the ‘depositors-fi rst’ commitment has gained strength. Through this scheme, the account holders of 44 crore loan Further initiatives, to strengthen the grievance redress accounts and 220 crore deposit accounts shall get direct mechanism include (i) the formulation of a comprehensive relief for their grievances”. framework for strengthening the internal grievance redress machineries in banks, put in place vide circular dated January Under the new scheme, the customers of covered REs 27, 2021; and (ii) extension of the IO scheme, in line with across the country can lodge, track and monitor their that of banks and non-bank system participants, to select complaints with the Reserve Bank Ombudsman on a single NBFCs. Action for usage of advanced technological tools for online platform, viz., Complaint Management System (CMS) quicker redress and effi cient complaint management is also or through a single physical/email address at the Centralised underway. Receipt and Processing Centre (CRPC) in Chandigarh. Further, all complaints on grounds of “defi ciency of service” Source: RBI. Extension of the IO Scheme to NBFCs tenure, role and responsibilities, procedural guidelines, and oversight mechanism for the VI.141 Deposit-taking NBFCs (NBFCs-D) with IO. All complaints that are wholly or partially 10 or more branches and Non-Deposit taking rejected by the internal grievance mechanism NBFCs (NBFCs-ND) with asset size of `5,000 of the RE, except on aspects related to frauds, crore and above, having public customer interface and complaints involving commercial decisions, were directed in November 2021 to appoint an internal administration, pay and emoluments IO at the apex of their internal grievance redress mechanism within a period of six months from the of staff, sub-judice matters, etc., are required to date of issue of the direction. Select categories be reviewed by the IO before a fi nal decision is of NBFCs not having public customer interface conveyed to the complainant. The objective of the have been exempted. The IO mechanism was IO scheme is to enable satisfactory resolution of mandated earlier for banks in the year 2018 and complaints at the end of the REs themselves so as non-bank payment system participants in 2019. to minimise the need for the customer to approach The direction covers, inter alia, the appointment/ other fora for redress. 152REGULATION, SUPERVISION AND FINANCIAL STABILITY Returns from Banks on Complaints Received from Speak” programme was conducted in regional Customers multi-media channels across the country to sensitise consumers/customers in the remotest VI.142 In terms of the recommendation by the areas on the RBI grievance redress mechanism Committee on ‘Medium-term Path on Financial as also on safeguards for protection against digital Inclusion’ (Chairman: Shri Deepak Mohanty), and electronic frauds. constituted by the Reserve Bank, “Banks may be required to submit the consolidated status of Strengthening the Internal Grievance Redress number of complaints received and disposed off Mechanism of Banks under broad heads to the CEPD, and the Reserve VI.144 A framework for strengthening the Bank, in turn, can release an annual bank-wise internal grievance redress mechanism of banks status in the public domain”. The CEPD developed was implemented and the four pillars of the an XBRL returns format for banks to submit, on framework, viz., enhanced disclosures; recovery quarterly basis, consolidated and comprehensive of cost from banks for redressal of complaints by information on complaints received and disposed ombudsman under certain conditions; intensive off by them. Data on complaints received and review of banks grievance redress mechanism; handled by banks shall thereafter be analysed at and supervisory/regulatory actions continue to CEPD, and also published in an appropriate form. be in force during the fi nancial year. Efforts towards Customer Awareness (Utkarsh) Agenda for 2022-23 VI.143 The Department conducted multi-media VI.145 The Department proposes the following campaigns on the ombudsman schemes, basic agenda under Utkarsh for 2022-23: savings bank deposit accounts, safe digital banking practices, and facilities for senior citizens • Enhanced nation-wide awareness drive and differently abled persons, etc. The Offi ces of for protecting customers from fi nancial the Reserve Bank of India Ombudsman (ORBIOs) frauds; conducted town hall events wherein ombudsman • Harnessing advanced technological tools schemes and important customer service issues for strengthening customer protection were discussed with members of public and and improving expediency of grievance REs. Additionally, awareness programmes were redressal by the Reserve Bank; also conducted by the ORBIOs with a focus on specifi c groups such as servicemen, school/ • Broadbase and upgrade the Reserve Bank college students, customer groups, etc. Messages Contact Centre at Chandigarh to include relating to safe banking practices, cyber frauds, disaster recovery and business continuity ombudsman schemes, and CMS were also hosted solutions; on the Reserve Bank’s website, ‘RBI Kehta Hai’ • Set up a committee for review of the and CMS webpages. The Reserve Bank published customer service standards and practices on its website, BE(A)WARE – a booklet on the in REs and the Reserve Bank guidelines common modus operandi used by fraudsters and in the matter; precautions to be taken while carrying out various • Construction and dissemination of a fi nancial transactions. On the World Consumer Rights Day on March 15, 2022, an “Ombudsman Consumer Protection Index (CoPI); and 153ANNUAL REPORT 2021-22 • Review of the framework for “Strengthening excess of income (mainly comprising premium of Grievance Redress Mechanism in received from insured banks, interest income from Banks”. investments, and cash recovery out of assets of failed banks) over expenditure (payment of claims Deposit Insurance and Credit Guarantee of depositors and related expenses) each year, Corporation (DICGC) net of taxes. This fund is available for settlement of VI.146 Deposit insurance plays an important role claims of depositors of banks taken into liquidation/ in maintaining the stability of the fi nancial system, amalgamation and banks under the Reserve particularly in assuring the protection of interests Bank’s ‘All Inclusive Direction’ (AID). During the of small depositors and thereby ensuring public period April 2021 to March 2022, the Corporation confi dence. The DICGC is wholly owned by the has settled fi ve main claims of liquidated banks Reserve Bank of India and is constituted under for an amount aggregating to `1,124.1 crore and the DICGC Act, 1961. The deposit insurance 12 supplementary claims of liquidated banks extended by the DICGC covers all commercial aggregating to `101.0 crore. The aggregate of banks including local area banks (LABs), PBs, main claims and supplementary claims in respect SFBs, RRBs and cooperative banks. The number of nine urban co-operative banks amounted to of registered insured banks as on March 31, 2022 `1,225.1 crore under Section 17 (1) of the DICGC stood at 2,043, comprising 141 commercial banks Act 1961. In addition to the claims settled as (including 43 RRBs, 2 LABs, 6 PBs and 12 SFBs) mentioned above, an amount of `3,791.6 crore and 1,902 cooperative banks (33 StCBs, 352 was provided to Unity Small Finance Bank (USFB) DCCBs, and 1,517 UCBs). for making payment to the depositors of erstwhile VI.147 With the current limit of deposit insurance Punjab and Maharashtra Co-operative Bank Ltd in India at `5 lakh, the number of fully protected (PMCBL), pursuant to the merger of PMCBL with accounts (256.7 crore) at end-March 2022 USFB with effect from January 25, 2022 under constituted 97.9 per cent of the total number of Section 16 (2) of the DICGC Act, 1961. Thus, the accounts (262.2 crore), as against the international total claims settled on account of liquidated banks/ benchmark of 80 per cent. In terms of amount, merger scheme amounted to `5,059.2 crore6. the total insured deposits of `81,10,431 crore VI.149 A major event during 2021-22 was the as at end-March 2022 constituted 49.0 per cent amendment to the DICGC Act, 1961. The mandate of assessable deposits of `1,65,49,630 crore, given by the GoI through this amendment (interim as against the international benchmark5 of 20 to payments) is not commonly known in other 30 per cent. At the current level, insurance cover jurisdictions (Box VI.5). The claims settled under would be over 3.3 times per capita income in this channel in the case of 22 urban co-operative 2021-22. banks under AID amounted to `3,457.4 crore as VI.148 The DICGC builds up its Deposit Insurance on March 31, 2022. Overall, the Corporation has Fund (DIF) through transfer of its surplus, i.e., settled aggregate claims of `8,516.6 crore under 5 IADI (2013), Enhanced Guidance for Effective Deposit Insurance Systems: Deposit Insurance Coverage, Guidance Paper, March, available at www.iadi.org. 6 Inclusive of main claims settled under the expeditious claims settlement policy of the Corporation for an amount of `42.6 crore in case of three co-operative banks. 154REGULATION, SUPERVISION AND FINANCIAL STABILITY Box VI.5 Salient Features of Amendments to the DICGC Act, 1961 The Deposit Insurance and Credit Guarantee Corporation Bank, considering its fi nancial position and the interests of Act, 1961 was amended as per the notifi cation on August the banking sector in the country as a whole; and (ii) the 13, 2021. The amendments came into force from September DICGC, with the approval of its Board, may defer or vary 1, 2021. the repayment period for the insured bank to discharge its liability to the DICGC and charge a penal interest of 2 A key amendment to the Act mandates that interim insurance per cent over the repo rate in case of delay. Consequent payment to depositors is to be completed within 90 days to these amendments, regulations 21A and 22A have been from the date of imposition of AID by the Reserve Bank. incorporated in the DICGC’s general regulations with effect The insured bank has to submit claims after imposition from September 22, 2021 on the procedure relating to of such restriction within 45 days, and the Corporation claims settlement and the specifying of the time period to has to get the claims verifi ed within 30 days and pay the insured banks for recovery of claims paid. depositors within the next 15 days. In case the Reserve These amendments are expected to have a favourable Bank fi nds it expedient to bring a scheme of amalgamation/ impact on the confi dence of the public in the banking system, compromise or arrangement/reconstruction, the liability of particularly in UCBs, and will be helpful in maintaining the Corporation will get extended by a further period of 90 fi nancial stability. days. Some of the other amendments are as follows: (i) the DICGC may raise the limit of 15 paise per `100 of deposits Source: The Gazette of India (CG-DL-E-13082021-228988 on insurance premium with the prior approval of the Reserve and CG-MH-E-01102021-230102) and DICGC. different channels as mentioned above during microfi nance loans, time bound interim payments the year 2021-22. The size of the DIF stood at in the case of deposit insurance, and the promotion `1,46,842 crore as on March 31, 2022 yielding a of fi nancial awareness and safe banking practices. reserve ratio of 1.81 per cent. Measures to harness technology and big data analytics for effective supervision and effi cient 6. CONCLUSION customer services were also put in place. Efforts VI.150 In 2021-22, the Reserve Bank kept a close in the direction of minimising policy arbitrage and watch on the potential disruptions to the fi nancial ensuring adequate risk management continue to system emanating from the resurgence of the evolve, enabling the Reserve Bank to intervene pandemic while suitably adjusting its regulatory timely and take proactive action when necessary. response. The steps taken for increasing credit In sum, these will strengthen the regulatory and fl ow to corporates as well as small businesses supervisory framework of SCBs, cooperative banks appear to have been effi cacious. Simultaneously, and NBFCs in line with the global best practices and the year also witnessed consumer education and will also enhance public’s confi dence in the banking protection ascending the hierarchy of priorities in system, especially in the cooperative segment, the Reserve Bank’s regulatory and supervisory with crucial implications for fi nancial stability. action plans; several initiatives were taken spanning various dimensions such as the creation of a Importantly, the Reserve Bank is also preparing unifi ed consumer grievance redressal mechanism, to adopt a forward-looking, comprehensive, and a comprehensive regulatory framework for strategic approach to climate-related fi nancial risks. 155ANNUAL REPORT 2021-22 VII PUBLIC DEBT MANAGEMENT As the debt manager of the central and state governments, the mandate of the Reserve Bank is to manage the government market borrowing programme in a non-disruptive manner while keeping in mind the objective of cost optimisation, risk mitigation and market development. The Reserve Bank employed a combination of measures to maintain the evolution of the orderly market conditions. While the G-sec yields hardened during the year, the weighted average coupon on the entire outstanding debt stock decreased. The weighted average maturity of primary issuances increased to 16.99 years from 14.49 years in the previous year. During the year, a noteworthy milestone achieved was the launch of the Retail Direct Scheme - a significant step in the development of the G-sec market by offering retail investors direct access to the G-sec market. VII.1 The Internal Debt Management increased government expenditure on health and Department (IDMD) of the Reserve Bank is social sector. At the same time, revenue receipts entrusted with the responsibility of managing the declined due to cliff effects of the pandemic on domestic debt of the central government by statute economic activity. Consequently, fi scal defi cit vide Sections 20 and 21 of the RBI Act, 1934, and widened necessitating an increase in the size of 28 state governments and two union territories of the borrowing programme signifi cantly during (UTs) in accordance with bilateral agreements as 2020-21 and 2021-22 in order to render counter- provided in Section 21A of the said Act. Further, cyclical fi scal policy support and provide targeted short-term credit is provided up to three months support to segments deeply hit by the pandemic. to both central and state governments in the form Although government borrowings contracted of Ways and Means Advances (WMA) to bridge during 2021-22 as compared to the previous temporary mismatch in their cash fl ows, as laid year, they remained high as compared to the down in terms of Section 17(5) of the RBI Act, pre-COVID year, i.e., 2019-20. Unwinding of 1934. accommodative monetary policy by major central banks, rise in crude oil prices and infl ationary VII.2 During the past two years, fi nancing needs expectations led to some pressure on medium of governments have been rising as countries to long-term yield during 2021-22. The Reserve strive to bring COVID-19 under control leading to Bank had to continuously review and adapt its governments’ debt reaching record high levels, debt management strategy, in view of the pressure globally. Larger recourse to market borrowing was on yield from elevated infl ation and expectations the common trend across countries. While the cost of gradual withdrawal of excess liquidity, while of borrowings declined in general, refl ecting the striving to ensure that the higher market borrowing impact of quantitative easing stance of the central by government is conducted in a non-disruptive banks and the low policy interest rates, signifi cant manner. increase in risk aversion and resultant preference for government securities (G-sec) led to a larger VII.3 Notwithstanding the global and domestic demand for these securities since 2020-21. In line headwinds impacting the Indian G-sec market, with the global trend, Government of India (GoI) the Reserve Bank as debt manager for the also responded to the pandemic challenges and central and state governments ensured market 156PUBLIC DEBT MANAGEMENT borrowing in a non-disruptive manner with existing market infrastructure for the objectives of cost optimisation, risk mitigation and government securities market besides market development while ensuring a stable debt enabling primary and secondary market structure. During the year 2021-22, a noteworthy settlement directly at the gilt account milestone achieved was the launch of the ‘Retail level for facilitating effective monitoring Direct Scheme’. The Scheme is a signifi cant step and surveillance of the market (Utkarsh) in the development of the G-sec market while [Paragraph VII.11]; offering retail investors direct access to the G-sec  Review of Subsidiary General Ledger market. (SGL) Account and Constituents’ VII.4 The remainder of the chapter is arranged Subsidiary General Ledger (CSGL) in three sections. Section 2 presents the guidelines for gilt module development implementation status in respect of the agenda for and gilt account settlement (Paragraph 2021-22. Section 3 covers major initiatives to be VII.12); undertaken in 2022-23, followed by a summary in  Review of value free transfer (VFT) the last section. guidelines (Paragraph VII.13);  Review of operational guidelines on GoI 2. Agenda for 2021-22 savings bond in order to account for online VII.5 The Department had set out the following subscriptions as well as incorporating goals for 2021-22: better system for risk management  Consolidation of debt through (Paragraph VII.14); calendar-driven, auction-based switches  Continuing efforts to enhance quality of and buyback operations along with data and consolidating data on public debt re-issuances of securities to augment (Paragraph VII.15); liquidity in GoI securities market and  Automating monitoring of GoI’s consent facilitate fresh issuance (Paragraph VII.6 to states for open market borrowings - VII.9); (OMBs) – developing a centralised  Permit retail investors to open gilt securities system in e-Kuber to record these account directly with the Reserve Bank consents for better control, monitoring and under the ‘Retail Direct Scheme’ in order management information system (MIS) to encourage greater retail participation purposes (Paragraph VII.16); through the improvement in ease of access  Implementation of Separate Trading to the G-sec market (Paragraph VII.10); of Registered Interest and Principal  Improve overall liquidity in the G-sec Securities (STRIPS)/reconstitution facility market by enhancing the role of Primary for State Development Loans (SDLs) Dealers (PDs) in market making (Utkarsh) [Utkarsh] (Paragraph VII.17); [Paragraph VII.10];  Hiving-off of servicing of compensation  Developing a module in e-Kuber for bonds issued in physical forms to state capturing gilt level data to improve the treasuries (Utkarsh) [Paragraph VII.18]; 157ANNUAL REPORT 2021-22  Operationalistion of Society for Worldwide issuances of G-sec were re-issuances (92.2 per Interbank Financial Telecommunication cent) as compared with 162 re-issuances out of (SWIFT) module for transactions with 178 issuances (91.0 per cent) in the previous year. foreign central banks (FCBs) to smoothen VII.8 The active form of consolidation through the investment and disinvestment switching of short-term G-sec with long-term instructions from FCBs in a secured securities is generally conducted once in manner (Utkarsh) [Paragraph VII.19]; and every month. Accordingly, 109.6 per cent of  Conduct capacity building programmes the switches budgeted for the fi scal 2021-22, for sensitising the state governments amounting to `197,185 crore, were completed about prudent practices in cash and debt during 2021-22 as compared with `1,53,418 management (Utkarsh) [Paragraph VII.20]. crore in the previous year. Implementation Status VII.9 During 2021-22, new securities ranging VII.6 The Reserve Bank’s role as debt manager from 2 to 40 years tenor (original maturity) were for central and state governments is focused on issued with the objective of catering to the demands ensuring completion of the market borrowing of various institutional investors in different programme in a non-disruptive manner with maturity buckets. Floating Rate Bonds (FRBs) of objectives of cost optimisation, risk mitigation and 7 year and 13 year tenor (original maturity) were developing domestic debt market while ensuring a also issued during the year. The share of FRBs in stable debt structure. During 2021-22, the market total issuances during 2021-22 was 7.81 per cent borrowing programme was conducted following the as compared with 6.5 per cent a year ago. above-mentioned principles of debt management VII.10 A signifi cant milestone achieved in the strategy. Notwithstanding the uncertainties development of the G-sec market was the launch emanating from the COVID-19 pandemic and of the Reserve Bank of India-Retail Direct its effects on domestic and global economic and (RBI-RD) Scheme which brings G-secs within fi nancial markets, the Reserve Bank successfully easy reach of the common man by simplifying managed the combined gross market borrowings the process of investment. The scheme provides of the central and the state governments to the a one-stop solution to facilitate investment tune of `18,29,008 crore during the year, that in government securities by retail investors was lower by 15.7 per cent as compared to the previous year. (Box VII.1). Subsequent to the launch of the scheme, a market making scheme for the PDs to VII.7 The Reserve Bank continued its policy of support the Retail Direct Scheme was announced. passive consolidation by way of re-issuances and active consolidation through buyback/switches VII.11 The work related to mirroring of gilt that also helped in altering the maturity structure accounts and settlement at gilt account level in of the government debt to reduce bunching of e-Kuber, has been taken up for implementation in redemptions. During 2021-22, 142 out of 154 phases. 1 Excludes issuance of FRBs of `58,057.48 crore made through switch auctions. 158PUBLIC DEBT MANAGEMENT Box VII.1 RBI Retail Direct Scheme The Reserve Bank, as the debt manager of the Government Reserve Bank, using an online portal (https://rbiretaildirect. of India, has been proactively engaged in the development org.in). Investments can be made using the following of the government securities (G-sec) market including routes: broadening investor participation. As part of continuing (i) Primary Issuance of Government Securities : Investors efforts to increase retail participation in G-sec, ‘RBI can place their bids as per the non-competitive scheme Retail Direct’ facility was announced in the Statement of for participation in primary auction of central government Developmental and Regulatory Policies on February 5, securities (including Treasury Bills) and state government 2021 for improving the ease of access by retail investors securities. Investors can also subscribe to Sovereign through online access to the government securities market Gold Bonds; and - both primary and secondary - along with the facility to open their gilt securities account (‘Retail Direct’) with the (ii) Secondary Market : Investors can buy and sell govern- Reserve Bank. ment securities on NDS-OM2 (‘Odd Lot’ and ‘Request for Quote’ segments). In pursuance of this announcement, the ‘RBI Retail Direct’ scheme, which is a one-stop solution to facilitate Payments for transactions (both primary and secondary investment in government securities by individual investors market transactions) can be done conveniently using was issued on July 12, 2021. The RBI Retail Direct portal savings bank account through internet-banking or Unifi ed (https://rbiretaildirect.org.in) was launched by the Hon’ble Payments Interface (UPI). Investor support facility is Prime Minister in virtual mode on November 12, 2021 available through telephone, email as well as online portal. for operationalising the scheme. With the launch of this Investor services include provisions for transaction and scheme, India could achieve a signifi cant milestone in the balance statements, nomination facility, pledge or lien of development of the G-sec market and became one of the securities and gift transactions. No fees are charged for select few countries offering such a facility to the retail facilities provided under the Scheme. The Scheme aims to investors. provide a safe, simple, direct and secured platform for retail investors. Under the Scheme, retail individual investors are permitted to open a Retail Direct Gilt (RDG) Account with the Source: RBI. VII.12 SGL account and CSGL account system of risk management is currently under guidelines were revised on September 22, 2021 examination. to bring uniformity in defi nition of VFT across VII.15 Steps have been initiated to effectively guidelines and to streamline the operational consolidate the public debt data from different procedures including reporting requirements. sources and bring the same under one single VII.13 VFT guidelines were revised to bring point access. clarity in defi nition of VFT transactions and for VII.16 Development of the module for automating streamlining the reporting requirements. The monitoring of GoI’s consent to states for OMBs is revised guidelines were issued on October 5, in progress and is expected to be operationalised 2021. by Q1:2022-23. VII.14 The review of the operational guidelines VII.17 Financial Benchmarks of India Limited on savings bonds to account for online (FBIL) is developing the Zero Coupon Yield Curve subscriptions as well as incorporating better (ZCYC) essential for implementation of STRIPS. 2 Negotiated Dealing System - Order Matching. 159ANNUAL REPORT 2021-22 VII.18 A proposal regarding handing over Table VII.1: Net Market Borrowings of the Central Government the future servicing of compensation bonds3 (` crore) through their treasuries was put forth to the state Item 2018-19 2019-20 2020-21 2021-22 governments issuing these bonds. Two state 1 2 3 4 5 governments, viz., Uttar Pradesh and Karnataka Net Market Borrowings 4,58,337 5,11,500 13,75,654 9,29,351 have provided their concurrence for taking over (i to iv) the servicing of compensation bonds. i) Dated Securities@ 4,22,737 4,73,972 11,43,114 8,63,103 ii) 91-day T-Bills -46,542 -9,600 10,713 45,439 VII.19 Operationalisation of SWIFT module iii) 182-day T-Bills 32,931 38,354 -18,743 71,252 for transactions with FCBs to smoothen the iv) 364-day T-Bills 49,211 8,774 2,40,570 -50,444 investment and disinvestment instructions from @: Without adjusting for buyback/switches. After adjusting for FCBs in a secured manner is under development. buyback/switches, net market borrowings during 2021-22 stood at `9,29,060 crore, `11,46,739 crore in 2020-21, `4,73,990 crore in 2019-20 and `4,23,269 crore in 2018-19. VII.20 Capacity building programmes for Source: RBI. sensitising state governments about the prudent measures of cash and debt management were Treasury Bills (T-Bills) taken together decreased by conducted for seven states during the year, viz., 32.4 per cent as compared with that of the previous Kerala, Maharashtra, West Bengal, Tamil Nadu, year (Table VII.1). Madhya Pradesh, Meghalaya and Bihar. The Debt Management Operations Department also handled training sessions for the middle level State Finance Offi cers from the VII.22 The weighted average yield (WAY) of Government of Chhattisgarh during a programme G-sec issuances during the year increased by organised by the Chhattisgarh Academy of 49 basis points (bps) as compared to the WAY of Administration. the previous year. The weighted average coupon on the entire outstanding debt stock, however, Major Developments decreased by 16 bps. The weighted average Debt Management of the Central Government maturity (WAM) of primary issuances (excludes VII.21 During 2021-22, the gross market issuances under switch auction) increased to borrowings of GoI through dated G-secs was lower 16.99 years from 14.49 years in the previous year. by 17.7 per cent as compared with the previous The WAM of the outstanding debt increased from 11.31 years to 11.71 years (Table VII.2). year. Net market borrowings through dated G-secs decreased by 24.5 per cent as compared with that VII.23 Partial devolvement on PDs took place of previous year. Net market borrowings through on seventeen instances amounting to `97,938 dated G-secs fi nanced 54.2 per cent of the central crore during 2021-22 as compared with fi fteen government’s revised gross fi scal defi cit (GFD) as instances for `1,30,562 crore in 2020-21. No bid against 62.9 per cent in the previous year. The net was accepted on nine instances for a total notifi ed market borrowings through dated securities and amount of `99,000 crore due to the market 3 The compensation bonds are issued by various state governments for Zamindari abolition and land reforms schemes. 160PUBLIC DEBT MANAGEMENT Table VII.2: Market Loans of Central Government - A Profi le* (Yield in Per cent/Maturity in Years) Years Range of Cut Off Yield in Primary Issues^ Issued during the Year^ Outstanding Stock# Under 5 years 5-10 years Over 10 years Weighted Range of Weighted Weighted Weighted Average Maturities @ Average Average Average Yield Maturity Maturity Coupon 1 2 3 4 5 6 7 8 9 2015-16 - 7.54-8.10 7.59-8.27 7.88 6-40 16.03 10.50 8.08 2016-17 6.85-7.46 6.13-7.61 6.46-7.87 7.15 5-38 14.76 10.65 7.99 2017-18 7.23-7.27 6.42-7.48 6.68-7.67 6.97 5-38 14.13 10.62 7.76 2018-19 6.56-8.12 6.84-8.28 7.26-8.41 7.77 1-37 14.73 10.40 7.81 2019-20 5.56-7.38 6.18-7.44 5.96-7.77 6.85 1-40 16.15 10.72 7.71 2020-21 3.79-5.87 5.15-6.53 4.46-7.19 5.79 1-40 14.49 11.31 7.27 2021-22 4.07-5.10 4.04-6.78 4.44-7.44 6.28 1-40 16.99 11.71 7.11 -: Not applicable. @: Residual maturity of issuances and fi gures are rounded off. *: Excluding special securities. ^: Excluding switch auction. #: Including switch auction. Source: RBI. conditions prevailing then as compared with four announcement of variable rate reverse repo instances for a total notifi ed amount of `39,000 (VRRR) auctions for liquidity rebalancing. The crore in the previous year. 10-year yield rose by 17 bps in Q2. Further hardening of the yields was witnessed in VII.24 The G-sec yields hardened during the Q3:2021-22 with the 10-year yield increasing by year largely due to expectations of monetary 23 bps, mainly driven by rise in crude oil prices, policy normalisation measures by major central higher cut-offs at VRRR auctions and rise in banks, rise in crude oil prices and changes in government bond yields in major economies. the Reserve Bank’s liquidity measures aiming In Q4:2021-22, announcement of higher than at rebalancing systemic liquidity. The 10-year expected market borrowing by the central bond yield hardened by 66 bps from 6.18 per government in the Union Budget for 2022-23, cent as at end-March 2021 to 6.84 per cent as the geopolitical uncertainties arising out of at end-March 2022. In the fi rst two months of Russia-Ukraine confl ict leading to a sharp rise in Q1:2021-22, yields declined due to the G-sec crude oil and other commodity prices and rise in acquisition programme (G-SAP) and open yields in major economies in the wake of policy market operations (OMOs) conducted by the normalisation measures by major central banks Reserve Bank. However, the decline in yields was led to further fi rming up of the 10-year yield by partly offset in June 2021 tracking the release 39 bps (Chart VII.1). of higher than expected CPI infl ation fi gures for VII.25 During 2021-22, about 58.2 per cent May and increase in crude oil prices. The 10-year of the market borrowings was raised through yield softened by 13 bps in Q1. In Q2:2021-22, issuance of dated securities with a residual the G-sec yields initially softened due to lower maturity of 10 years and above as compared with than expected CPI infl ation for June and July. 49.0 per cent in the previous year. Further, the However, the yields gained after the 30-year and 40-year tenor securities were 161ANNUAL REPORT 2021-22 (91, 182 and 364 days) decreased to `66,248 Chart VII.1: FBIL Semi Annualised Par Yield Curve crore during 2021- 22 from `2,32,540 crore in the previous year. Ownership of Securities VII.27 Commercial banks remained the largest holders of government securities (including T-Bills and SDLs) accounting for 37.4 per cent share as at end-March 2022, followed by insurance companies (25.6 per cent), the Reserve Bank (10.6 per cent) and provident funds (9.6 per cent). The share of the foreign portfolio investors (FPIs) was 1.0 per cent. The other holders of government securities (including T-Bills and Source: FBIL. SDLs) include mutual funds, state governments, fi nancial institutions (FIs) and corporates. issued/re-issued during the year with the Primary Dealers (PDs) objective of catering to the demand from long- VII.28 The number of PDs stood at 21 [14 Bank- term investors such as insurance companies PDs and 7 Standalone PDs (SPDs)] at end-March and pension funds (Table VII.3). 2022. The PDs have the mandate to underwrite Treasury Bills primary auctions of dated G-sec while they VII.26 Short-term cash requirements of have a target of achieving bidding commitment the central government are met through and success ratio in respect of primary auctions issuance of T-Bills. The net short-term market of T-Bills/cash management bills (CMBs). borrowings of the government through T-Bills The PDs individually achieved the stipulated Table VII.3: Issuance of Government of India Dated Securities – Maturity Pattern (Amount in ` crore) Residual Maturity 2019-20 2020-21 2021-22 Amount Raised Percentage Amount Raised Percentage Amount Raised Percentage to Total to Total to Total 1 2 3 4 5 6 7 Less than 5 Years 1,46,000 20.6 3,91,990 28.6 2,29,255 20.3 5 - 9.99 Years 1,79,000 25.2 3,07,405 22.4 2,41,865 21.5 10 -14.99 Years 1,37,000 19.3 3,76,766 27.5 3,20,639 28.4 15 -19.99 Years 15,000 2.1 - - - - 20 Years & Above 2,33,000 32.8 2,94,162 21.5 3,35,621 29.8 Total 7,10,000 100.0 13,70,324 100.0 11,27,382 100.0 -: Nil. Note: Figures in the columns might not add up to the total due to rounding off of numbers. Source: RBI. 162PUBLIC DEBT MANAGEMENT minimum success ratio of 40 per cent in primary Chart VII.2: GoI Cash Balance Position auctions of T-Bills with an average success ratio of 62.5 per cent in H1:2021-22 and 62.3 per cent in H2:2021-22. The share of PDs in auctions of T-Bills/CMBs was 71.4 per cent during 2021-22 as compared with 68.9 per cent in the previous year. The commission paid to PDs, excluding GST, for underwriting primary auctions of dated G-sec during 2021-22 was `412.67 crore as compared with `454.64 crore in the previous year. Sovereign Gold Bond (SGB) Scheme VII.29 The Reserve Bank, in consultation with the GoI, issued ten tranches of SGBs during 2021- 22 for an aggregate amount of `12,991 crore (27 Source: RBI. tonnes). A total of `38,693 crore (90 tonnes) has been raised through the scheme since its inception in November 2015. value) during 2021-22 as compared to `3,120 Cash Management of the Central Government crore in the previous year. VII.30 The central government started the Debt Management of State Governments year 2021-22 with a cash balance of `2,37,572 crore. The Ways and Means Advances (WMA) VII.32 Following the recommendation of the 14th limit of the centre was fi xed at `1,20,000 crore for Finance Commission (FC) to exclude states from the fi rst half and `50,000 crore for the second half the National Small Savings Fund (NSSF) fi nancing of 2021-22. The central government did not resort facility (barring Delhi, Madhya Pradesh, Kerala and to WMA/Overdraft (OD) during 2021-22 vis-à-vis Arunachal Pradesh), market borrowings of states 63 days WMA and 9 days OD in the previous year. have been increasing over the last few years. The Notwithstanding the ongoing uncertainties relating share of market borrowings in fi nancing GFD of to COVID-19 pandemic, the cash balance of the states consequently rose to 85.1 per cent in 2021- central government has remained comfortable 22 (BE) from 77.8 per cent in 2020-21 (RE). throughout the year (Chart VII.2). VII.33 Notwithstanding the impact of the second Investments under Foreign Central Bank Scheme wave of the COVID-19 pandemic on the state VII.31 Under the Foreign Central Bank (FCB) government fi nances, the gross and net market scheme, the Reserve Bank invests in Indian borrowings of states were lower than the previous G-secs on behalf of select FCBs and multilateral year. The gross market borrowings of states development institutions in the secondary G-sec in 2021-22 stood at 78 per cent of the amount market. Total volumes transacted on behalf of indicated in the quarterly indicative calendar for these institutions stood at `3,285 crore (face market borrowings by the state governments. 163ANNUAL REPORT 2021-22 Table VII.4: Market Borrowings of States through SDLs (Amount in ` crore) Item 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 Maturities during the Year 1,29,680 1,47,067 1,47,039 2,09,143 Gross Sanctions under Article 293(3) 5,50,071 7,12,744 9,69,525 8,95,166 Gross Amount Raised during the Year 4,78,323 6,34,521 7,98,816 7,01,626 Net Amount Raised during the Year 3,48,643 4,87,454 6,51,777 4,92,483 Amount Raised during the Year to Total Sanctions (per cent) 87.0 89.0 82.4 78.4 Outstanding Liabilities (at the end of period) # 27,78,536 32,65,989 39,25,555 44,29,957 #: Including Ujwal DISCOM Assurance Yojana (UDAY) and other special securities. Source: RBI. There were 608 issuances in 2021-22, of which Bank had announced an increase in WMA 60 were re-issuances (742 issuances in 2020-21, limit of the states/UTs by 60 per cent over and of which 56 were re-issuances) [Table VII.4]. above the level as on March 31, 2020, which remained valid till March 31, 2021. Based on the VII.34 The weighted average cut-off yield (WAY) recommendations of the Advisory Committee of SDL issuances during 2021-22 was higher at on WMA to state governments (Chairman: Shri 6.98 per cent than 6.55 per cent in the previous Sudhir Shrivastava), the Reserve Bank decided year. The weighted average spread (WAS) of SDL to retain the interim limit of WMA (at `51,560 crore issuances over comparable central government for all States/UTs) till September 30, 2021 and securities was lower at 40.95 bps in 2021-22 as later extended it till March 31, 2022. Relaxations compared with 52.72 bps in the previous year. in the overdraft (OD) scheme were also given by In 2021-22, twenty one states and two union the Reserve Bank to state governments/UTs to territories issued dated securities of tenors other tide over mismatches in cash fl ows by increasing than 10 year, ranging from 2 to 35 year. Seven the number of days, for which a state/UT can states and one UT rejected all bids in one or more be in OD continuously to 21 working days from of the auctions. The average inter-state spread 14 working days, and in a quarter to 50 working on securities of 10-year tenor (fresh issuances) days from 36 working days, which are valid till was 4 bps in 2021-22 as compared with 10 bps in March 31, 2022. Seventeen states/UTs availed 2020-21. the special drawing facility (SDF)4, fourteen Cash Management of State Governments states/UTs resorted to WMA and nine states/UTs VII.35 In order to provide greater comfort to availed OD in 2021-22. state governments in undertaking COVID-19 VII.36 Over the years, states have been containment and mitigation measures, and accumulating a sizeable cash surplus in the form of also to enable states to plan their market intermediate treasury bills (ITBs). The outstanding borrowings, as an interim measure, the Reserve investments of states in ITBs and auction treasury 4 Please see paragraph VII.37 for explanation on SDF. 164PUBLIC DEBT MANAGEMENT Table VII.5: Investments in ITBs and ATBs market borrowings (including short-term debt and by State Governments/UT repayment of Post Offi ce Life Insurance Fund) are (` crore) budgeted at `11,58,719 crore, fi nancing 69.75 per Item Outstanding as on March 31 cent of GFD in 2022-23. 2017-18 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 6 VII.39 During the year 2022-23, the focus will 14-Day (ITBs) 1,50,871 1,22,084 1,54,757 2,05,230 2,16,272 remain on smooth conduct of the market borrowing ATBs 62,108 73,927 33,504 41,293 87,400 programme. The following strategic milestones Total 2,12,979 1,96,011 1,88,261 2,46,523 3,03,672 are targeted to be achieved in support of effi cient Source: RBI. conduct of debt management: bills (ATBs) increased during the year 2021-22  Consolidation of debt through calendar (Table VII.5). driven, auction-based switches and Investments in Consolidated Sinking Fund (CSF)/ buyback operations along with re-issuance Guarantee Redemption Fund (GRF) of securities to augment liquidity in G-sec market and facilitate fresh issuances; VII.37 The Reserve Bank manages two reserve fund schemes on behalf of state  The consolidated operational guidelines governments - the consolidated sinking fund for PDs issued in 2005 are updated from (CSF) and the guarantee redemption fund (GRF). time to time. The guidelines relating to So far, 24 states and one union territory, i.e., basic eligibility criteria, viz., net owned Puducherry have set up CSF. Currently, 18 states funds (NOF) requirement and targets, are members of the GRF. States can also avail of a SDF at a discounted rate from the Reserve however, remain largely unchanged. It is Bank against their incremental annual investment proposed to undertake a comprehensive in CSF and GRF. Outstanding investment by review of the extant operational guidelines states in the CSF and GRF as at end-March for PDs; 2022 was `1,54,255 crore and `9,399 crore,  Taking appropriate measures for further respectively, as against `1,27,208 crore and `8,405 crore at end-March 2021. popularisation of the ‘RBI Retail Direct Scheme’ for improving its overall reach for 3. Agenda for 2022-23 suitable retail investors across the country (Utkarsh); VII.38 In the Union Budget 2022-23, the gross market borrowings through dated securities  The Hon’ble Finance Minister in her budget for 2022-23 are budgeted at `14,95,000 speech on February 1, 2022 announced crore as compared with `10,46,500 crore in that the government will issue Sovereign 2021-22(RE). Taking into account the switch Green Bonds in the domestic market operations conducted just before the Union Budget as a part of its overall market borrowing 2022-23 in which securities worth `63,648 crore maturing in the year 2022-23 were switched, the programme for the next fi nancial year and gross market borrowings through dated securities the proceeds will be deployed in public- for the year stand revised at `14,31,352 crore. Net sector green projects. Accordingly, the 165ANNUAL REPORT 2021-22 Reserve Bank, as the debt manager for drafted refl ecting the state governments’ GoI, is providing necessary support to plan for fi nancing their activities, while the GoI for formulation of the framework taking due account of constraints and for issuance of Sovereign Green Bonds potential risks (Utkarsh); and in line with the international standards.  Conduct capacity building programmes The issuance of Sovereign Green Bonds for sensitising the state governments will be taken up during the year after the about prudent practices in cash and debt preparatory work is completed; management.  Review of Medium-Term Debt Management Strategy (MTDS) for 4. Conclusion management of public debt of GoI with an VII.40 During 2021-22, the combined gross objective to mobilise market borrowings at market borrowings of centre and states were low cost over medium to long-term, with conducted successfully. The Reserve Bank also prudent levels of risk and a stable debt announced a number of measures to manage structure, while also developing a liquid the stress on the fi nances of both central and and well-functioning domestic debt market; state governments in the wake of uncertainties  Around one-third of general government relating to COVID-19 pandemic. Going forward, debt pertains to sub-national governments. the key areas of focus of the Reserve Bank for However, a document outlining the the year 2022-23 will be smooth completion of strategy of debt management for effi cient the government borrowing programme in line with and effective management at sub-national the guiding principles of debt management, while government is lacking. Therefore, a pilot ensuring a stable debt structure and proactively MTDS for a few states is proposed to be taking appropriate policy actions, if necessary. 166CURRENCY MANAGEMENT VIII CURRENCY MANAGEMENT The focus of currency management during the year continued on making available adequate quantity of clean notes in circulation, especially in the backdrop of the second wave of the COVID-19 pandemic. The Reserve Bank made an attempt to gauge trends and preferences in public usage of banknotes with a view to optimise the currency management operations. VIII.1 In the wake of the second wave of `20, `50, `100, `200, `500 and `2000. Coins in COVID-19 pandemic, which induced renewed circulation comprise 50 paise and `1, `2, `5, `10 restrictions on movement in various parts of the and `20 denominations. country, the efforts of the Reserve Bank remained Banknotes focused on ensuring adequate supply of clean banknotes in the economy while accelerating VIII.4 The value and volume of banknotes in circulation increased by 9.9 per cent and 5.0 per the pace of disposal of soiled notes, a process cent, respectively, during 2021-22 as compared that was severely disrupted in the previous year. with 16.8 per cent and 7.2 per cent, respectively, Simultaneously, the Reserve Bank also attempted during 2020-21 (Table VIII.1). In value terms, the to gather meaningful insights about the pattern of share of `500 and `2000 banknotes together usage of cash by the public given the rise in digital accounted for 87.1 per cent of the total value of payments in the recent past. banknotes in circulation as on March 31, 2022, as VIII.2 Against this backdrop, the rest of the against 85.7 per cent as on March 31, 2021. In chapter is organised into fi ve sections. The next volume terms, `500 denomination constituted the section presents the important developments in highest share at 34.9 per cent, followed by `10 currency in circulation during the year. Section 3 denomination banknotes, which constituted 21.3 covers the implementation status of the agenda for per cent of the total banknotes in circulation as on 2021-22 and section 4 presents the developments March 31, 2022. with regard to Bharatiya Reserve Bank Note Coins Mudran Private Ltd. (BRBNMPL), a wholly-owned subsidiary of the Reserve Bank. Section 5 sets VIII.5 The total value of coins in circulation out the agenda for 2022-23, while concluding increased by 4.1 per cent in 2021-22, while the total observations are set out in the last section. volume increased by 1.3 per cent during the same period (Table VIII.2). As on March 31, 2022, coins 2. Developments in Currency in Circulation of `1, `2 and `5 together constituted 83.5 per cent VIII.3 Currency in circulation (CiC) includes of the total volume of coins in circulation, while in banknotes and coins. Presently, the Reserve Bank value terms, these denominations accounted for issues banknotes in denominations of `2, `5, `10, 75.8 per cent. 167ANNUAL REPORT 2021-22 Table VIII.1: Banknotes in Circulation (end-March) Denomination (`) Volume (pieces in lakh) Value (` crore) 2020 2021 2022 2020 2021 2022 1 2 3 4 5 6 7 2 and 5 1,12,203 1,11,728 1,11,261 4,331 4,307 4,284 (9.7) (9.0) (8.5) (0.2) (0.2) (0.1) 10 3,04,022 2,93,681 2,78,046 30,402 29,368 27,805 (26.2) (23.6) (21.3) (1.3) (1.0) (0.9) 20 82,994 90,579 1,10,129 16,599 18,116 22,026 (7.2) (7.3) (8.4) (0.7) (0.6) (0.7) 50 86,009 87,524 87,141 43,004 43,762 43,571 (7.4) (7.0) (6.7) (1.8) (1.5) (1.4) 100 1,99,021 1,90,555 1,81,420 1,99,021 1,90,555 1,81,421 (17.2) (15.3) (13.9) (8.2) (6.7) (5.8) 200 53,646 58,304 60,441 1,07,293 1,16,608 1,20,881 (4.6) (4.7) (4.6) (4.4) (4.1) (3.9) 500 2,94,475 3,86,790 4,55,468 14,72,373 19,33,951 22,77,340 (25.4) (31.1) (34.9) (60.8) (68.4) (73.3) 2000 27,398 24,510 21,420 5,47,952 4,90,195 4,28,394 (2.4) (2.0) (1.6) (22.6) (17.3) (13.8) Total 11,59,768 12,43,671 13,05,326 24,20,975 28,26,863 31,05,721 Note: 1. Figures in parentheses represent the percentage share in total volume/value. 2. Figures may not add up due to the rounding-off of numbers. Source: RBI. Currency Management Infrastructure management are performed by the Reserve VIII.6 The functions relating to the issuance of Bank through its issue offi ces, currency chests currency (both banknotes and coins) and their and small coin depots spread across the country. Table VIII.2: Coins in Circulation (end-March) Denomination Volume (pieces in lakh) Value (` crore) (`) 2020 2021 2022 2020 2021 2022 1 2 3 4 5 6 7 Small coins 1,47,880 1,47,880 1,47,880 700 700 700 (12.1) (12.0) (11.9) (2.7) (2.6) (2.5) 1 5,08,878 5,12,597 5,15,879 5,089 5,126 5,159 (41.8) (41.7) (41.4) (19.3) (19.1) (18.4) 2 3,35,158 3,37,863 3,40,792 6,703 6,757 6,816 (27.5) (27.5) (27.3) (25.5) (25.1) (24.4) 5 1,75,992 1,79,360 1,84,331 8,800 8,968 9,217 (14.4) (14.6) (14.8) (33.5) (33.4) (33.0) 10 50,130 51,391 54,044 5,013 5,139 5,404 (4.1) (4.2) (4.3) (19.1) (19.1) (19.3) 20 - 896 3,372 - 179 674 - (0.1) (0.3) - (0.7) (2.4) Total 12,18,038 12,29,988 12,46,298 26,305 26,870 27,970 -: Not applicable. Note: 1. Figures in parentheses represent the percentage share in total volume/value. 2. Figures may not add up due to the rounding-off of numbers. Source: RBI. 168CURRENCY MANAGEMENT Table VIII.3: Currency Chests and Indent and Supply of Currency Small Coin Depots VIII.7 The indent of banknotes for 2021-22 was Category Number of Number of Small marginally lower by 1.8 per cent than that of a Currency Chests Coin Depots year ago (Table VIII.4). The supply of banknotes 1 2 3 was also marginally lower by 0.4 per cent during State Bank of India 1,544 1,291 2021-22 than the previous year. Nationalised Banks 1,067 832 Private Sector Banks 253 160 VIII.8 During 2021-22, the indent and supply for Cooperative Banks 5 4 coins was lower by around 73.3 per cent and 73.0 Foreign Banks 4 3 per cent, respectively, as compared with last year Regional Rural Banks 4 5 due to accumulated stock and lower demand in Reserve Bank of India 1 1 last few years (Table VIII.5). Total 2,878 2,296 Source: RBI. Disposal of Soiled Banknotes VIII.9 The disposal of soiled banknotes increased As on March 31, 2022, the State Bank of India by 88.4 per cent to 1,878.01 crore pieces during accounted for the highest share (53.6 per cent) of 2021-22 from 997.02 crore pieces in the previous currency chests (Table VIII.3). year (Table VIII.6). Table VIII.4: Indent and Supply of Banknotes by BRBNMPL and SPMCIL (April to March) (Pieces in lakh) Denomination (`) 2019-20 2020-21 2021-22 Indent Supply Indent Supply Indent Supply 1 2 3 4 5 6 7 5 - 60 - - - - 10 14,700 14,702 2,840 2,846 7,500 7,510 20 12,500 13,390 48,750 38,520 20,000 20,000 50 24,000 23,431 14,000 13,887 15,000 15,000 100 33,000 32,708 40,000 37,270 40,000 40,002 200 20,500 19,588 15,000 15,106 12,000 11,991 500 1,46,300 1,19,996 1,06,000 1,15,672 1,28,000 1,28,003 2000 - - - - - - Total 2,51,000 2,23,875 2,26,590 2,23,301 2,22,500 2,22,505 -: Not Applicable. BRBNMPL: Bharatiya Reserve Bank Note Mudran Private Limited. SPMCIL: Security Printing and Minting Corporation of India Limited. Note: Figures in the columns may not add up to the total due to the rounding-off of the numbers. Source: RBI. 169ANNUAL REPORT 2021-22 Table VIII.5: Indent and Supply of Coins by Mints (April to March) (Pieces in lakh) Denomination (`) 2019-20 2020-21 2021-22 Indent Supply Indent Supply Indent Supply 1 2 3 4 5 6 7 1 1,000 1,093 1,000 1,000 - - 2 8,000 7,993 9,500 6,718 2,000 2,000 5 10,000 9,984 11,000 10,995 2,000 2,000 10 12,000 11,565 5,500 5,852 2,000 2,000 20 3,000 458 3,000 5,061 2,000 2,000 Total 34,000 31,093 30,000 29,626 8,000 8,000 -: Not Applicable. Source: RBI. Counterfeit Notes per cent, 101.9 per cent and 54.6 per cent in the counterfeit notes detected in the denominations VIII.10 During 2021-22, out of the total Fake of `10, `20, `200, `500 (new design) and `2000, Indian Currency Notes (FICNs) detected in the respectively. The counterfeit notes detected in banking sector, 6.9 per cent were detected at the the denominations of `50 and `100 declined by Reserve Bank and 93.1 per cent at other banks 28.7 per cent and 16.7 per cent, respectively (Table VIII.7). (Table VIII.8). VIII.11 Compared to the previous year, there was Expenditure on Security Printing an increase of 16.4 per cent, 16.5 per cent, 11.7 VIII.12 The total expenditure incurred on security printing during April 1, 2021 to March 31, 2022 Table VIII.6: Disposal of Soiled Banknotes (April to March) was `4,984.8 crore as against `4,012.1 crore in (Pieces in lakh) the previous year (July 1, 2020 to March 31, 2021). Denomination (`) 2019-20 2020-21 2021-22 1 2 3 4 Table VIII.7: Number of Counterfeit Notes Detected (April to March) 2000 1,768 4,548 3,847 (Number of pieces) 1000 - - - 500 1,645 5,909 22,082 Year Detection at Detection at Total Reserve Bank Other Banks 200 318 1,186 6,167 100 44,793 42,433 59,203 1 2 3 4 50 19,070 12,738 27,696 2019-20 13,530 2,83,165 2,96,695 (4.6) (95.4) (100.0) 20 21,948 10,325 20,771 2020-21 8,107 2,00,518 2,08,625 10 55,744 21,999 46,778 (3.9) (96.1) (100.0) Up to 5 1,244 564 1,257 2021-22 15,878 2,15,093 2,30,971 Total 1,46,530 99,702 1,87,801 (6.9) (93.1) (100.0) Note: 1. Figures in parentheses represent the percentage share -: Not Applicable. in total. Note: Figures in the columns may not add up to the total due to the 2. Does not include counterfeit notes seized by the police rounding-off of the numbers. and other enforcement agencies. Source: RBI. Source: RBI. 170CURRENCY MANAGEMENT Table VIII.8: Denomination-wise Counterfeit banknotes improved signifi cantly as alluded to Notes Detected in the Banking System earlier under paragraph VIII.9. (April to March) Other Goals (Number of pieces) VIII.15 The remaining goals set for 2021-22 are Denomination (`) 2019-20 2020-21 2021-22 under various stages of implementation and have 1 2 3 4 thus been carried forward to the agenda for 2022- 2 and 5 22 9 1 10 844 304 354 23. 20 510 267 311 Major Activities 50 47,454 24,802 17,696 100 1,68,739 1,10,736 92,237 Microsite for Banknotes 200 31,969 24,245 27,074 500 (Specifi ed Banknotes) 11 9 14 VIII.16 A new microsite for banknotes is being 500 30,054 39,453 79,669 launched by the Reserve Bank, hosting information 1000 (Specifi ed Banknotes) 72 2 11 2000 17,020 8,798 13,604 on security features and exchange facility for Total 2,96,695 2,08,625 2,30,971 banknotes. The hallmark of the microsite is that the information will be disseminated not only Source: RBI. through multiple modes such as 360-degree views of the design and security features of banknotes, 3. Agenda for 2021-22 explanatory videos and animations, but also VIII.13 Last year, the Department had set out the through interactive games. following goals: Awareness Campaign on Exchange of Banknotes  Augmentation of disposal of soiled notes VIII.17 With a view to enhance customer service, (Paragraph VIII.14); the Reserve Bank embarked on an awareness  Procurement of new Shredding and campaign exclusively on exchange facilities Briquetting Systems (SBS) (Utkarsh) for banknotes. The media mix of the campaign [Paragraph VIII.15]; and included TV commercials and print advertisements in newspapers. The campaign which was  Establishment of a state-of-the-art facility conducted from March 16 to 31, 2022 is expected for conducting cutting edge research to to provide further impetus to the exchange facility test the robustness of security features of for banknotes. banknotes and introduction of new security features (Utkarsh) [Paragraph VIII.15]. Banknote Survey of Consumers Implementation Status VIII.18 The Department launched a banknote survey of consumers with the objective of (i) Augmentation of Disposal of Soiled Banknotes assessing demand for cash as well as denomination VIII.14 The disposal of soiled banknotes was preferences at the consumer level; (ii) measuring severely affected during the second and third awareness of consumers about various security waves of COVID-19 pandemic. However, as a features of the banknotes; and (iii) gauging the level result of concerted efforts, the disposal of soiled of satisfaction with banknotes and coins among the 171ANNUAL REPORT 2021-22 Box VIII.1 Banknote Survey of Consumers: Major Findings A diverse sample of 11,000 respondents from rural, semi- of `5 was the most preferred whereas `1 was the least urban, urban and metropolitan areas, spanning 28 states preferred. Watermark of Mahatma Gandhi’s image followed and three union territories participated in the survey. The by windowed security thread were the most recognised survey also included 351 visually impaired respondents security feature. Around three per cent of the respondents (VIR). The survey covered respondents from the age of 18 were not aware of any banknote security feature. Overall, to 79 years with a gender representation of 60:40 for males approximately 7 out of 10 respondents were found to be and females. satisfi ed with the new series of banknotes. Among the VIR, majority were found to be aware of the quality of paper and The survey fi ndings revealed that, among banknotes, size of the banknotes. `100 was the most preferred while `2000 was the least preferred denomination. Among coins, denomination Source: RBI. general public as well as visually impaired persons the need of engaging business correspondents (Box VIII.1). (BCs) and cash in transit (CIT) companies by banks for distribution of coins was re-emphasised, Procurement of New Security Features for Indian banks were also advised to provide coins to bulk Banknotes customers which was not permitted earlier. VIII.19 The Reserve Bank is actively involved in taking the process of introduction of new security 4. Bha ratiya Reserve Bank Note Mudran Private features for banknotes forward. Ltd. (BRBNMPL) Strengthening Currency Management Operations VIII.23 BRBNMPL is a wholly-owned subsidiary of VIII.20 The Reserve Bank continued to focus on the Reserve Bank, which is playing a crucial role the enhancement of its production and processing in designing, printing and supply of banknotes. In capabilities towards strengthening the currency the COVID-19 pandemic-induced environment, management operations in the economy. BRBNMPL achieved production of 13,350 million pieces of banknotes in 2021-22. The two-fold Scheme of Penalty for Non-replenishment of ATMs increase in direct remittances by BRBNMPL to VIII.21 A scheme of penalty for non-replenishment currency chests aided the unfettered availability of ATMs was introduced for banks/White Label of banknotes during the pandemic. Colour Shift ATM Operators (WLAOs) to ensure that suffi cient Intaglio Ink (CSII), a security feature used in the cash is made available to the public through ATMs. Indian banknotes that was imported earlier, is now Increasing Incentives for Distribution of Coins being indigenously manufactured at Varnika, the VIII.22 Currency Distribution and Exchange Ink Manufacturing Unit at BRBNMPL, Mysuru, Scheme (CDES) for banks was reviewed meeting the entire requirement of both BRBNMPL wherein the incentive for distribution of coins was and SPMCIL. This has resulted in signifi cant increased from `25 to `65 per bag. An additional reduction in import dependency for banknote incentive of `10 per bag will be payable for coin production as also saving of foreign exchange. distribution in rural and semi-urban areas. While During the year, the Governor, Reserve Bank 172CURRENCY MANAGEMENT dedicated the Ink Manufacturing Unit (Varnika) of  Survey on the usage of cash, coins and BRBNMPL, Mysuru to the nation. digital mode for payments. 5. Agenda for 2022-23 6. Conclusion VIII.24 During the year, the Department will focus VIII.25 In sum, during 2021-22, the Reserve Bank on the following: focused on augmenting disposal of soiled notes, enhancing public awareness, understanding  Procurement of new Shredding and public demand and expectations from banknotes, Briquetting Systems (SBS) [Utkarsh]; making available adequate quantity of clean notes  Establishment of a state-of-the-art facility and maintaining suffi cient buffer stock to meet for conducting cutting edge research to any contingency requirements on account of test the robustness of security features of COVID-19 pandemic. Going ahead, the Reserve banknotes and introduction of new security Bank’s endeavour would be to further modernise features (Utkarsh); the processing of banknotes, rationalise currency management processes, promote analytical  Study on automation and logistics in research for strengthening the integrity of currency management; banknotes, frame a strategy for complete  Mobile Aided Note Identifi er (MANI) indigenisation of raw materials for banknote App for the visually impaired persons - production, increase public awareness through introduction of 11 regional languages in technological aids and study the public usage of the App in addition to Hindi and English cash, coins and digital mode through a pan-India already available; and survey. 173IX PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY During the year, the Reserve Bank continued its endeavour to increase efficiency, improve customer convenience, expand outreach and ensure safety and security of payment systems, in line with the Payment Systems Vision 2021. Though the focus remained on cyber resilience in a COVID-19 induced pandemic environment and for ensuring round the clock availability of the Information and Communication Technology (ICT) infrastructure in the Reserve Bank, the efforts also continued towards upgrading IT infrastructure and stabilising newly introduced applications. IX.1 D uring the year, the Department of document management system for internal use in Payment and Settlement Systems (DPSS) the Reserve Bank). continued its efforts towards the planned IX.2 Against this backdrop, the following section development of the payment systems as guided covers developments in the sphere of payment and by the Reserve Bank’s Payment and Settlement settlement systems during the year and also takes Systems Vision 2021 document, viz., enhance stock of the implementation status of the agenda experience of consumers, empower payment for 2021-22. Section 3 provides various measures system operators and service providers, enable undertaken by the DIT during the year vis-à-vis the ecosystem and infrastructure and put in the agenda set for 2021-22. These departments place forward looking regulation supported by have also set out an agenda for 2022-23. The risk focused supervision. Keeping in view the chapter has been summarised at the end. global focus on enhancing cross-border payment arrangements, the Reserve Bank also explored 2. DEPARTMENT OF PAYMENT AND the possibility of linking India’s fast payment SETTLEMENT SYSTEMS (DPSS) system-Unifi ed Payments Interface (UPI) with IX.3 The Reserve Bank continued its similar systems in other jurisdictions, and actively participated in the discussions of the endeavour to enhance competition, ensure Committee on Payments & Market Infrastructures optimal cost for consumers, improve customer (CPMI) and Financial Stability Board (FSB) on convenience and increase confi dence in payment implementation of the G20 endorsed cross-border systems, in line with the outcomes identifi ed in the payments roadmap. The focus of the Department Payment Systems Vision 2021. The Reserve Bank of Information Technology (DIT) remained on expanded access to centralised payment systems ensuring an uninterrupted functioning of the ICT to include non-bank payment system providers. infrastructure in the Reserve Bank in the COVID-19 Leveraging on the 24x7x365 availability of RTGS, induced pandemic environment. Further, the additional settlements were introduced in UPI, major milestones achieved during the year Immediate Payment Service (IMPS), Aadhaar included enhancing resilience of Real Time Gross enabled Payment System (AePS), National Settlement (RTGS) and Structured Financial Electronic Toll Collection (NeTC), and National Messaging System (SFMS), upgradation of non- Financial Switch (NFS), and National Automated IT physical infrastructure at data centres and Clearing House (NACH) was operationalised stabilisation of Sarthi application (i.e., electronic on all days of the week. In order to enhance 174PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY Box IX.1 India and Singapore to Link their Fast Payment Systems - UPI and PayNow The Reserve Bank of India and the Monetary Authority of The UPI-PayNow linkage can foster cross-border Singapore (MAS) have announced a project to link their interoperability of payments and further anchor trade, travel fast payment systems, UPI and PayNow. The linkage will and remittance fl ows between the two countries. Singapore has a large number of Indian workers and students, resulting enable users of the two systems to make instant fund in substantial (more than USD 1 billion) in-bound and out- transfers (remittances) without the need to get onboarded bound remittances every year. The UPI-PayNow linkage is onto the other system. In other words, a user of UPI does expected to be a signifi cant milestone in the development not require to be a part of PayNow system to be able to of infrastructure for cross-border payments between India transfer funds to a PayNow user in Singapore and vice and Singapore, and aligns with the G20’s fi nancial inclusion versa. The linkage builds upon the earlier efforts of NPCI priority of enabling faster, cheaper and more transparent International Payments Limited (NIPL, a subsidiary of cross-border payments. It can also contribute towards NPCI) and Network for Electronic Transfers (NETS of fulfi lling United Nation’s (UN) Sustainable Development Singapore) to facilitate QR code-based payments through Goals (SDG 10.c)1 by reducing cost of remittances. UPI in Singapore. The initiative is in line with the Reserve The linkage is expected to be operationalised in the second Bank’s vision of reviewing inbound remittance corridors half of 2022. between India and other countries. Source: RBI. cross-border payment arrangements, the Reserve Digital Payments Bank explored the possibility of linking India’s fast IX.5 Among the digital modes of payments, the (retail) payment system, UPI, with similar system number of transactions using RTGS increased in other jurisdictions. The India (UPI) Singapore by 30.5 per cent during 2021-22 (Table IX.1). In (PayNow) interlinking is underway (Box IX.1). terms of value, RTGS transactions registered an Payment Systems increase of 21.8 per cent; transactions through the National Electronic Funds Transfer (NEFT) system IX.4 The payment systems2 recorded a robust also witnessed an increase of 30.6 per cent and growth of 63.6 per cent in terms of volume during 14.3 per cent in volume and value, respectively, 2021-22 on top of the expansion of 26.7 per cent in refl ective of the increase in large value corporate the previous year. In value terms, the growth was transactions, in line with rising economic activity. 23.1 per cent as against a decline of 13.4 per cent As at end March 2022, RTGS services were in the previous year, mainly due to robust growth available through 1,56,740 IFSCs3 of 239 observed in the large value payment system, viz., members, while NEFT services were available RTGS. The share of digital transactions in the total through 1,60,428 IFSCs of 227 member banks. volume of non-cash retail payments increased to 99.3 per cent during 2021-22, up from 98.8 per IX.6 During 2021-22, payment transactions cent in the previous year (Table IX.1). carried out through credit cards increased by 27.0 1 By 2030, reduce the transaction costs of migrant remittances to less than 3 per cent and eliminate remittance corridors with costs higher than 5 per cent. 2 Data for total payments include digital payments and paper-based instruments. 3 Indian Financial System Code. 175ANNUAL REPORT 2021-22 Table IX.1: Payment System Indicators - Annual Turnover (April-March) Item Volume (lakh) Value (` lakh crore) 2019-20 2020-21 2021-22 2019-20 2020-21 2021-22 1 2 3 4 5 6 7 A. Settlement Systems CCIL Operated Systems 36 28 33 1,341.50 1,619.43 2,068.73 B. Payment Systems 1. Large Value Credit Transfers – RTGS 1,507 1,592 2,078 1,311.56 1,056.00 1,286.58 Retail Segment 2. Credit Transfers 2,06,297 3,17,868 5,77,632 285.57 335.04 427.23 2.1 AePS (Fund Transfers) 10 11 10 0.005 0.01 0.01 2.2 APBS 16,747 14,373 12,298 0.99 1.11 1.33 2.3 ECS Cr 18 0 0 0.05 0 0 2.4 IMPS 25,792 32,783 46,625 23.38 29.41 41.71 2.5 NACH Cr 11,100 16,465 18,730 10.37 12.17 12.77 2.6 NEFT 27,445 30,928 40,407 229.46 251.31 287.25 2.7 UPI 1,25,186 2,23,307 4,59,561 21.32 41.04 84.16 3. Debit Transfers and Direct Debits 6,027 10,457 12,222 6.06 8.66 10.38 3.1 BHIM Aadhaar Pay 91 161 228 0.01 0.03 0.06 3.2 ECS Dr 1 0 0 0 0 0 3.3 NACH Dr 5,842 9,646 10,788 6.04 8.62 10.31 3.4 NETC (Linked to Bank Account) 93 650 1,207 0.002 0.01 0.02 4. Card Payments 72,384 57,787 61,786 14.35 12.92 17.02 4.1 Credit Cards 21,773 17,641 22,399 7.31 6.30 9.72 4.2 Debit Cards 50,611 40,146 39,387 7.04 6.61 7.30 5. Prepaid Payment Instruments 53,811 49,743 65,812 2.16 1.98 2.94 6. Paper-based Instruments 10,414 6,704 6,999 78.25 56.27 66.50 Total - Retail Payments (2+3+4+5+6) 3,48,933 4,42,557 7,24,451 386.38 414.86 524.07 Total Payments (1+2+3+4+5+6) 3,50,440 4,44,149 7,26,530 1,697.94 1,470.86 1,810.65 Total Digital Payments (1+2+3+4+5) 3,40,026 4,37,445 7,19,531 1,619.69 1,414.59 1,744.14 APBS: Aadhaar Payment Bridge System. ECS: Electronic Clearing Service. Note: 1. RTGS system includes customer and inter-bank transactions only. 2. Settlements of government securities and forex transactions are through the Clearing Corporation of India Ltd. (CCIL). Government Securities include outright trades and both legs of repo transactions and triparty repo transactions. 3. The fi gures for cards are for payment transactions at point of sale (POS) terminals and online. 4. Figures in the columns might not add up to the total due to rounding off of numbers. Source: RBI. per cent and 54.3 per cent in terms of volume growth during the year benefi tting from the and value, respectively (Table IX.1). Transactions operationalisation of the Payments Infrastructure through debit cards decreased by 1.9 per cent Development Fund (PIDF). The number of Points in terms of volume, though in terms of value, it of Sale (PoS) terminals increased by 28.6 per cent increased by 10.4 per cent. Prepaid Payment to 60.7 lakh during the year, while the number of Instruments (PPIs) recorded an increase in volume Bharat Quick Response (BQR) codes deployed and value terms by 32.3 per cent and 48.5 per cent, increased by 39.3 per cent to 49.7 lakh during the respectively. The growth in digital payments can be same period. Further, the number of Automated attributed to increased availability of acceptance Teller Machines (ATMs) also increased to 2.48 infrastructure, which witnessed substantial lakh in 2021-22 from 2.39 lakh in the previous year. 176PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY IX.7 There is global evidence of a pandemic- negative impacts of the pandemic on household induced shift in digital payment habits owing consumption spending (Liu et al. 2020). In the to social distancing norms (Alber and Dabour, Indian context also, the COVID-19 induced 2020; Jonker et al., 2020) and relief measures by lockdown was an infl ection point for digital governments (Toh and Tran, 2020) to mitigate the onboarding of new users (Box IX.2). Box IX.2 Household Choice of Digital Payments amidst COVID-19 Pandemic An empirical analysis of primary survey data from the enablers, while access to bank mitras and mobile banking National Payments Corporation of India (NPCI, 2020) apps played a relatively smaller role. brings to the fore useful perspectives about households’ Actual use of smartphones for digital payments may choice of digital payments during the pandemic be effectively boosted by enhancing digital literacy and (Table 1). Around one-third of surveyed households awareness (Chart 1). Most new users were from the transacted digitally for the fi rst time during the lockdown. middle-aged and the old age segment, indicating that Households that had prior experience with digital payments the pandemic may have “force-bridged” the generation but had abandoned them for reasons such as diffi culty in gap in digital payments. While respondents over the use, lack of internet access, fraud, overspending, etc., age of 60 preferred cards, UPI and mobile wallets were were most likely to re-adopt them during the pandemic. highly popular amongst the younger and middle-aged General awareness about payment modes as well as the population. Heads of households who didn’t personally level of formal educational attainment contributed to fi rst- own a smartphone were also likely to switch if they had time adoption, notably even at low levels. The former has a family member with a smartphone. There is evidence of a stronger effect than the latter, indicating that familiarity such digitally empowered household members substituting and occasional use are suffi cient to encourage the switch. for bank mitras in enabling digital payment adoption. Long-term benefi ciaries of welfare support were more likely to go digital to access their entitlements in a timely The pandemic induced ‘switch to digital’ is likely to manner. Debit card and smartphone ownership were key be permanent if there are signifi cant changes in the Table 1: Summarised Logistic Regression Results (Dependent Variable: “Did you use digital methods for the fi rst time after the lockdown?”) Variables Logit Coeffi cients Marginal Effect at Means Used Digital Payments earlier but discontinued later 2.826*** (0.192) 0.458*** (0.0484) Level of Awareness= 1 (Low) 2.357*** (0.615) 0.0334*** (0.00544) Level of Awareness= 2 (Medium) 4.676*** (0.619) 0.277*** (0.0293) Level of Awareness = 3 (High) 4.608*** (0.615) 0.264*** (0.0228) Level of Education 0.169** (0.0695) 0.0121** (0.00519) Received DBT based government aid both before and after lockdown 2.601*** (0.324) Access to Smartphone 1.436*** (0.193) 0.0860*** (0.0122) Access to Debit Card 2.171*** (0.285) 0.106*** (0.0128) Access to Bank Mitra 0.474*** (0.113) 0.0327*** (0.00852) Access to Mobile Banking App 0.407*** (0.115) 0.0314*** (0.0101) Constant -9.609*** (0.794) McFadden’s Adjusted R2 0.481 Observations 4,061 4,061 ***: Signifi cant at 1 per cent level. **: Signifi cant at 5 per cent level. Note: 1. Values in the parentheses indicate standard errors. 2. Levels of Awareness are: 0 (Not Aware - base case), 1 (Low), 2 (Medium) and 3 (High). 3. Levels of Education are on the scale: 1 (Illiterate), 2 (Primary School), 3 (High School), and 4 (Graduates and above). 4. The Marginal Effect at Means (MEM) is the marginal effect of a particular regressor with other regressors held at their mean values. 5. To ascertain the predictive accuracy of the baseline model, the data was split into training and testing set (80:20). The classifi cation accuracy of the model stands at 87 per cent, sensitivity at 89 per cent and specifi city at 82 per cent. Based on Cook’s distance, there is no evidence of infl uential outliers. (Contd...) Source: Saroy et al., (2022). 177ANNUAL REPORT 2021-22 Chart 1: Effect of Digital Literacy on First-time Digital Payment Adoption Post-lockdown Conditional Marginal Effects with 95% CIs Conditional Marginal Effects with 95% CIs Debit Card and Smartphone Ownership Debit Card and Smartphone Ownership CIs : Confidence Intervals Source: Saroy et al. (2022). underlying enablers such as enhancement in the payment 3. Liu, T., B. Pan, and Z.Yin (2020), ‘Pandemic, Mobile infrastructure, more merchant on-boarding, reduction Payment, and Household Consumption: Micro Evidence in frauds, greater customer trust in digital payments and from China’, Emerging Markets Finance and Trade, enhanced ease of use of such payment modes. This would 56(10), 2378-2389. ensure that the recent shift in preferences towards digital is not just a temporary spike but a permanent behavioural 4. National Payments Corporation of India (2020), ‘Digital shift. Payments Adoption in India, 2020’, NPCI-PRICE Report. References: 5. Saroy, R., S. Awasthy, N. K. Singh, S. Adki, and S. Dhal (2022), ‘Impact of COVID-19 on Digital Payment Habits 1. Alber, N., and M. Dabour (2020), ‘The Dynamic of Indian Households’, Bulletin of Monetary Economics Relationship Between FinTech and Social’, International and Banking, Vol 25, Special Issue. Journal of Economics and Finance, 12(11), 109-109. 2. Jonker, N., C. van der Cruijsen , M. Bijlsma, and W. Bolt 6. Toh, Y. L., and T. Tran (2020), ‘How the COVID-19 (2020), ‘Pandemic Payment Patterns’, DNB Working Pandemic May Reshape the Digital Payments Papers 701, Research Department, Netherlands Central Landscape’, Payments System Research Briefi ng, 1-10, Bank. Federal Reserve Bank of Kansas City. Authorisation of Payment Systems Agenda for 2021-22 IX.8 Payment System Operators (PSOs) IX.9 Last year, the Department had set out the comprise PPI issuers, cross-border Money Transfer following goals: Service Schemes (MTSS), White Label ATM Encouraging Healthy Competition (WLA) operators, Trade Receivables Discounting Systems (TReDS), ATM networks, Instant Money (cid:129) The Reserve Bank shall initiate discussion Transfer Service Providers, Card Payment to develop a framework for settlement risk Networks and Bharat Bill Payment Operating Units management with increased participation (BBPOUs), besides Clearing Corporation of India of non-banks in centralised payment Ltd. (CCIL) and National Payments Corporation of systems including, review of membership India (NPCI) [Table IX.2]. (Paragraph IX.11); 178PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY Table IX.2: Authorisation of Payment System (PSPs) can play to ensure friction free Operators (as at end-March) remittances at lower cost, including review (Number) of corridors and charges for inbound cross- Entities 2021 2022 border remittances (Paragraph IX.14); 1 2 3 Increasing Customer Confi dence A. Non-Banks – Authorised PPI Issuers 36 37 (cid:129) The Reserve Bank has established WLA Operators 4 4 Instant Money Transfer Service Providers 1 1 a framework to capture the location BBPOUs 8 9 and business details of commercial TReDS Platform Operators 3 3 bank branches, ATMs and business MTSS Operators 9 9 Card Networks 5 5 correspondents (BCs). It is envisaged to ATM Networks 2 2 extend a similar framework to capture and B. Banks – Approved maintain information about PoS terminals PPI Issuers 56 57 and other payment system touch points as BBPOUs 42 43 Mobile Banking Providers 566 648 well (Paragraph IX.15); and ATM Networks 3 3 (cid:129) The Reserve Bank shall examine the need Source: RBI. for a separate regulatory framework for outsourcing arrangements by non-bank Improving Consumer Convenience payment service providers, given the (cid:129) The Reserve Bank had announced current trend of outsourcing arrangements that pilot schemes for offl ine payment and the need for security control and solutions would be conducted till March clarity of roles and responsibilities of the 31, 2021. Based on the experience gained regulated entities (Paragraph IX.16). through these pilot schemes, the Reserve Implementation Status Bank shall decide on implementing offl ine payment solutions in the country IX.10 In the ‘Payment and Settlement Systems in (Paragraph IX.12); and India: Vision 2019-2021’, DPSS had identifi ed four goal-posts, viz., competition, cost, convenience, (cid:129) The Reserve Bank shall explore the and confi dence, for achieving its vision. possibility of facilitating settlement of card transactions processed by various card Encouraging Healthy Competition payment networks through the accounts Review of Membership to Centralised Payment of card payment networks maintained Systems (CPS) with the Reserve Bank. Settlement of card IX.11 The Reserve Bank expanded access to transactions in Reserve Bank books shall CPS (RTGS and NEFT) and permitted authorised increase confi dence in card transactions non-bank PSOs, viz., PPI issuers, card networks (Paragraph IX.13). and WLA operators, to participate in CPS as direct Ensuring Affordable Cost members. The non-bank PSOs were also allowed (cid:129) The Reserve Bank will examine the role to open current accounts with the central bank. that the payment services providers Guidelines were issued in July 2021 stipulating 179ANNUAL REPORT 2021-22 eligibility criteria, membership type and nature of Ensuring Affordable Costs transactions, along with frequently asked questions Review of Corridors and Charges for Inbound (FAQs) for operational and user convenience. Cross-border Remittances Direct access is expected to minimise the overall IX.14 The Reserve Bank is working on use of UPI risk in the payments ecosystem and also benefi t for cross-border remittances across jurisdictions. non-banks by lowering cost and time for effecting/ While the efforts with various countries are at receiving payments, reducing dependence on various stages, the interlinking of UPI with PayNow banks and eliminating uncertainty in fi nality of has been formally announced and is expected to payments as settlement will be carried out in be operationalised in the second half of 2022. central bank money. The interlinking will further anchor trade, travel and remittance fl ows between the two countries Improving Customer Convenience and lower the cost of cross-border remittances. Offl ine Payment Solutions It would also serve as an example of interlinking of respective fast payment systems to achieve IX.12 To encourage technological innovations instant remittances in a cost-effective manner. that enable offl ine digital transactions, authorised Increasing Confi dence PSOs were permitted in August 2020 to conduct pilots for proximity payments using cards, wallets or Geo-tagging of Payment System Touch Points mobile devices. Based on the experience gained, IX.15 As announced in the Statement on the framework for facilitating small value digital Developmental and Regulatory Policies of payments in offl ine mode was issued on January October 8, 2021, the Reserve Bank prescribed a 3, 2022. Accordingly, the authorised PSOs and framework for geo-tagging of payment acceptance Payment System Participants (both acquirer and infrastructure deployed by banks and non-bank issuers – banks and non-banks) were permitted PSOs. Geo-tagging is expected to provide insights to enable small value digital payments in offl ine on regional penetration of digital payments by mode using any channel or instrument like cards, monitoring infrastructure density across different wallets, mobile devices, etc., subject to specifi ed locations. This will help initiate policy interventions conditions. The initiative is expected to give a push to deploy additional payment touch points and to digital transactions in areas with poor or weak facilitate undertaking focused digital literacy internet or telecom connectivity, particularly in programmes. semi-urban and rural areas. Third Party Risk Management and System-wide Security National Settlement Services for Card Schemes IX.16 The Reserve Bank issued a circular dated IX.13 A circular on ‘Access for Non-Banks to August 3, 2021 on “Framework for Outsourcing CPS’ was issued on July 28, 2021, amending of Payment and Settlement-related Activities by Master Directions on Access Criteria for Payment Payment System Operators”. The framework Systems dated January 17, 2017 and permitting provides minimum standards to manage risks in direct access to non-bank PSPs including card outsourcing of payment and/or settlement-related networks. This will facilitate settlement of card activities (including other incidental activities like transactions in the Reserve Bank. on-boarding customers, IT based services, etc.). 180PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY Major Developments and has helped transfer of government subsidies during the COVID-19 pandemic in a timely and Improving Customer Convenience transparent manner. Enhancements in PPIs 24x7 Helpline for Digital Payments – DigiSaathi IX.17 Mandating interoperability, permitting cash IX.21 Under the guidance of the Reserve Bank, withdrawal from full-KYC4 PPIs and increasing NPCI in association with the payments industry maximum balance in full-KYC PPIs to `2 lakh were set-up a centralised industry-wide 24x7 helpline enhancements permitted to PPIs in May 2021. for digital payments christened – DigiSaathi. The Bharat Bill Payment System (BBPS) - Addition of 24x7 helpline provides a channel to obtain help on Biller Category the entire gamut of digital payments. Automated IX.18 In July 2021, mobile prepaid recharges responses on information related to digital were permitted as a biller category in BBPS. payment products and services are available in As part of BBPS, the mobile prepaid customers Hindi and English through multiple options like – will benefi t from standardised bill payment (a) toll-free number (1800-891-3333), (b) a short experience, centralised customer grievance code (14431), (c) website – www.digisaathi.info, redressal mechanism, transparent customer and chatbots. DigiSaathi will assist users with convenience fee and availability of a bouquet of their queries on digital payments via website and anytime, anywhere digital payment options. chatbot facility and through toll-free calls where user can dial or call out the options/products for Enhancements to Indo-Nepal Remittance Facility which the information is required. Scheme UPI for Feature Phones – UPI123Pay IX.19 Enhancements were made to the Indo Nepal Remittance Facility Scheme in October IX.22 UPI123Pay was launched by the Reserve 2021 by way of increasing the ceiling per Bank to empower 40+ crore feature phone transaction to `2 lakh and removing the annual subscribers to get onboarded to the domain of cap of 12 remittances. These enhancements are digital payments by enabling them to transact expected to boost trade payments between the digitally and avail UPI features. UPI123Pay two countries and also ease pension payments to provides four distinct options to feature phone the ex-servicemen settled/relocated in Nepal. users to effect digital payments, viz., (a) Interactive Voice Response (IVR), (b) missed call, (c) app Availability of NACH on All Days based functionality, and (d) proximity sound-based IX.20 Leveraging on the availability of RTGS payments. 24x7x365, NACH system was made operational on Enhancing Transaction Limit for IMPS all days of the week, including weekends, effective August 1, 2021. NACH has emerged as a popular IX.23 IMPS is an important payment system and prominent digital mode of direct benefi t providing 24x7 instant domestic funds transfer transfer (DBT) to large number of benefi ciaries facility and is accessible through various channels 4 Know your customer. 181ANNUAL REPORT 2021-22 like internet banking, mobile banking apps, bank Discussion Paper on Charges in Payment Systems branches, ATMs, SMS and Interactive Voice IX.26 To take a comprehensive view of the Response System (IVRS). Keeping in view the charges payable by merchants and consumers importance of IMPS in processing of domestic for receiving/making digital payments, it was payment transactions, the per-transaction announced in the Statement on Developmental limit was enhanced from `2 lakh to `5 lakh and Regulatory Policies of December 8, 2021 for all channels other than SMS and IVRS (`5 that a discussion paper covering all aspects thousand). This will lead to further increase in related to charges (including convenience fee and digital payments and will provide an additional surcharging) involved in various channels of digital facility to customers for making digital payments payments will be issued shortly. beyond `2 lakh. Increasing Confi dence Increase in UPI Transaction Limit for Specifi ed Investment in Entities from FATF Non-compliant Categories Jurisdictions IX.24 To facilitate greater participation of retail IX.27 Guidelines were issued in June 2021 on customers in fi nancial markets, e.g., investment investment in PSOs from Financial Action Task in the G-secs segment through the Retail Direct Force (FATF) non-compliant jurisdictions to ensure Scheme, and for payment towards subscription of consistency with similar instructions for investment Initial Public Offerings (IPOs); the transaction limit in non-banking fi nancial companies (NBFCs) from in UPI system was enhanced from `2 lakh to `5 such jurisdictions. lakh for these categories. Tokenisation - Card Transactions Ensuring Affordable Costs IX.28 The framework on device-based card Usage of Automated Teller Machines/Cash tokenisation was extended in August 2021 to Recycler Machines - Review of Interchange Fee include laptops, desktops, wearables (wrist and Customer Charges watches and bands) and Internet of Things IX.25 The interchange fee and customer (IoT) devices. Further, in September 2021, card charges for transactions at ATMs and cash networks and card issuers were permitted to offer recycler machines were reviewed in June 2021 Card-on-File Tokenisation (CoFT) services. It was after examining the recommendations of the also advised that from July 1, 2022 no entity in committee set-up by the Reserve Bank under the card transaction/payment chain, other than the Chairmanship of the Chief Executive, Indian the card issuers and/or card networks, shall store Banks’ Association (IBA). Accordingly, a marginal the actual card data, and any such data stored increase in interchange fees per transaction from previously shall be purged. `15 to `17 for fi nancial transactions and from `5 Other Initiatives to `6 for non-fi nancial transactions in all centres CPFIR - Payment Fraud Reporting (Utkarsh) was effected from August 1, 2021. Consequently, the ceiling on customer charge per transaction, IX.29 The reporting of payment frauds to the beyond the free transactions, was also increased Central Payments Fraud Information Registry slightly from `20 to `21, effective January 1, 2022. (CPFIR) maintained by the Reserve Bank 182PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY was further streamlined with inclusion of more As Central Counterparty (CCP), CCIL was scheduled commercial banks and non-bank PPI rated ‘Observed’ for 17 principles and ‘Broadly issuers as reporting entities. Observed’ for three, while four were ‘Not Applicable’ to it. As Trade Repository (TR), CCIL Payments Infrastructure Development Fund was rated ‘Observed’ for 11 principles, while 13 (PIDF) [Utkarsh] were ‘Not Applicable’. IX.30 The PIDF scheme was operationalised Developments in CCIL fully during the year, and as at end-March 2022, the contribution to the scheme was `798.94 crore. IX.33 During the year, CCIL was able to Also, as at end-March 2022, 94.77 lakh payment manage its operations smoothly notwithstanding acceptance devices were deployed under the PIDF. the challenges from the COVID-19 pandemic. The Advisory Council chaired by the Reserve CCIL enhanced its risk management process by increasing margin period of risk (MPOR) to 5 days Bank’s Deputy Governor (Shri T. Rabi Sankar) in various segments, calibrating the fl oor for 1-day provided overall guidance and also approved value at risk (VaR) for securities in a tenor bucket inclusion of eligible street vendors of the Prime to 95th percentile and improving the methodology Minister Street Vendor’s AatmaNirbhar Nidhi (PM for intra-month revision of default fund. SVANidhi) Scheme in Tier-1 and 2 centres as benefi ciaries of the PIDF Scheme. IX.34 Leveraging on RTGS 24x7, CCIL extended the cut-off time for clearing and settlement in forex Inspection of NPCI segments. CCIL settlement data was included IX.31 Inspection of NPCI was conducted in in daily data on payment systems published on November 2021. The scope of the inspection, the Reserve Bank’s website from May 3, 2021. driven by the Principles for Financial Market Submission of returns/statements by CCIL Infrastructures (PFMIs), was confi ned to was further rationalised. CCIL also assumed functional assessment of various retail payment responsibility as the aggregator and receiving systems operated by NPCI, risk assessment offi ce for the RBI Retail Direct Scheme, which and management framework, governance and facilitates investment in government securities oversight, business impact analysis, compliance by individual investors. The issuances of Legal audit, information and cyber security audit, Entity Identifi er (LEI) by CCIL’s subsidiary Legal compliance status of previous Inspection Report Entity Identifi er India Ltd. (LEIL) crossed 45,000 in and compliance of the terms and conditions of the March 2022. Certifi cate of Authorisation. e-BAAT Programmes Inspection of CCIL IX.35 The Reserve Bank has been conducting IX.32 The Reserve Bank conducted the onsite electronic Banking Awareness and Training inspection of CCIL under Section 16 of the (e-BAAT) programmes regularly for the benefi t Payment and Settlement Systems (PSS) Act, of customers/bankers/students/public. The aim is 2007. CCIL was assessed against the 24 PFMIs to create awareness and clear doubts on use of formulated by the Committee on Payments and various payment systems and products. During the Market Infrastructures-International Organisation year, 367 e-BAAT programmes were conducted of Securities Commissions (CPMI-IOSCO). by the regional offi ces of Reserve Bank. 183ANNUAL REPORT 2021-22 Inspection of PSOs on ensuring an uninterrupted functioning of the ICT infrastructure in the Reserve Bank in the IX.36 Under Section 16 of the PSS Act, COVID-19 induced pandemic environment. The inspection of 46 retail entities, viz., 30 PPI issuers, Bio-bubble created by the Department, right at 4 WLA operators, 8 BBPOUs, 3 TReDS platform the beginning of the COVID-19 pandemic, was operators and one ATM Network was carried out sustained through the successive waves of the by the Reserve Bank during the year. pandemic ensuring smooth functioning of the Agenda for 2022-23 country’s payment systems, fi nancial market operations, internal ICT facilities in the Reserve IX.37 In 2022-23, the Department will focus on Bank, among others. the following goals: IX.39 During the year, though the focus remained (cid:129) Formulation and Release of Payment on cyber resilience in a COVID-19 induced System Vision 2025 Document: With the pandemic environment for ensuring round the achievement of the intended outcomes clock availability of the ICT infrastructure in the and completion of identifi ed actions in Reserve Bank, the Department also continued Vision 2021, the Reserve Bank shall its efforts towards upgrading infrastructure and come out with its Vision for the payments also stabilising newly introduced applications. ecosystem in the coming years to ensure The major milestones achieved during the year continuous development of the payments included enhancing resilience of RTGS and SFMS, landscape; upgradation of non-IT physical infrastructure at (cid:129) Publication of Payments Dashboard: To data centres and stabilisation of Sarthi application. enhance consumer experience and provide Major Initiatives greater insights into payment trends, the Reserve Bank shall publish a payments Improving Resilience of RTGS dashboard with pictorial representation of IX.40 As an incremental strategy to continuously trends in payment systems; and improve India’s payment systems, upgrades have (cid:129) Implementation of Framework of been carried out in underlying infrastructure Geo-tagging of Payment Acceptance hosting RTGS, which smoothens the message Infrastructure: As announced in the fl ow, its reconciliation and replication across Statement on Developmental and sites. This coupled with ongoing improvements in Regulatory Policies of October 8, 2021, the RTGS system would help in reducing the system Reserve Bank has prescribed a framework Recovery Time Objective (RTO) and further improving the resilience. for geo-tagging payment touch points and will initiate the process to implement the New Advanced Firewall and Network Data Flow framework. Monitoring IX.41 The new advanced fi rewall solution, which 3. DEPARTMENT OF INFORMATION is being implemented across the Reserve Bank, TECHNOLOGY (DIT) provides advanced features equipped to cater to IX.38 The focus of the Department of the security requirements of the growing needs Information Technology during the year remained of Reserve Bank’s IT infrastructure. The content 184PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY disarm and reconstruction feature provides Network (TIN 2.0) of Central Board of Direct Taxes dedicated fi le scanning for the network traffi c. (CBDT) and the Public Financial Management System (PFMS) of Controller General of Accounts IX.42 The network data fl ow monitoring solution provides protection against both internal and (CGA) for implementation of Pratyaksh Kar external threats with higher visibility and security, Lekhankan Pranali (PRAKALP). The development through analytics on encrypted traffi c for malware. in e-Kuber has been completed and is ready for The security analytics of the solution helps to implementation. identify security compliance gaps, aids in forensic Stabilisation of Sarthi Application investigation, threat alarms and incident response. Upgradation of Non-IT Physical Infrastructure at IX.46 Sarthi, the less-paper solution for the Data Centres Reserve Bank’s internal processes was launched on January 1, 2021, and continuous efforts were IX.43 The Reserve Bank rejuvenated non-IT made during the year to customise new workfl ow infrastructure of its existing data centres during the COVID-19 induced lockdown. All non-IT processes and enhance the features and infrastructure was replaced/upgraded in live functionalities of the application as well as ensuring running environment of 24x365 critical operations. better user experience. Further, extensive users’ The work has been completed at two data centres training programmes were conducted covering and is in advanced stage of completion at third data all central offi ce departments (CODs), regional centre. The major driving factor for the project was offi ces (ROs) and training establishments (TEs) optimal capacity planning and energy effi ciency for better adoption of the application. Additionally, which includes upgrading of non-IT infrastructure application utilisation is being continuously at data centres. This measure is expected to monitored and application security measures are increase the operational effi ciency of data centres. being regularly reviewed to ensure robustness of Enhancing Resilience/Effi ciency of SFMS the application. IX.44 SFMS, the messaging system used for Hybrid Payment System both NEFT and RTGS, is being upgraded in phased manner in the Reserve Bank and 200+ IX.47 An effi cient payment system is the lifeline member banks to enhance its capability to support of the economy. The Reserve Bank has been functions in automated manner. Features such as focusing on developing the payment systems in reconciliation, enhanced reconciliation and dual the country for the past four decades. Today, India certifi cate support are already implemented. The can boast of having a vibrant, effi cient and secured upgraded SFMS will take care of the futuristic payment ecosystem. Availability of NEFT and requirements, viz., high availability, scalability, RTGS around the clock has further strengthened enhanced security, performance, and resilience. the payment ecosystem in the country. Currently, Reserve Bank as Aggregator for Tax Information the payment systems are either based on gross Network (TIN 2.0) settlement or net settlement, so, the possibility of IX.45 The initiative is to integrate Reserve having an integrated system capable of both gross Bank’s e-Kuber system with Tax Information and net settlements may be explored. 185ANNUAL REPORT 2021-22 Agenda for 2021-22 address capacity expansion constraints to meet the ever-increasing IT landscape need, avoid IX.48 Last year, the Department had set out the region specifi c risk and house critical data centre following goals under Utkarsh: manpower. The new data centre will also host (cid:129) Next Generation Data Centre: Examination ‘Enterprise Computing and Cybersecurity Training of the feasibility of next generation Centre’ to cater to the advanced training needs data centre and preparation of detailed of the Reserve Bank’s staff and also the banking prototype plan to cater to the Reserve sector. Bank’s ICT roadmap for coming years IX.50 Land acquisition for the new data centre (Paragraph IX.49 - IX.50); has been completed. The Reserve Bank is in the (cid:129) Upgradation of Non-IT Physical process of identifying the project implementation Infrastructure at Data Centres: The agencies. rejuvenating of non-IT infrastructure at its Upgradation of Non-IT Physical Infrastructure at existing data centres is underway. Optimal Data Centres capacity planning and energy effi ciency is IX.51 The work has been completed at two data a major driving factor for the project, which centres, and is in advanced stage of completion at includes invigorating non-IT infrastructure the remaining data centre. at data centres (Paragraph IX.51); and Implementation of Next-Generation e-Kuber (cid:129) Implementation of Next-Generation IX.52 The process of upgradation of e-Kuber e-Kuber: e-Kuber is performing key system which facilitates key fi nancial services and fi nancial services and operations of the operations of the Reserve Bank with/for various Reserve Bank with/for various stakeholders stakeholders, is in progress. such as government, banks and other market participants. The system is being Agenda for 2022-23 revived to improve the functionalities by IX.53 The Department’s goals for 2022-23 are leveraging on technological developments set out below: and will facilitate enhanced automation (cid:129) Robotic Process Automation (RPA) of processes, fl exibility of integration Solution for Automation of Routine and with external and internal systems, ease Repetitive Tasks: RPA is envisioned for of change management, enhanced automation of repetitive and manual modularity, reporting with comprehensive tasks such as software installation, report real time dashboards, front end generation, reconciliation issues and fault improvements for enhancing productivity remediation activities by bots without the and robust controls (Paragraph IX.52). support of IT engineers thereby resulting Implementation Status in better utilisation of their services in other critical functions. This shall help in Next Generation Data Centre reducing human errors and bring in more IX.49 The Reserve Bank will be constructing effi ciency and productivity in day-to-day a new state-of-the-art greenfi eld data centre to operations across the Reserve Bank; 186PAYMENT AND SETTLEMENT SYSTEMS AND INFORMATION TECHNOLOGY (cid:129) Better Interface for Internal Applications to interoperability between RTGS and NEFT Enhance User Experience and Adoption: (Utkarsh); The Department will be enhancing the (cid:129) Continuous Upgrading of IT and Cyber user interface of the internal applications Security: The Reserve Bank strives to by adopting the latest best practices continuously assess and upgrade its and global standards to improve the IT security infrastructure to enhance its user experience and adoption of the effi ciency and effectiveness of tackling applications. Special focus will be on user- the emergent threats and protect its centric design and continuous accessibility IT infrastructure that caters to critical in safe and secure manner; payment infrastructure. In this endeavour, (cid:129) Next Generation e-Kuber: The e-Kuber will the Reserve Bank will upgrade Security be upgraded to the next generation based Operation Centre (SOC) technologies on newer technologies with wider fl exibility with innovative capabilities and additional and stability. The upgraded system will advancements like security orchestration, have functionalities like reporting with automation and response, user entity comprehensive real time dashboards, behaviour analytics, extended detection enhanced user experience, scalability, and response; and resilient, easier process orchestration, (cid:129) Enterprise Data Centre and Enterprise ease of integration with external and Computing and Cybersecurity Training internal systems, front end improvements Centre: The Reserve Bank plans to for enhancing productivity, robust controls, commence work on a new state-of- and integrated security architecture the-art greenfi eld data centre during platform; 2022-23 for which necessary land has (cid:129) Making NEFT Compliant to Global been obtained. The data centre will cater Messaging Standards: Payment industry largely to internal needs of the Reserve has evolved over a period and various Bank, and will also host an enterprise business drivers like richness of data, computing and cybersecurity training standardisation across payment nodes, centre which will cater to the needs of the compliance, deeper reporting, and related banking and fi nancial sector of the country. requirements have been constantly driving the need for change. ISO 20022 is a global 4. CONCLUSION and open standard for payment messaging. The RTGS system is already based on IX.54 The Reserve Bank continued its efforts to ISO 20022. The Reserve Bank will strive develop state-of-the-art payment and settlement to make its NEFT system also compliant to systems in the country for building less cash this global messaging standard. Adoption society, along with a focus on increasing of ISO 20022 will provide structured and effi ciency, improving customer convenience, granular data, improved analytics, end- expanding outreach and ensuring safety and to-end automation, and better global security of payment systems as envisaged in harmonisation. It will also pave way for the Reserve Bank’s Payment and Settlement 187ANNUAL REPORT 2021-22 Systems Vision 2021 document. Keeping in of Sarthi application. Going ahead, release view the global focus on enhancing cross-border of Payment System Vision Document 2025; payment arrangements, the Reserve Bank also implementation of framework of geo-tagging explored the possibility of linking India’s fast of payment acceptance infrastructure; making payment system UPI with PayNow of Singapore. NEFT compliant to global messaging standards; Further, the major milestones achieved during strengthening IT and cyber security; setting up the year included enhancing resilience of RTGS enterprise data centre and enterprise computing and SFMS, upgradation of non-IT physical and cybersecurity training centre will be the major infrastructure at data centres and stabilisation focus areas of the Reserve Bank. 188COMMUCNOMIMCUANICTATIIOON, NINT,E RINNATITONEALR RENLAATIOTNSI, ONAL X RESEARCH AND STATISTICS RELATIONS, RESEARCH AND STATISTICS During the year, the Reserve Bank unveiled its Communication Policy 2.0, continuing with its endeavour to reach out to a wide spectrum of audience through multiple channels including social media and public awareness campaigns, while adhering to the principles of relevance, transparency, clarity, comprehensiveness, and timeliness in its communication. Economic and statistical policy analysis and research were sharpened, and information management systems were strengthened. International relations were deepened under the BRICS Chair of India in 2021 with achievement of several milestones. The Reserve Bank also joined the Network for Greening of the Financial System (NGFS) with its commitment to support greening India’s financial system. Efforts were also made for effective cash management on behalf of the government and sound management of foreign exchange reserves. Legislative initiatives/amendments were also pursued during the year to ensure a robust legal framework necessary for a sound and efficient financial system in the economy. X.1 The Reserve Bank released its several other initiatives such as use of non- Communication Policy 2.0 on July 16, 2021. traditional data sources and advanced statistical Transparent communication, unambiguous and artifi cial intelligence (AI)/machine learning interpretation and precise articulation of the (ML) techniques. The year also witnessed a multifarious objectives of the Reserve Bank number of amendments/introduction of legislations are the goals of its communication policy. The pertaining to the fi nancial sector. economic and fi nancial relations with international X.2 Against this backdrop, the rest of the organisations and multilateral bodies were further chapter is structured into eight sections. The strengthened during the year. In pandemic-induced next section presents major initiatives of the environment, concerted efforts were made to Reserve Bank with regard to its communication provide effective cash management services to strategy and processes. Section 3 discusses the the government by integrating its system with that Reserve Bank’s international relations, including of e-Kuber. In the uncertain global macroeconomic interactions with international organisations and scenario, safety, liquidity and return in that order multilateral bodies. Section 4 dwells on the activities continued to be the guiding principles for managing of the Reserve Bank as a banker to governments foreign exchange reserves (FER). During the and banks. Section 5 reviews the conduct of year, several research studies were undertaken foreign exchange reserves management. Section on a wide range of contemporary issues, besides 6 sets out research activities, including statutory providing research inputs for policy formulation reports and frontline research publications. and timely release of the fl agship publications. Section 7 profi les the activities of the Department Information management system was further of Statistics and Information Management (DSIM), strengthened through development of the next whereas Section 8 presents the activities of the generation data warehouse [viz., centralised Legal Department. Concluding observations are information management system (CIMS)] and given in the last section. 189ANNUAL REPORT 2021-22 2. COMMUNICATION PROCESSES as for supporting the expanding boundaries of its policy instruments. X.3 In recent years, central bank communication has become a key guiding factor X.5 The Communication Policy 2.0, which in making the central bank policies effective and distinctly sets out the purpose and principles of transparent. Communication of central banks is communication, is aligned with medium-term now targeted to cover a wide spectrum of the strategy (Utkarsh) of the Reserve Bank and audience while ensuring clarity and accuracy. recognises social media as another channel of Central banks are now judged not only on what communication with emphasis on monetary policy information they communicate, but how it is communication [particularly, post Monetary Policy communicated to a diverse audience. Committee (MPC) deliberations], fi nancial stability communication and communication during crisis X.4 The Communication Policy 2.0 of the time, alongside communication by the central Reserve Bank1 was released on July 16, 2021. board members. Further, the Communication The Reserve Bank’s communication policy follows Policy 2.0 embraces technological advancements, the guiding principles of relevance, transparency, changes in modes of communication and other clarity, comprehensiveness and timeliness; it developments in the aspects of central bank strives to continuously improve public communication over the years. understanding of developments in the multiple domains under its ambit. The Reserve Bank’s X.6 The Reserve Bank disseminates approach is to communicate its policy stance customised communication depending on the and its assessment of the evolving situation target audience3 through public awareness by providing rationale as well as supporting initiatives and microsite on its website in 11 major information and analyses to all stakeholders. regional languages apart from Hindi and English. Transparent communication, unambiguous The Reserve Bank reaches out to academicians, interpretation and precise articulation of the researchers, fi nancial market participants, multifarious objectives of the Reserve Bank are the bankers, fi nancial journalists and other fi nancially goals2 of its communication policy. The composite informed communities and also maintains deeper mandate necessitates open, clear and structured engagement with the general public through communication for its effective functioning as well traditional and non-traditional channels (Box X.I). 1 The fi rst communication policy was formulated in 2008 by aligning various channels of communication such as circulars/ notifi cations/directives, policy statements, press releases, statutory publications, and speeches with policy rationale and intent, and expected outcomes. 2 The communication policy of the Reserve Bank has the following principal goals: (i) clarity on its role and responsibilities; (ii) building confi dence in its policy measures; (iii) improving transparency and accountability; (iv) anchoring expectations of all economic agents to enhance the effi cacy of monetary policy and to minimise undue speculation; (v) increasing awareness about fi nancial stability; (vi) dissemination of information with minimum time lag; (vii) ensuring timeliness and credibility through effective communication; and (viii) deepening engagement with the multi-lingual and multi-cultural society. 3 Such as regulated entities, researchers, analysts, academics, rating agencies, media, other central banks, multilateral institutions, market participants, government agencies, and members of public including women, senior citizens, defence personnel and school children in urban and rural areas. 190COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS Box X.1 Central Bank Outreach and Public Awareness In line with one of the broad goals of the Reserve Bank’s • Associating with Olympic gold medallist Neeraj Chopra, Communication Policy 2.0 to disseminate customised bronze medallist Bajrang Punia and Bhavani Devi communication depending on the target audience, the through a sports broadcasting channel for warning Reserve Bank reaches out to such audience through people against digital banking frauds. The timing of the multiple channels such as the Reserve Bank’s website, broadcast was synchronised with the Olympics sports media interface, informal workshops, and social media, events to maximise the impact. besides public awareness campaigns to reach out to the • The Financial Literacy Week 2021 saw a creative change general public. Further, target-specifi c communication when the Reserve Bank animated its mascot for fi nancial of public interest has also been released through social literacy named ‘Money Kumar’. media and placed under the ‘RBI Kehta Hai’ page of the Reserve Bank’s website and YouTube channel - a • Spreading awareness on the need to be cautious while transacting digitally through an animated dance video multi-media and multi-lingual fl agship public awareness and song with its mascot ‘Money Kumar’, which was initiative launched to educate the public about banking broadcast on TV channels and its social media handles. regulations and practices. Virtual modes of awareness campaigns also became crucial for spreading fi nancial • Associating with a popular kids’ dance show to spread the literacy among masses, particularly during the COVID-19 message “how to stay cyber secure”. pandemic. • Use of popular television programmes like Kaun Banega New Initiatives Crorepati in multiple languages, to convey fi nancial awareness messages. In 2021, the Reserve Bank launched a few key initiatives to reach out to the general public by: Apart from these public awareness campaigns, the Reserve Bank constantly monitors its social media presence • Spreading awareness through a rap song which and envisages structured two-way communication and encourages people to transact digitally, while engagement over social media. protecting themselves against cybercrimes like identity theft. Source: RBI. Agenda for 2021-22  To use public awareness programmes, social media presence and other channels X.7 Last year, the Department had set out the of communication to further deepen following goals under Utkarsh: engagement with the society (Paragraph  To open for public a new section of 'The X.11-X.13). RBI Museum', which will be dedicated to Implementation Status the functions and working of the Reserve Bank (Paragraph X.8); Second Phase of 'The RBI Museum'  To revamp the Reserve Bank’s website X.8 Preparation of the visualisation and with improved information architecture exhibits for the second phase of 'The RBI Museum' (Paragraph X.9); located at Kolkata (West Bengal) is currently  To continue to conduct virtual/physical underway. It will display exhibits pertaining to major workshops/sessions for the regional media functions of the Reserve Bank, such as currency on important regulatory and banking management, banker to banks, banker to the related issues (Paragraph X.10); and government, fi nancial markets, monetary policy, 191ANNUAL REPORT 2021-22 regulation and supervision, foreign exchange and Table X.1: Social Media Following the Reserve Bank’s role in the Indian fi nancial (as on March 31, 2022) system. Platform Name of Social Media Launched in Number of Handle/Page Followers/ Revamping of Reserve Bank’s Website Subscribers 1 2 3 4 X.9 The work of revamping and redesigning Twitter i.@RBI January 2012 15.70 lakh the Reserve Bank’s website was awarded after ii.@RBIsays August 2019 1.13 lakh following an open and competitive selection YouTube Reserve Bank of India August 2013 1.11 lakh process. The revamped and redesigned website Facebook i.@RBIsays August 2019 5,526 ii.@therbimuseum February 2020 1,127 of the Reserve Bank is expected to be rolled out in Instagram @reservebankofi ndia January 2022 9,381 2022-23. Source: RBI. Workshops for Regional Media Persons X.10 The Reserve Bank conducts regular television, radio, digital, hoardings and SMS. workshops and interactions with the regional Campaigns through cinema halls were kept media to familiarise the media persons with on hold, following the COVID-19 protocols. major functional areas of the Reserve Bank. This The Reserve Bank also participated in high- promotes a clear understanding of the Reserve impact unique programmes on television, viz., Bank’s role and functions and in turn fosters Indian Premier League (IPL), Kaun Banega better informed reporting on its regulations, policy Crorepati (KBC), Euro Cup, Olympics, Kon Honar actions and decisions. A workshop for the regional Crorepati (Marathi version of KBC), Evaru Meelo media was conducted at Hyderabad in September Koteeswaralu (Telegu version of KBC), and year- 2021. long campaign on Doordarshan and All India Social Media Command Centre Radio. In 2021, the Reserve Bank also launched X.11 Department has set up a social media some new initiatives to reach out to the wider command centre for monitoring the Reserve public as alluded to earlier in Box X.1. Bank related communication on social and digital X.13 The Reserve Bank also spreads public media on a near real time basis. Specifi c reports awareness through social media such as on media monitoring are generated, analysed Facebook, Instagram, Twitter, and YouTube. and suitable measures are taken, if required. The Reserve Bank constantly monitors its social media Other Initiatives presence and going forward envisages structured Communication Seminars two-way communication and engagement with X.14 During the year, three communication social media (Table X.1). seminars were conducted for senior and Public Awareness Campaigns top management of the Reserve Bank. The X.12 The Reserve Bank continued to conduct objectives of the communication seminars 360-degree mass media public awareness were: (i) to engage with senior management on campaigns through media channels, viz., print, nuances of external communication; (ii) to aid 192COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS Regional Directors, Banking Ombudsmen and Agenda for 2022-23 Offi cers-in-Charge in communicating with the X.19 During 2022-23, the Reserve Bank’s stakeholders, including media on various issues communication channels would be further pertaining to their functional or geographical strengthened, and efforts will be made to: jurisdiction; and (iii) to equip senior management  Revamp the Reserve Bank’s website with strategies and techniques in communication with improved information architecture during times of crisis. (Utkarsh); X.15 A communication seminar for Executive  Greater engagement with general public Directors was organised on August 7, 2021 at through additional social media platforms, Kashid, Maharashtra, and two communication such as Instagram and enhance two-way seminars for Regional Directors/ Chief General communication efforts through active Managers/ Offi cers-in-Charge and Ombudsmen social media listening (Utkarsh); were organised on July 30 and December 20, 2021 at Bengaluru and Amritsar, respectively.  Layering of public awareness messages Informal Media Interactions for last-mile connectivity by adding illustrations, animations and infographics X.16 Apart from the structured post monetary for interactive campaigns; policy press conferences on the days that monetary policy announcement is scheduled  Targeted media monitoring at the level of at bi-monthly intervals, the Reserve Bank regional offi ces of the Reserve Bank; conducts semi-structured media interactions in an  Revisiting the style and usage in written informal set-up a few days after every monetary communication as a step towards policy announcement, or as and when such an simplifying the Reserve Bank’s internal engagement is felt necessary. 16 such interactions and external communication content; and were held during 2021-22 to explain the rationale  Conducting impact assessment of behind major policy decisions, seek feedback the Reserve Bank’s public awareness from media persons and clarify their doubts and campaigns to gauge the effectiveness. concerns on the domain. RBI Website 3. INTERNATIONAL RELATIONS X.17 During the year, a new FinTech microsite X.20 During 2021-22, the Reserve Bank further was made live in co-ordination with FinTech strengthened economic and fi nancial relations Department and Reserve Bank Information with international organisations and multilateral Technology Pvt. Ltd. (ReBIT). bodies through its International Department. X.18 During 2021-22, the Department released Agenda for 2021-22 1,953 press releases, 200 notifi cations/circulars, X.21 The Department had set out the following 16 master directions and uploaded 37 interviews/ goals: speeches of the top management, six RBI reports, 10 working papers, 1,026 tenders and 97  Follow up on the issues relating to the recruitment related advertisements. International Financial Architecture 193ANNUAL REPORT 2021-22 Working Group (IFA WG) of the G20 and Exchange Restrictions (AREAER), the (Utkarsh) [Paragraph X.22-X.23]; Macroprudential Policy Survey, and surveys on climate risks and cyber risks. The Department also  Successful completion of the IMF Article participated in the IMF’s Independent Evaluation IV surveillance by the IMF Mission to India Offi ce (IEO) Survey for assessment of the IMF’s (Utkarsh) [Paragraph X.24]; capacity development.  Continue to deliver under various initiatives X.25 The Department fi rmed up the Reserve including the BRICS (Utkarsh) [Paragraph Bank’s stance and provided inputs to the Ministry X.25-X.28]; of Finance (MoF), Government of India (GoI) on  Continue to support the South Asian various international policy issues. The Department Association for Regional Cooperation also worked closely with the Ministry of Commerce (SAARC) countries (Utkarsh) [Paragraph and Industry and provided inputs for various bilateral, X.29-X.30]; and plurilateral and multilateral trade negotiations  Strengthen engagement with the G20 in relating to the World Trade Organisation (WTO). the run-up to taking over the Presidency in X.26 The Department provided inputs for the 2023 (Paragraph X.31). World Bank’s India Development Update 2021, Implementation Status participated in the Organisation for Economic Co- operation and Development’s (OECD) Advisory IMF and IFA Related Issues Task Force on the Codes (ATFC) meetings X.22 The Department participated in the and coordinated the completion of the Asian meetings of the G20 IFA WG and provided inputs Development Bank’s Asia Small and Medium- on issues relating to volatility in capital fl ows, Sized Enterprise Monitor (ASM) 2021. adequacy of global fi nancial safety net (GFSN), BRICS, SAARC and Bilateral Cooperation and the new general allocation of the Special Drawing Rights (SDRs) by the IMF. X.27 As the BRICS Chair in 2021, the Reserve Bank led the BRICS central bank workstream X.23 The Department provided inputs for in 2021 (Box X.2), which led up to the BRICS participation in the biannual meetings of the Leaders’ New Delhi Declaration in the XIII BRICS International Monetary and Financial Committee Summit held on September 9, 2021. (IMFC) held virtually in April and October 2021. A new Note Purchase Agreement (NPA) 2020 was X.28 The Reserve Bank conducted the signed between the Reserve Bank of India (RBI) maiden Contingent Reserve Arrangement (CRA) and the IMF. The NPA 2020 amounting to USD 3.9 test run of the IMF-linked portion in 2021 and billion is effective from September 24, 2021. initiated discussions to establish a framework for coordination between the CRA and the IMF. X.24 In view of the pandemic, the Article IV engagement with the IMF was held in a virtual X.29 The Reserve Bank extended currency format in July 2021. The Department regularly swap support aggregating USD 1.05 billion participated in various surveys of the IMF such to three SAARC central banks. Under the as Annual Report on Exchange Arrangements SAARCFINANCE Scholarship Scheme for 194COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS Box X.2 BRICS Chair 2021 – RBI Achievements In 2021, the Reserve Bank achieved the following milestones Information Security Risks: Supervision and Control”, under BRICS Chair of India: and “BRICS Digital Financial Inclusion Report” were the important publications during 2021. • Several BRICS high-level meetings of Finance Ministers and Central Bank Governors (FMCBG), Finance and • BRICS Seminar on “Information Security and Consumer Central Bank Deputies (FCBD), CRA Governing Council Protection” was organised on December 15, 2021. (GC), CRA Standing Committee (SC) and CRA technical and research groups were conducted during the year. • The Reserve Bank has undertaken several initiatives, including the BRICS Collaborative Study on “COVID-19: • The BRICS Economic Bulletin 2021 with the theme Headwinds and Tailwinds for BoP of the BRICS ” and a “Navigating the Ongoing Pandemic: The BRICS dialogue with the IMF under the CRA. Experience of Resilience and Recovery” was published under the aegis of the CRA Research Group. • The BRICS Payments Task Force (BPTF) has taken various measures in 2021 to strengthen cooperation • BRICS deepened its cooperation in 2021 by exchange of amongst BRICS countries on payments systems. The information on cyber threats and sharing of experience BPTF Annual Report 2021 and the CRA Evaluation in countering cyber-attacks in the fi nancial sphere. Report were produced during the year. • BRICS e-Booklet on “Information Security Regulations in Finance”, “Compendium of BRICS Best Practices on Source: RBI. the academic year 2022-23, the Reserve Other Initiatives Bank selected four candidates, two from the Engagement with BIS Bangladesh Bank and one each from the Royal Monetary Authority of Bhutan and the Nepal X.32 The Department provided analytical Rastra Bank (NRB) for pursuing higher studies in support that shaped RBI’s stance on issues recognised Indian Universities/ institutions. discussed in various meetings of the Bank for International Settlements (BIS), including the X.30 T he fourth Joint Technical Coordination Committee on the Global Financial System Committee (JTCC) meeting, hosted by the NRB, was held virtually on September 6, 2021. The (CGFS). meeting covered discussions on issues raised by X.33 The Department contributed to various the NRB relating to currency management, non- BIS surveys including on mandate of the central competitive bidding in T-bills, and other issues bank beyond price stability, post-pandemic modes relating to foreign trade, balance of payments and of working and opinion surveys to gauge public foreign direct investment. awareness and perception of central banks. It also G20 and its Working Groups coordinated the Reserve Bank’s participation in the CGFS workshop on non-bank fi nancial institutions X.31 The Department provided research briefs/ inputs for the agenda issues under the Italian and (NBFIs) and the functioning of government bond Indonesian Presidencies. India has entered the markets. In addition, the Department also provided G20 Troika from December 2021, ahead of the support and inputs for activities related to the BIS Indian Presidency in 2023. Board and its Administrative Committee. 195ANNUAL REPORT 2021-22 FSB Initiatives on Global Financial Regulation X.37 The Department is the nodal point for bilateral dialogues/ meetings with other countries X.34 The Department prepared inputs for and for various other bilateral issues. presenting India’s stance in various Committees and Working Groups of the Financial Stability Other Activities Board (FSB). X.38 The Reserve Bank continued its active X.35 With India as the co-chair of FSB’s engagement with the South Asia Regional Training Regional Consultative Group, Asia (RCG-Asia), and Technical Assistance Centre (SARTTAC) and the Department organised two meetings of the South East Asian Central Banks (SEACEN) the RCGA in virtual mode. Contributions were Centre. A mid-term evaluation of IMF’s SARTTAC made to the FSB’s annual monitoring exercise to operations by external agencies was facilitated by assess global trends and risks from the NBFIs. the Department. The Department also provided inputs for various X.39 The third Senior Level Dialogue (SLD) surveys4 conducted by the FSB. between the Reserve Bank and Bank of Japan X.36 The Reserve Bank joined the Network for (BoJ) was organised and hosted on November 29, Greening of the Financial System5 (NGFS) on 2021 in a virtual format. The SLD is organised every April 23, 2021 and the Department spearheaded year to deepen relations, strengthen the exchange the effort for this outcome. The Reserve Bank, as of information and reinforce cooperation in the a member central bank, has been contributing to fi eld of central banking between the two central the work of NGFS (Box X.3). banks. Box X.3 NGFS’ Glasgow Declaration and Reserve Bank’s Commitment As part of contribution to the COP26, the NGFS released how climate scenario exercises can be used to identify the “NGFS Glasgow Declaration: Committed to Action”, in vulnerabilities in the Reserve Bank supervised entities’ which it set forth future plans to improve the resilience of the balance sheets and business models. Also, the Reserve Bank shall work to integrate climate-related risks into fi nancial system to climate-related and environmental risks, fi nancial stability monitoring and shall also build awareness and for supporting the transition towards a sustainable about climate-related risks among regulated fi nancial economy. institutions. Alongside, the Reserve Bank also published its References: Commitment to Support Greening India’s Financial System on November 3, 2021. The Reserve Bank broadly supports 1. NGFS Glasgow Declaration: Committed to Action, Glasgow, November 3, 2021. the NGFS declaration. Specifi cally, keeping in view the national commitments, priorities and complexity of India’s 2. RBI, Statement of Commitment to Support Greening fi nancial system, a commitment has been made to explore India’s Financial System - NGFS, November 3, 2021. 4 Survey on regulatory and supervisory approaches to addressing climate risks at fi nancial institutions, survey on leveraged loan defi nitions, survey on implementation of reforms in OTC derivatives, thematic peer review of the corporate debt workouts and survey on cyber incident reporting. 5 The NGFS is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the fi nancial sector. 196COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS Agenda for 2022-23  Pursuing the on-going agenda of integration of central and state government X.40 In the year 2022-23, the Department will systems with e-Kuber for e-payments and focus on attaining the following milestones: e-receipts (Paragraph X.43); and  Deepening engagement with multilateral  Providing dashboard facility to institutions including on issues under IFA governments for self-monitoring of WG of the G20; e-receipts and e-payments transactions  Participation in Advisory Group for G20 (Paragraph X.44). Finance Track Agenda set up by the Implementation Status MoF, GoI to ideate on priorities, suggest outcomes/ deliverables and provide expert Pursuing the on-going Agenda of Integration of guidance on the fi nance track agenda Central and State Government Systems with under the 2023 Indian Presidency of the e-Kuber for e-Payments and e-Receipts G20; X.43 During the year, the Treasury Single  India will take over the G20 Presidency Account (TSA) system for central government on December 1, 2022 and several high- autonomous bodies has been extended for level and working group meetings will universal application in coordination with Offi ce of be organised in collaboration with the Controller General of Accounts, Ministry of Finance. Government of India; One Union Territory (UT) has been on-boarded for e-payments and two state governments have  Increasing exposure visits and capacity completed testing and are expected to be on- building support for SAARC and other boarded soon. Two other state governments are countries through formal MoUs or in the process of carrying out changes to their otherwise; and internal systems for integration with e-Kuber.  Strengthening BRICS central Providing Dashboard Facility to Governments for banks’ cooperation through various Self-monitoring of e-Receipts and e-Payments channels of engagement. Transactions 4. GOVERNMENT AND BANK ACCOUNTS X.44 The facility is in advanced stages of design/development and fi ne-tuning to meet the X.41 The Department of Government and Bank requirements of governments. Accounts (DGBA) oversees the functions of the Reserve Bank as banker to banks and banker to Major Initiatives governments, besides maintenance of internal Induction of Scheduled Private Sector Banks as accounts and formulation of accounting policies of Agency Bank the Reserve Bank. X.45 After the lifting of embargo placed on private Agenda for 2021-22 sector banks to undertake fresh or additional X.42 Last year, the Department had set out the government business by Department of Financial following goals under Utkarsh: Services, Ministry of Finance, Government of 197ANNUAL REPORT 2021-22 India, revised guidelines have been issued by the system is being extended for universal application Reserve Bank for authorising scheduled private in coordination with Offi ce of Controller General of sector banks as its agency banks for conduct of Accounts, Ministry of Finance. government business. As on March 31, 2022, Other Developments there are 31 agency banks comprising all 12 X.49 The facility of account validation through public-sector banks (post amalgamation) and National Payments Corporation of India (NPCI) 19 scheduled private sector banks which are was rolled out during the year and three state undertaking government business on behalf of the governments have been on-boarded. Reserve Bank. X.50 Facility of direct benefi t transfer (DBT) Extension of online Memorandum of Error payment using Aadhaar Payment Bridge System (MoE) Process in GST Framework to All State (APBS) for governments through e-Kuber has Governments been enabled and one state government has been X.46 During the year, the online MoE process on-boarded during the year. was extended to seven more state governments X.51 Facility for dissemination of changes in and one UT for reconciliation of GST transactions. Indian Financial System Code (IFSC) through As on March 31, 2022, 14 state governments XML based notifi cation to government systems and two UTs have been successfully onboarded integrated with e-Kuber for e-payments is under on the online MoE platform. Moreover, one state testing. government has completed the testing and is expected to go live shortly, nine more state X.52 Facility for providing Application governments are in various stages of testing. Programming Interface (API) web-based reconciliation system is being implemented in Integration of Express Cargo Clearing System consultation with Offi ce of Controller General of (ECCS) with E-Payment Gateway of ICEGATE Accounts, Ministry of Finance, GoI. X.47 E-Kuber of the Reserve Bank is integrated X.53 Offi ce of Controller General of Defence with Indian Customs Electronic Gateway Accounts (CGDA) is in the process of enabling (ICEGATE) system of the Central Board of Indirect defence pension payments to Nepal-domiciled Taxes and Customs (CBIC) since July 1, 2019 for pensioners under the Indo-Nepal Remittance payment of central excise, service tax and special Facility through e-Kuber integration with CGDA’s economic zone (SEZ) custom duty. During the year, SPARSH [System for Pension Administration ECCS was also integrated with e-Kuber through (Raksha)]. ICEGATE payment gateway from August 2021 thus enabling payment of requisite duties by taxpayers Agenda for 2022-23 directly into the accounts of CBIC maintained at the X.54 For 2022-23, the Department proposes Reserve Bank using NEFT/RTGS payment option. the following agenda in line with Utkarsh: Universalisation of Treasury Single Account (TSA)  Enhancing the payments (non-pension) by X.48 As announced in the Union Budget speech in Central Civil Ministries through integration February 2021, and as per the offi ce memorandum between e-Kuber and Public Fund dated February 22, 2021 issued by the Department Management System, including Inter- of Economic Affairs, Ministry of Finance, the TSA Government Adjustment Advice; 198COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS  Enhancing the e-payment transactions pandemic-driven shock. The initial indications (non-pension) of state governments who suggest that the confl ict could impact the global are already integrated with e-Kuber ; macroeconomy primarily through the infl ation channel, though growth is also likely to take  Integration of state governments with a hit as the confl ict prolongs. In this milieu of e-Kuber for e-receipts for direct NEFT/ RTGS based receipts and agency bank dynamic global macroeconomic environment reporting; and increasing geo-political uncertainties, safety, liquidity and return in that order continued to guide  Integrating remaining state governments the Department of External Investments and in North-East region with e-Kuber ; and Operations (DEIO) as investment objectives for  Onboarding of agency banks for collection managing foreign exchange reserves (FER). On a of customs duty receipts through ICEGATE year-on-year basis, FER increased by 5.3 per cent portal of the Central Board of Indirect during 2021-22 as compared with 20.8 per cent in Taxes and Customs (CBIC). the previous year. 5. MANAGING FOREIGN EXCHANGE X.56 Gold has traditionally offered reserve RESERVES managers many benefi ts, such as the absence X.55 The Russia-Ukraine confl ict has roiled of default risk, diversifi cation of portfolio, low fi nancial markets and injected a fresh dose correlation with other asset classes and safe of uncertainty in the global economy, which haven investment during different phases of was already struggling to recover from the fi nancial cycles (Box X.4). Box X.4 Gold as a Financial Asset in Different Phases of Financial Cycles Gold is a unique asset with attributes of fi nancial assets. Gold different fi nancial indicators such as credit aggregates, acts as a diversifi er and is a vehicle to mitigate losses in asset prices and banking sector variables. More recently, times of market stress. Gold has delivered positive returns Potjagailo and Wolters (2020) have used a time-varying over the long run, often outperforming other major asset classes (Chart 1). In the context of a negative relationship between the US dollar and the price of gold, as observed Chart 1: Long-term Performance of Gold versus Other Financial Assets by many analysts and researchers, Pukthuanthong and Roll (2011) showed that price of gold in terms of US dollar increases while the US dollar depreciates against other currencies. They further showed that the fall in price of gold in USD terms can be associated with currency depreciation in every country. The fi nancial cycle may be constructed based on economic fl uctuations that originate in the fi nancial system. It typically manifests itself as a co-movement between credit aggregates and asset prices. The Global Financial Crisis (GFC) reinvigorated the interest in studying fi nancial cycles. Stremmel (2015) identifi ed the key ingredients for European Source: World Gold Council. fi nancial cycles by constructing techniques and contrasting (Contd.) 199ANNUAL REPORT 2021-22 dynamic factor model to analyse co-movement in credit, was observed that the equity cycle reaches peak before house prices, equity prices, and interest rates across 17 the credit cycle. This can be explained due to the nature of advanced economies over 130 years. They observe global credit and equity markets as credit build-up and wind down co-movement across fi nancial variables as well as variable- takes a longer time than changes in the equity indices. Both specifi c global cycles of different lengths and amplitudes. the cycles witness highest peaks before the global fi nancial Global cycles have gained relevance over time. For equity crisis. This observation is supported by Claessens, Kose prices, they now constitute the main driver of fl uctuations and Terrones (2011) that recoveries coinciding with booms in most countries. Global cycles in credit and housing have in credit and housing markets are stronger. The observations become much more pronounced and protracted since the across the various phases of the different fi nancial cycles 1980s, but their relevance increased for a sub-group of imply that in addition to providing a greater risk hedge to fi nancially open and developed economies only. USD, gold’s performance as a safe asset among other asset classes has also improved in the recent phases of fi nancial The performance of gold as a fi nancial asset during different cycles. phases of fi nancial cycles has been examined using a combination of Baxter-King fi lter and the Harding and References: Pagan’s cycle dating algorithm. This is used to determine the 1. Claessens, Kose and Terrones (2011), ‘How Do Business fi nancial cycles from the credit-to-GDP and GDP weighted and Financial Cycles Interact?’, IMF working paper, IMF. equity indices. To determine the property cycle, the periods with negative and positive year-on-year GDP weighted 2. Pukthuanthong, K. and Roll, R. (2011), ‘Gold and percentage changes in prices were segregated. The the Dollar (and the Euro, Pound and Yen)’, Journal of objective behind using above methodologies is to construct Banking and Finance, 35(8), 2070-2083. meaningful cycles for the study. This helps to understand the 3. Potjagailo and Wolters (2020), ‘Global Financial Cycles relation between gold returns and explanatory variables in since 1880’, Staff Working Paper, No. 867, Bank of the different phases of fi nancial cycles. England. As per earlier studies and empirical fi ndings, gold’s price 4. Ranjan, Aniket and Naveen Kumar (2022), ‘Performance is driven by the performance of USD. The fi ltered credit, of Gold as a Financial Asset During Different Phases equity and property cycles have unique characteristics in of Financial Cycles’, Social Science Research Network terms of amplitude and duration which is well expected from (SSRN), March. the fi nancial markets. In a sample of 21 years, both cycles peaked before the two international fi nancial events (2001 5. Stremmel, H. (2015), ‘Capturing the Financial Cycle in market crash and 2008 global fi nancial crisis). However, it Europe’, Working Paper Series, European Central Bank. X.57 The 49th Board of Directors’ Meeting of the classes/jurisdictions for deployment of foreign Asian Clearing Union (ACU) held virtually on May currency assets (FCA), while adhering to the 24, 2021 (Chair: Reserve Bank of India) deliberated primary objectives of safety and liquidity. The on various issues such as resuming the use of process of scaling up of newly introduced products Euro in the ACU mechanism, ways in which the such as forex swaps and repos also continued ACU platform can be expanded and strengthened, during the year. issues faced by the exporters and importers in Agenda for 2021-22 using the ACU mechanism, among others. X.59 Last year, the Department had set out the X.58 As part of diversifi cation strategy, following goals: the Reserve Bank continued to purchase gold during the year. The Department also  Continue to explore new asset classes, continued in its endeavour to ensure effective new jurisdictions/ markets for deployment diversifi cation of reserves by exploring new asset of FCA for portfolio diversifi cation and 200COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS in the process tap advice from external of Economic and Policy Research (DEPR) experts, if required (Paragraph X.60); provides research-based inputs and management information system (MIS) services for policy  Leverage IT in the form of contemporary formulation by the Reserve Bank. The Department treasury management solution for FER generates primary national level data on various management (Utkarsh) [Paragraph X.61]; economic heads, prepares the statutory reports and of the Reserve Bank, brings out several research  Roll-out system based daily computation publications, provides technical support to various of weighted average cost for assets operational departments and to technical groups/ (Paragraph X.62). committees constituted by the Reserve Bank from time to time, and promotes collaborative Implementation Status policy-oriented research with external experts. X.60 The Department continued in its endeavour The Department is also the key repository and to ensure effective diversifi cation of reserves disseminator of secondary data on various heads by exploring new asset classes/ jurisdictions for relating to the Indian economy. deployment of FCA, while adhering to the primary X.65 While fully adhering to COVID-19 objectives of safety and liquidity. The process of protocols and safety measures, the Department scaling up of newly introduced products continued provided all information and analytical inputs during the year. required for policy measures on time. Research X.61 The Department has initiated the process and analysis related work continued without of implementing a new treasury application which much disruption, and all research-related is targeted to go live during 2022-23. publications were also released on time. The X.62 During the year, the system-based daily Central Library facilitated uninterrupted remote computation of weighted average cost for foreign access to various databases and other reference resources required for undertaking research. The currency assets was developed and implemented Department also hosted a number of knowledge effective April 1, 2022. sharing sessions both on the online and offl ine Agenda for 2022-23 platforms. X.63 For 2022-23, the Department will focus on Agenda for 2021-22 the following goal: X.66 Last year, the Department had set out the  In order to ensure effective deployment following goals: of forex reserves, the Department will continue to explore new products/  Increase in the number of research studies opportunities, while ensuring the safety for publication in the Reserve Bank of India and liquidity of FCA. Occasional Papers and Working Papers (Utkarsh) [Paragraph X.67]; 6. ECONOMIC AND POLICY RESEARCH  Forward-looking agricultural commodity X.64 As the knowledge centre of the Reserve price sentiment analysis, based on Bank with a focus on issues relating to the newspaper coverage, through big data economy and the fi nancial system, the Department applications (Utkarsh) [Paragraph X.68]; 201ANNUAL REPORT 2021-22  Development of an in-house expertise X.69 The Department created a new KLEMS for data compilation under the KLEMS Division for an in-house compilation of the KLEMS [capital (K), labour (L), energy (E), material estimates. KLEMS database provides time-series (M) and services (S)] project (Paragraph estimates on total factor productivity and factor X.69); and inputs [Capital (K), Labour (L), Energy (E), Material (M), and Services (S)] for the Indian economy and  Conduct of an Itinerant Archives Exhibition 27 subsectors. The knowledge transition from the on the fi rst fl oor of the Reserve Bank external experts at the Delhi School of Economics Museum at Kolkata (Paragraph X.70). to the KLEMS Division was completed during Implementation Status the year. The Division successfully completed a X.67 During 2021-22, the Department published parallel estimate of KLEMS for 2018-19, following 67 research papers/articles, of which 20 were which the KLEMS data were posted on the published in external international and domestic Reserve Bank’s website. journals. In addition, 10 RBI Working Papers and X.70 The RBI Archives identifi ed the relevant eight papers in the RBI Occasional Papers were archival documents and prepared a story line for published during the year. The published papers the Itinerant RBI Archives Exhibition. covered a wide range of issues, such as leverage and investment dynamics of Indian corporate Other Initiatives sector; macroeconomic implications of bank capital X.71 The Department employed a new approach regulations; education loan NPAs; forecasting core to forecast GDP growth, involving the use of infl ation; long-run saving-investment relationship; innovative machine learning algorithms. GDP measuring demand supply mismatch index to nowcasting using a dynamic factor model was forecast infl ation; the non-deliverable forwards augmented with most relevant sets of indicators (NDF) market; climate change; determinants and the model is now being used to nowcast GDP of India’s external commercial borrowings; of recent quarters. policy responses for banks facing loan defaults; performance of infl ation forecasting models; and X.72 In view of the pandemic, the Department monetary policy transmission through the lens of also undertook research on certain pandemic- Monetary Conditions Index. related issues, including the impact of the global supply chain disruptions on real GDP growth. X.68 Based on the news coverage on Furthermore, research on various topical issues, agricultural commodities in nine leading English including the role of systemic liquidity and gross dailies, commodity-wise price sentiment indices NPA (GNPA) on bank credit offtake during a were constructed using text mining techniques for downcycle and the effi cacy of the quality and three vegetables, namely tomatoes, onions and quantum of government spending on growth was potatoes (TOP), as the volatility in the prices of undertaken. these three vegetables has substantial bearing on the headline infl ation. The results confi rmed the X.73 Apart from regular compilation of the usefulness of news-based sentiment in providing annual estimates of household fi nancial savings, forward-looking information on price movements the data on quarterly household fi nancial savings of TOP in the Consumer Price Index (CPI). and household debt to GDP ratio were also 202COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS compiled and were released up to the third quarter themes. The Department also organised a DEPR of 2020-21. Colloquium on Productivity, Competitiveness and Infl ation on June 28, 2021 and an expert talk on X.74 During India’s BRICS Presidency 2021, “Tapering Then and Now” delivered by Dr. Poonam the Department along with the Department of Gupta, Director General, National Council for Statistics and Information Management hosted Applied Economic Research on November 16, two workshops on Services Trade Statistics as 2021. part of the BRICS Contact Group on Economic and Trade Issues. X.79 The Reserve Bank Information Technology Pvt. Ltd. (ReBIT) has been assigned the work of X.75 The Department initiated its survey on developing the document management software India’s inward remittances in 2021-22 to capture (DMS). The functional module of the DMS various aspects relating to remittances in 2020- software has been completed and overall security 21, including the source, destination, purpose aspects of the application are in progress. The of inward remittances, size, prevalent mode of testing of the DMS was taken up in April 2022. transmission, and receivers’/ senders’ cost of By August 2022, the user acceptance test is remittances. expected to be completed after which the DMS X.76 Apart from completing the various goals can be operationalised. The RBI Archives (RBIA) set for 2021-22, the Department also released all had also conducted about 16 online customised its fl agship publications, viz., the Annual Report, programmes on record management for central Report on Trend and Progress of Banking in India, offi ce departments, regional offi ces and training and State Finances: A Study of Budgets of 2021- establishments during 2021-22. The tender for 22 in a timely manner. The Report on Currency digitisation of 5 lakh pages of archival records (kept and Finance 2021-22, with the theme ‘Revive and in RBIA) per year has been awarded based on the Reconstruct’, was released in the public domain e-tendering process. It is proposed to complete on April 29, 2022. The History of the Reserve the digitisation of 15 lakh pages up to March 31, Bank, Volume-5 for the period spanning 1997 to 2024. The scientifi c preservation of paper records 2008 is expected to be released in 2022. has also been outsourced by the RBIA. X.77 Furthermore, the compilation and Agenda for 2022-23 dissemination of primary statistics on monetary X.80 The Department’s agenda for 2022-23 will aggregates, balance of payments, external debt, focus on the following goals: effective exchange rates, combined government fi nances, household fi nancial savings and fl ow  Publishing a minimum of 100 research of funds on established timelines and quality papers every year and to improve quality standards engaged the Department during the of analysis and research with broader year. coverage of emerging issues (Utkarsh); X.78 The DEPR Study Circle, an in-house  Making Municipal Finance Report timely discussion forum, organised 26 online seminars/ and improving the coverage of the report presentations during the year on diverse research (Utkarsh); 203ANNUAL REPORT 2021-22  Annual compilation of the KLEMS dataset to the new centralised system (Utkarsh) and manual by the Department (Utkarsh); [Paragraph X.83];  Application of new machine learning  Follow Statistical Data and Metadata techniques for assessing macro-economic eXchange (SDMX) standards for metadata- outlook; and driven maintenance and dissemination system (Utkarsh) [Paragraph X.84];  Embedding climate risk in the traditional macro-modelling framework and  Implement a scalable end-to-end system analysing its impact on macroeconomic for public credit registry (PCR) in a aggregates. phased manner, starting with scheduled commercial banks (SCBs) (Utkarsh) 7. STATISTICS AND INFORMATION [Paragraph X.85]; MANAGEMENT  Revise the reporting system for international X.81 In keeping with its core mandate, banking statistics (IBS) as per the revised the Department of Statistics and Information guidelines of the Bank for International Management (DSIM) engaged in compilation, Settlements (BIS) [Paragraph X.86]; analysis and dissemination of macro-fi nancial  Expand the scope of data collection statistics and also provided statistical support mechanism and analytical work in and analytical inputs through data management, the domain of Big data for providing applied statistical research, and forward- supplementary information relevant to the looking surveys across various functions of the Reserve Bank (Paragraph X.87); and Reserve Bank. In this endeavour, it maintains  Put in place a system to collect monthly centralised information system of the Reserve data on economic classifi cation of Bank, manages electronic submission of returns international credit/debit card transactions by regulated entities, and compiles statistical (Paragraph X.88). indicators in the area of banking, corporate and external sectors. To further enhance the effi ciency Implementation Status and effectiveness of these functions, the next X.83 All infrastructure installations (i.e., generation data warehouse [viz., centralised hardware and standard softwares) for CIMS were information management system (CIMS)] is at an completed, despite delays caused by containment advanced stage of development. Initiatives have measures in the wake of successive waves of been taken to use non-traditional data sources the pandemic. The new software application is and advanced statistical and artifi cial intelligence under user acceptance test (UAT). All existing (AI)/machine learning (ML) techniques. data are migrated and are under third party audit. All SCBs (excluding regional rural banks) and Agenda for 2021-22 14 major cooperative banks are in the process X.82 Last year, the Department had set out the of onboarding. A majority of the returns have following goals: been deployed under the Reserve Bank’s test  Work towards making CIMS fully environment, with an aim to complete all returns operational and migrate all databases by September 2022. 204COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS X.84 Data elements / dimensions / measures / X.86 The reporting system for IBS is undergoing attributes have been fi nalised in 245 returns for modifi cations to implement the revised guidelines SDMX standards for metadata-driven maintenance within the deadline given by the BIS. and dissemination systems. X.87 The analytical activities in the domain of Big X.85 Hardware and software set-up installations data covered under Utkarsh 2022 were completed have been completed at the data centre and and the compilation of price indices (food and disaster recovery (DR) sites of the Indian Financial housing) is being carried out on a regular basis Technologies and Allied Services (IFTAS). The to complement existing statistical efforts. Remote system requirement study (SRS) has been sensing based climatic factors and crop vegetation done, and system design and development of a comprehensive credit information repository is in indicators have been used for modelling mandi progress. arrivals and food price projections (Box X.5). Box X.5 Satellite Images and Remote Sensing Data for Assessment of Agricultural Commodities The constellation of artifi cial satellites whirling around the a function of vegetation growth over fortnights during the earth collects massive amount of data, which provide useful growing season. The impact of vegetation growth on mandi information for understanding natural resources, monitoring arrivals is estimated dynamically and the coeffi cients are of weather, crop coverage, estimation of biomass density presented in Chart 1. and crop yields, and effi cient use of groundwater and Onion fertilisers in agriculture. Mandi prices from Lasalgaon, Nashik district, Maharashtra, Accordingly, a better understanding of the Indian agro- which is considered to be the biggest onion market in Asia, economy can be obtained by juxtaposing satellite-based has been used along with weather parameters as an initial information on (a) wholesale prices of diverse set of use case to determine the association between high price agricultural commodities collected from mandis across the (rise of 25 per cent and above) events and dew temperature nation, (b) modal prices, price ranges, mandi profi le and daily at two meters above the earth’s surface (Chart 2). The bin arrivals available on the agricultural marketing portal (www. height in the chart corresponds to the proportion of high agmarknet.gov.in) of the Ministry of Agriculture & Farmers price events in the respective dew temperature bucket. Welfare, Government of India, and (c) spatial and temporal rainfall. In this box, price dynamics of the two widely used price sensitive agro-commodities in the Indian consumer Chart 1: Impact of Vegetation Growth on Arrival Growth basket, viz., tur (or arhar) dal and onion are presented. Tur Dal Daily arrival data from mandis are juxtaposed with the normalised difference vegetation index (NDVI) at taluk/ tehsil level for three major production states (viz., Karnataka, Maharashtra and Madhya Pradesh), with an average share of 63 per cent in total production during the fi ve-year period from 2015-16 to 2019-20. Due consideration is given to temporal signatures, since crop-specifi c phenology changes (i.e., development of crop during its life cycle from sowing to harvesting) as the crop season progresses. Vegetation growth is derived by suitable seasonal fi ltering and temporal aggregation of NDVI. Arrival growth has been modelled as (Contd.) 205ANNUAL REPORT 2021-22 Chart 2: Onion Price Growth with Dew Temperature Chart 3: Price Growth v/s Wind Speed (2 Meters above the Earth's Surface) (50 Meters above the Earth’s Surface) 1. For Chart 2, event occurrence is the share of high price events in the interval. Event rate is the number of events divided by the number of events and non-events in that class interval. 2. For Charts 1 and 3, f1 and f2 indicate first and second fortnight of a month, respectively. In Chart 3, 01 stands for January, 02 for February, and so on. 3. In Chart 2, dew temperature is divided into ten intervals. The interval (a, b] means greater than a and less than or equal to b. For example, (2.5, 5.3] consists of values greater than 2.5 and less than or equal to 5.3. Higher event rates are found to be associated with higher References: dew temperature and fortnightly onion price growth shows 1. Navalgund, R.R., and Ray, S.S. (2019), ‘Application of close co-movements with wind speed at 50 meters above Space Technology in Agriculture: An Overview’, Smart the earth’s surface (Chart 3). Agripost, 6(6), 6-11. Given the complex non-linear interactions between weather 2. Ray, S.S. (2016), ‘Crop Assessment using Space, parameters and price dynamics, the analysis revealed that Agro-Meteorology & Land Based Observations: Indian machine learning techniques (e.g., random forests) may Experience’, International Seminar on Approaches have more predictive capabilities than traditional statistical & Methodologies for Crop Monitoring & Production methods. Forecasting (pp. 25-26). X.88 A new system called “Foreign Exchange bimonthly/quarterly surveys of enterprises, Transactions Electronic Reporting System – households and professional forecasters. Several Cards (FETERS-Cards)” under the Balance of ad hoc surveys were also conducted at short Payments (BoP) portal was implemented for notice by the central and regional offi ces. In collecting economic activity wise monthly data addition, methodological improvements were on international credit / debit cards and unifi ed also carried out for improving the robustness payment instrument (UPI) transactions. All of estimates, coverage and for aligning codes Authorised Dealer (AD) banks have been reporting in the regular monetary policy surveys under such transactions since April 2021. the guidance of the Reserve Bank’s Technical Other Initiatives Advisory Committee on Surveys (TACS) [e.g., X.89 Despite the operational challenges posed product/industry codes in the industrial outlook by the outbreak of the pandemic, the Department survey (IOS), and nature of business/activity adhered to the timelines on forward looking codes in the services and infrastructure outlook 206COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS survey (SIOS) to industry standard classifi cations, automate publication workfl ow of all regular estimation under the order books, inventories and data publications in the next generation capacity utilisation survey (OBICUS)]. data warehouse (Utkarsh); X.90 The Department also reduced the time lag  Populating of the comprehensive credit in releasing the results of external sector census/ information repository in a phased manner surveys [viz., annual census on foreign liabilities starting with SCBs (Utkarsh); and assets (FLA) of Indian direct investment  Implementation of the new data entities, FLA survey of mutual fund companies, governance framework through fl exible survey on exports of computer software and element-based repository (EBR) with information technology-enabled services (ITES), the facility to convert from return-based and biennial survey on foreign collaboration in repository (RBR) by carrying out forward Indian industry]. and reverse engineering to ensure X.91 All regular data publications were released, completeness; and updated time series data were made available  Maintaining of a ‘Regulatory Reporting’ through the Database on Indian Economy link on the Reserve Bank’s website (DBIE) portal of the Reserve Bank in a timely giving all resources and validation rules manner despite COVID-19-induced operational to aid banks and other reporting entities challenges. The Department regularly submitted for further improving the quality of data around 175 data series of various periodicities reporting to the Reserve Bank; (viz., daily, weekly, monthly, quarterly and annual)  Further refi nement of the estimation to BIS databank as per the schedule. procedures for monetary policy surveys X.92 Electronic data submission portal (EDSP) under the guidance of the TACS; and has been extended to the (i) payments frauds  Exploring alternate sources of data register; (ii) natural calamity return; (iii) unit-level including satellite data in the areas relevant data for infl ation expectations survey of households to the Reserve Bank and use of advanced (IESH); and (iv) residential asset price monitoring statistical tools, including Big data and ML survey (RAPMS). Offsite monitoring returns techniques. relating to NBFCs have been automated and the return submission process has been strengthened. 8. LEGAL ISSUES Data management and extraction facility has been enhanced by providing additional monitoring X.94 The Legal Department is an advisory facility for user departments during the COVID-19 department established for examining and advising pandemic. on legal issues, and for facilitating the management of litigation on behalf of the Reserve Bank. The Agenda for 2022-23 Department vets circulars, directions, regulations, X.93 Going ahead, the Department will focus and agreements for various departments of the on the following goals: Reserve Bank with a view to ensuring that the  Completion of all integration in the decisions of the Reserve Bank are legally sound. advanced analytics environment and The Department also functions as the secretariat 207ANNUAL REPORT 2021-22 to the First Appellate Authority under the Right to  The Factoring Regulation (Amendment) Information Act, 2005 and represents the Reserve Act, 2021, which received the assent Bank in the hearing of cases before the Central of the President on August 7, 2021 and Information Commission, with the assistance of came into force with effect from August 23, operational departments. The Department also 2021, amends the Factoring Regulation extends legal support and advice to the Deposit Act, 2011. The Amendment Act simplifi es Insurance and Credit Guarantee Corporation the defi nition of ‘receivables’ and adds (DICGC), the Centre for Advanced Financial the defi nition of “Trade Receivables Research and Learning (CAFRAL), and other Discounting System” as a payment RBI-owned institutions on legal issues, litigation system authorised by the Reserve Bank and court matters. under section 7 of the Payment and Agenda for 2021-22 Settlement Systems Act, 2007 for the purpose of facilitating fi nancing of trade X.95 Last year, the Department had set out the receivables. following goals:  The Insolvency and Bankruptcy Code  Proactively perform its functions in (Amendment) Act, 2021 received the close coordination with the operational assent of the President on August 11, departments of the Reserve Bank 2021 and came into force with effect from (Paragraph X.96); and April 4, 2021. It amends the Insolvency  Take efforts to automate its workfl ow and Bankruptcy Code, 2016 and makes process and function, keeping in view the provision for an alternative process of importance of use of technology in legal insolvency resolution for micro, small, operations, particularly, in a situation like and medium enterprises (MSMEs), called COVID-19 pandemic (Paragraph X.97). the pre-packaged insolvency resolution Implementation Status process (PIRP). X.96 Several important legislations/regulations  The Deposit Insurance and Credit concerning the fi nancial sector were brought in/ Guarantee Corporation (Amendment) amended during the year as set out below: Act, 2021 received the assent of the  The National Bank for Financing President on August 13, 2021. The Act Infrastructure and Development Act, 2021 was notifi ed in the Gazette of India on received the assent of the President on August 27, 2021 and came into force with March 28, 2021. As stated in the Preamble effect from September 1, 2021 for banks to the Act, it establishes the National insured under the DICGC Act, 1961. The Bank for Financing Infrastructure and said Act amends certain provisions of the Development as the principal development Deposit Insurance and Credit Guarantee fi nancial institution to support infrastructure Corporation Act, 1961 and inserts a new fi nancing in India. Section 18A in the Act. 208COMMUNICATION, INTERNATIONAL RELATIONS, RESEARCH AND STATISTICS X.97 The work relating to the development of audience through multiple channels, including a software package for automating the activities social media and public awareness campaigns of the Department has been entrusted to the during the year. The international economic Reserve Bank Information Technology Private and fi nancial relations with the international Ltd. (ReBIT). Development of the software in this organisations and multilateral bodies were regard is in the advanced stages and the software deepened and strengthened. The Reserve shall soon be integrated with the activities of the Bank joined the NGFS with its commitment Department. to support greening India’s financial system. Going ahead, the major focus of the Reserve Agenda for 2022-23 Bank in the functional areas covered in the X.98 In 2022-23, the Department will continue chapter would be aimed at ensuring: greater to focus on the following goals: engagement with general public through  Completion of the implementation of the additional social media platform such as workfl ow automation process application Instagram; further strengthening economic and (Utkarsh); financial international relations; integration of state governments with e-Kuber for e-receipts  Merging the existing opinion database for direct NEFT/RTGS based receipts and management system and the litigation agency bank reporting; continuing to explore management system (Utkarsh); and portfolio diversification through new asset  Digitisation of available/existing legal classes/markets for forex reserve management; records and providing their access to the sharpening economic and statistical policy users. analysis and research; exploring alternate sources of data including satellite data in the 9. CONCLUSION areas relevant to the Reserve Bank and use of X.99 The Reserve Bank continued with its advanced statistical tools, including AI, Big data endeavour to reach out to a wide spectrum of and ML techniques, in analytical studies. 209GOVERNANCE, HUMAN RESOURCES ANNUAL REPORT 2021-22 XI AND ORGANISATIONAL MANAGEMENT The Reserve Bank stepped forward on meeting its human resources and organisational and management challenges and continued to focus on recruitments, and in-house and external training programmes, relying primarily on online and e-Learning modes. It also responded swiftly and comprehensively for securing critical business processes and ensured business continuity in the financial system along with safety and health of its human resources. It conducted vaccination drives to have 98 per cent of its staff fully vaccinated by end-March 2022 and calibrated on-site and off-site working to the intensity of infections. Several measures were initiated during the year for strengthening the risk monitoring and internal audit mechanism in the Reserve Bank. The governance structure of the Reserve Bank oversaw the Reserve Bank’s functioning maintaining governance standards and provided necessary guidance in multi-dimensional areas. XI.1 This chapter discusses three critical processes in the Reserve Bank during COVID-19 aspects of the Reserve Bank - governance, period, the Reserve Bank also ensured the human resource management and risk monitoring, safety and health of its human resources through apart from covering the activities of departments organising camps at offi ce premises as well as dealing with internal audit, corporate strategy and at residential quarters to vaccinate employees, budgeting, Rajbhasha and Premises. The chapter their family members and outsourced staff against reviews the major developments, evaluates their COVID-19. As at end-March 2022, 98 per cent of outcomes during 2021-22 vis-a-vis the goals set the Reserve Bank’s employees had received both at the beginning of the year and sets out priorities doses of the vaccine. for 2022-23. XI.4 Under the enterprise-wide risk XI.2 In pursuance of the goals set for 2021- management (ERM) framework adopted in 2012, 22, human resources were strengthened the roll-out of risk tolerance limits (RTLs) has been through recruitments, and in-house and external achieved for all of the identifi ed operational areas. trainings. In response to the pandemic, online and Further, a broad set of indicators to provide the e-Learning modes were relied upon extensively. maturity ratings for the effectiveness of controls The Reserve Bank’s training establishments (TEs) have been deployed at process and technology and Zonal Training Centres (ZTCs) conducted levels to strengthen the cyber security in the training programmes, through the online mode Reserve Bank. in the pandemic environment. The Reserve Bank XI.5 During the year, the Inspection also encouraged its offi cers to attend training Department endeavoured to achieve the targeted programmes, seminars and conferences in India convergence of the risk ratings assessed under and abroad through online mode in order to benefi t risk-based internal audit (RBIA) methodology from the expertise available in leading external of the Department with those determined under institutes. risk assessment methodology for operational risk XI.3 While ensuring business continuity (RAM-OR). Project audits were also undertaken through smooth functioning of its critical business for enhancing the effective internal control 210GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT mechanisms towards timely implementation of Developments relating to enterprise-wide risk various projects in the Reserve Bank. management framework are presented in section 4. The activities of the Inspection Department XI.6 Corporate Strategy and Budget during the year are discussed in section 5. The Department (CSBD), being the nodal Department functioning of the CSBD, which coordinates for business continuity management (BCM) and develops strategies for the Reserve Bank, framework of the Reserve Bank, continued to play is covered in section 6. The activities and a key role during the year amidst pandemic for accomplishments of the Rajbhasha and Premises ensuring the smooth working of critical systems departments are presented in sections 7 and 8, and business processes in the Reserve Bank, respectively. The chapter has been summarised at along with the safety of the human resources. the end. XI.7 Alongside, during the year, the Rajbhasha 2. GOVERNANCE STRUCTURE Department implemented Annual Programme on Rajbhasha issued by Government of India (GoI) XI.10 The Central Board of Directors is entrusted and also ensured compliance of various statutory with the governance functions of the Reserve Bank requirements under the Offi cial Language Policy. in accordance with the Reserve Bank of India The Department also took various initiatives, (RBI) Act, 1934. It comprises the Governor as the conducted numerous activities, organised Chairperson, Deputy Governors and Directors programmes and imparted trainings to create nominated by the Central Government. There are more conducive environment for promotion and four Local Boards, one each for the Northern, propagation of Rajbhasha Hindi in the Reserve Southern, Eastern and Western areas, to advise Bank. the Central Board on matters referred to them and perform duties delegated by the Central Board. XI.8 The Premises Department pursued its Members of the Local Boards are also appointed mandate of creating, maintaining and upgrading by the Central Government in accordance with the the Reserve Bank’s infrastructure while pursuing RBI Act, 1934. green initiatives. Generation of renewable energy XI.11 The Central Board is assisted by three through solar power generation plants, installation Committees: the Committee of the Central Board of rain water harvesting systems, sewage (CCB); the Board for Financial Supervision (BFS); treatment and waste water treatment systems and the Board for Regulation and Supervision at various offi ces and residential colonies were of Payment and Settlement Systems (BPSS). undertaken as part of the Reserve Bank’s ‘Green These Committees are headed by the Governor. Initiative’. In addition, the Central Board also has fi ve Sub- XI.9 The chapter is organised into nine Committees: the Audit and Risk Management sections. The developments relating to the Sub-Committee (ARMS); the Human Resource governance structure of the Reserve Bank are set Management Sub-Committee (HRM-SC); the out in section 2. Section 3 delineates the initiatives Building Sub-Committee (B-SC); the Information undertaken by the Human Resource Management Technology Sub-Committee (IT-SC) and the Department (HRMD) during the year in the areas of Strategy Sub-Committee (S-SC). These sub- human resource management and development. committees are headed by an external Director. 211ANNUAL REPORT 2021-22 Meetings of the Central Board and CCB XI.16 The Central Government re-appointed Shri Mahesh Kumar Jain as Deputy Governor, XI.12 The Central Board held six meetings1 Reserve Bank of India for a period of two years during April 2021 to March 31, 2022. with effect from June 22, 2021, or until further XI.13 The CCB held 46 meetings during April orders, whichever is earlier, upon completion of his 2021 to March 31, 2022, 34 of which were held existing term on June 21, 2021. On reappointment, as e-meetings and 12 through video conferencing. Shri Jain assumed offi ce on June 22, 2021. The CCB attends to the current business of the XI.17 The Central Government nominated Reserve Bank, including approval of its Weekly Shri Sanjay Malhotra, Secretary, Department Statements of Affairs. of Financial Services, Ministry of Finance, XI.14 A Standing Committee of the Central Government of India with effect from February 16, Board is functioning in lieu of those Local Boards 2022 and until further orders vice Shri Debasish which are unable to function for want of quorum. At Panda. present, the Standing Committee is looking after XI.18 The term of Central Board Director Shri N. the affairs of the Western, Eastern and Southern Chandrasekaran ended on March 3, 2022. Areas. The Standing Committee of the Central Executive Directors Board was reconstituted on March 27, 2021 with two independent Directors as Members. The XI.19 Shri P. Vijaya Kumar, Executive Director Standing Committee of the Central Board held two superannuated on May 31, 2021 and Dr. Mridul meetings each during April 1, 2021 to March 31, K. Saggar, Executive Director superannuated on 2022, for Eastern and Southern Areas and three April 29, 2022. Shri Ajay Kumar was promoted meetings for Western Area. Northern Area Local as Executive Director on August 20, 2021. Shri Ajay Kumar Choudhary and Shri Deepak Kumar Board held four meetings during the same period. were promoted as Executive Directors on January The details of participation of Directors/Members 3, 2022. Dr. Rajiv Ranjan and Dr. Sitikantha in meetings of the Central Board, its Committees Pattanaik were promoted as Executive Directors and Sub-Committees, Local Boards and Standing on May 2, 2022. Committee of the Central Board in lieu of Local Board/s are given in Annex Tables XI.1-5. 3. HUMAN RESOURCE DEVELOPMENT Central Board/Local Boards INITIATIVES XI.15 The Central Government re-appointed XI.20 The Reserve Bank has a wide canvas Shri Shaktikanta Das as Governor, Reserve Bank of operations, requiring diversifi ed skills and of India for a further period of three years beyond a robust set of internal capabilities to fulfi ll its December 10, 2021, or until further orders, mandate. The Human Resource Management whichever is earlier. On reappointment, Shri Das Department (HRMD) plays the role of an enabler assumed offi ce with effect from December 11, and a facilitator to build and maintain an effi cient 2021. and motivated workforce in the Reserve Bank. 1 The accounting year for the Reserve Bank was changed to April-March from 2020-21 onwards. 212GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT During the year, the Department continued its Bank in international meetings/forums has been focus on skilling through recruitment and training, prepared in coordination with other Central Offi ce including e-learning, and prioritised staff welfare, Departments (CODs). especially in the backdrop of second wave of XI.23 An Inter-Departmental Committee was set pandemic. It also maintained business continuity. up for reviewing the organisational structure and Major developments in these and other areas to suggest suitable changes. The Committee’s undertaken during the year are highlighted below, recommendations are presently being examined. along with status of implementation of agenda set for 2021-22 as also agenda for 2022-23. XI.24 Learning Management System (LMS) has Agenda for 2021-22 been put in place for RBI Academy. Going forward, this would be replicated bank-wide in partnership XI.21 Last year, the Department had set out the with training establishments. following goals: XI.25 In the case of recruitment of offi cers in  To develop a pool of domain experts Grade ‘B’ (Direct Recruits), a recruitment calendar to represent Reserve Bank’s (India’s) was designed to reduce the turnaround time. views in international/multi-lateral meetings including having an appropriate Further, to broad base the competencies of succession plan in place for international the pool of candidates recruited, the pattern of meetings/conferences to ensure continuity examination was modifi ed to include a descriptive in knowledge of meetings (Utkarsh) component in addition to the objective portion. [Paragraph XI.22]; A psychometric test was also introduced, the observations of which serve as an additional input  Review and reframe the organisational structure to effectively implement all for assessing the candidates. A panel of external strategies (Utkarsh) [Paragraph XI.23]; agencies to handle support services in connection with lateral recruitment process has been set up.  To continue its efforts to lend sharper focus to its training and development related Major Developments endeavours. A learning management In-house Training system is envisaged to be introduced in the Reserve Bank, with e-Learning XI.26 The Reserve Bank’s training infrastructure material procured from reputed vendors to continued to focus upon upgradation of technical facilitate implementation of the concept of and behavioural skills of employees with a view blended learning (Paragraph XI.24); and to enhancing their effi ciency and effectiveness. A number of programmes were conducted  To take steps to enhance effi ciency of recruitment policies, particularly at offi cer during the year by the Reserve Bank’s training level, with suitable changes carried out establishments (TEs) and Zonal Training Centres in consultation with the Reserve Bank (ZTCs) towards achieving these objectives Services Board (Paragraph XI.25). (Table XI.1). Implementation Status Training at External Institutions XI.22 A comprehensive database of domain XI.27 The Reserve Bank enlisted its offi cers experts who have represented the Reserve to attend training programmes, seminars and 213ANNUAL REPORT 2021-22 Table XI.1: Programmes Conducted at Reserve Bank’s Training Establishments Training Establishment 2019-20 (July-June) 2020-21 (July-March) # 2021-22 (April-March) Number of Number of Number of Number of Number of Number of Programmes Participants Programmes Participants Programmes Participants 1 2 3 4 5 6 7 RBI Academy 21 476 25 840 18 1,185 (2) CoS## - - 3 74 43 1,726 RBSC, Chennai 110 2,826 89 3,629 122 4,267 (85) (72) (325) CAB, Pune 126 3,891 183 10,308 216 13,308 (37) (45) (134) ZTCs (Class I) 92 1,667 135 3,682 127 3,140 ZTCs (Class III) 94 2,648 104 4,568 109 3,920 ZTCs (Class IV) 30 604 11 417 23 820 RBSC: Reserve Bank Staff College. CAB: College of Agricultural Banking. - : Not applicable. # : With change in the Reserve Bank’s accounting year to April-March from 2020-21 onwards, the fi rst year of Reserve Bank’s transition period was of nine months (July 2020 - March 2021). ## : College of Supervisors (CoS) was established on May 22, 2020 in a virtual mode and formally operationalised with a full-time Director w.e.f. January 5, 2021. The college is administratively attached to Department of Supervision (DoS), and has a vision of creating a world-class, reputed capacity-building institution, committed to developing knowledgeable, skilled and proactive supervisors, regulators and regulated entity personnel in India and around the world. Note: Figures in parentheses pertain to foreign participants and/or participants from external institutions, out of the total number of participants. Source: RBI. conferences in India and abroad through online Other Initiatives mode in order to tap the expertise available in Grants and Endowments leading external institutes (Table XI.2). In addition, 295 offi cers are known to have attended webinars XI.28 As part of its mission to promote research, on various contemporary topics offered by foreign training and consultancy in the banking and institutions. fi nancial sector, the Reserve Bank provided fi nancial support amounting to `16.50 crore to the Table XI.2: Number of Offi cers Trained in Indira Gandhi Institute of Development Research External Training Institutions (IGIDR), Mumbai; `5.10 crore to the Centre for in India and Abroad Advanced Financial Research and Learning Year Trained in India Trained (CAFRAL), Mumbai; `0.75 crore to London (External Institutions) Abroad 1 2 3 School of Economics (LSE) India Observatory 2019 - 20 (July-June) 696 139 and IG Patel Chair; `0.65 crore to the Indian 2020 - 21 (July-March)*# 194 258 Institute of Bank Management (IIBM), Guwahati 2021 - 22 (April-March)* 326 496 and `0.43 crore to the National Institute of Bank *: Online mode. #: Refer to footnote of Table XI.1. Management (NIBM), Pune. Source: RBI. 214GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT Box XI.1 Setting up of Employee Interface and Analytics Division (EIAD) Employee Interface and Analytics Division (EIAD) has Given the Reserve Bank’s continuous endeavour to build a been set up with the aim of building and establishing ‘listening-oriented’ organisational culture, EIAD has taken effective connect and channels of communication with up a novel initiative titled, VOICE - Voicing Opinion to Inspire, employees (both working and retired), to provide an effi cient Contribute, and Excel. The VOICE platform facilitates interface to employees for better communication, enhanced interaction between HR personnel and employees in an engagement, and positive employee experience. The informal environment, while focusing on mutual exploration broad mandate of EIAD is anchored towards exploring and of career and self-development opportunities through implementing global best practices and policies in the areas sharing personal success stories. of employee engagement and motivation, HR interface, organisation culture and HR technological solutions. EIAD is The initiative intends to provide impetus to the Reserve also focusing on HR research and data analytics in order to Bank’s vision of ‘Building Innovative, Dynamic and Skilled develop a deeper understanding and implement a structured Human Resources’ as envisaged under ‘Utkarsh 2022’. and solution-driven approach concerning matters that are of interest to the Reserve Bank. Source: RBI. Industrial Relations Division (EIAD), as a part of its efforts to service its internal customers better (Box XI.1). XI.29 Industrial relations in the Bank remained cordial during the year. Due to the pandemic, Recruitments and Staff Strength meetings with recognised Associations/ XI.31 During 2021 (January-December), the Federations were held through virtual mode Reserve Bank recruited a total of 1,448 employees on issues related to service conditions of in various cadres (Table XI.3). employees. During April 2021 – March 2022, XI.32 The total staff strength of the Reserve Bank HRMD, Central Offi ce held 21 meetings with as at end-December 2021 was 12,856, registering central units of the recognised Associations/ an increase of 4.7 per cent from the position as Federations, representing offi cers and workmen at end-December of last year (Table XI.4). As at employees. Regional Offi ces (ROs), too, kept their end-March 2022, the staff strength of the Reserve communication channels open with local units Bank stood at 12,782, comprising 6,556 in Class I, of these recognised Associations/Federations. 3,371 in Class III and 2,855 in Class IV. In line with the wage settlement in the banking industry, the wage revision of all employees in the Reserve Bank for the period November Table XI.3: Recruitments by the Reserve Bank in 2021* 1, 2017 to October 31, 2022 was successfully completed. The Department also carried out a Category Total of which: comprehensive employee engagement survey SC ST OBC EWS during the year. Responses received are presently 1 2 3 4 5 6 Class I 440 72 36 113 26 being examined. Class III 875 118 37 354 68 Class IV 133 25 16 44 4 Interface with Employees Total 1,448 215 89 511 98 XI.30 During the year, the Department set up a *: January - December. EWS: Economically Weaker Section. Source: RBI. new Division, Employee Interface and Analytics 215ANNUAL REPORT 2021-22 Table XI.4: Staff Strength of the Reserve Bank* Category Category-wise Strength Per cent to Total Strength Total Strength SC ST OBC SC ST OBC 2020 2021 2020 2021 2020 2021 2020 2021 2021 1 2 3 4 5 6 7 8 9 10 11 12 Class I 6,121 6,598 976 1,071 413 462 1,159 1,399 16.23 7.00 21.20 Class III 3,051 3,337 468 489 191 191 866 1,077 14.65 5.72 32.27 Class IV 3,104 2,921 724 648 249 231 672 693 22.18 7.91 23.72 Total 12,276 12,856 2,168 2,208 853 884 2,697 3,169 17.17 6.88 24.65 *: End-December 2020 and 2021. Source: RBI. XI.33 The total strength of ex-servicemen in the Prevention of Sexual Harassment of Women at Reserve Bank stood at 1,034 as at end-December the Workplace 2021, while the total number of differently abled XI.35 A formal grievance redressal mechanism employees stood at 288 (Table XI.5). During for prevention of sexual harassment of women January-December 2021, 140 ex-servicemen and at the workplace has been in place since 1998. 6 persons with benchmark disabilities (PWBD) It was strengthened with the issue of a new were recruited in the Reserve Bank. comprehensive set of guidelines in 2014-15 XI.34 During 2021 (January-December), in accordance with the Sexual Harassment of three meetings between the management and Women at Workplace (Prohibition, Prevention representatives of the All-India Reserve Bank and Redressal) Act and Rules, 2013. During Scheduled Castes (SC)/Scheduled Tribes (ST) April 2021-March 2022, one complaint was and the Buddhist Federation were held to discuss received, which was disposed of. Awareness issues pertaining to implementation of the Reserve Bank’s reservation policy. Two meetings were also programmes were organised at various ROs as held with the representatives of Other Backward well as at Central Offi ce for sensitising the staff, Class (OBC) Association. including the newly recruited employees. Table XI.5: Total Strength of Ex-Servicemen and PWBD* Category Ex-Servicemen PWBD (Persons with Benchmark Disabilities) (ESM) Visually Impaired (VI) Hearing Impaired (HI) Orthopedically Handicapped (OH) Intellectual Disabilities** 1 2 3 4 5 6 Class I 246 42 5 101 - Class III 145 38 1 49 4 Class IV 643 8 3 37 - * : End-December 2021. -: Nil. ** : As per Rights of Persons with Disability Act, 2016, intellectual disability is a condition characterised by signifi cant limitation both in intellectual functioning (reasoning, learning and problem solving) and in adaptive behaviour, which covers a range of every day, social and practical skills, including ‘specifi c learning disabilities’ and ‘autism spectrum disorder’. Source: RBI. 216GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT Right to Information (RTI) facilitated reopening of offi ces of the Reserve Bank. The proportion of staff working from home XI.36 The Reserve Bank received 19,435 was regularly assessed in relation to the spread requests for information and 1,897 appeals of COVID-19 infections and offi ce reopened in under the RTI Act during April 2021-March 2022. full capacity whenever the high infection rates Two training programmes on RTI Act were also dropped. conducted by Zonal Training Centres, Kolkata and Chennai during this period. XI.40 A broad strategic framework to deal with a potential third wave was worked out Staff Welfare which revolved around the approach of ‘Test, XI.37 A Committee was set up to review the Track and Treat’ policy at various centres along policy and processes regarding allotment of with operationalisation of work from home Reserve Bank’s accommodation to offi cers. to ensure business continuity. Arrangements Recommendations made by the Committee are included setting up of a COVID-19 Response presently being examined. Group to respond to the COVID-related medical Response to COVID-19 Pandemic and logistical requirements of all employees of Central Offi ce and ROs/Sub-Offi ces, tie up with XI.38 Initiatives undertaken at the onset of the hospitals including paediatric hospitals, having fi rst wave of the COVID-19 pandemic continued to dedicated home treatment packages and isolation be followed at the time of the second wave. These arrangements at hotels, and reimbursement of included, inter alia, operationalisation of work from cost of reverse transcription - polymerase chain home to ensure business continuity, making regular reaction (RT-PCR) tests to employees and their payments to the outsourced agency/contractual eligible dependents. staff along with payment of minimum wages to the contract workers employed in canteens and Agenda for 2022-23 offi cers’ lounge; introduction of special ex-gratia XI.41 The roadmap for the year would include package and special compassionate appointment the following milestones for the Department: scheme for dependents of deceased employees,  Ensuring optimum opportunities and among others. upgradation of skills and knowledge of XI.39 Keeping in mind the safety and well- offi cers who go for international meetings/ being of its employees, the Reserve Bank took conferences/seminars (IMF/BIS/G-20/ the initiative to conduct camps to vaccinate SAARC, etc.) [Utkarsh]; employees, their family members and outsourced  To devise a policy on ‘Working from staff against COVID-19 at offi ce premises as well Anywhere’ for building a seamless work as at residential quarters. Vaccination camps environment as part of business continuity were organised in co-ordination with vaccine planning; manufacturing companies, reputed hospitals and local authorities at different centres. As at  To review the Reserve Bank’s training end-March 2022, 98 per cent of the Reserve establishments apart from reviewing and Bank’s employees were fully vaccinated. The consolidating the various training related initiative not only e nsured staff welfare, but also schemes; 217ANNUAL REPORT 2021-22  To set up an ‘employee assistance information technology, legal, payments & programme’ on wellness related matters; settlement, Rajbhasha and supervision. and Quantifi cation of IT and Cyber Risk  To develop an ‘employee engagement XI.45 A broad set of indicators to provide the platform’ as a single access point to maturity ratings for the effectiveness of controls online resources of the Reserve Bank have been deployed at process and technology and for strengthening Bank-employee and levels to strengthen the cyber security in the employee-employee communication. Reserve Bank. Review of the Risk Assessment Methodology for 4. ENTERPRISE-WIDE RISK MANAGEMENT Operational Risk (RAM-OR) XI.42 The Risk Monitoring Department (RMD) XI.46 Based on feedback, outcomes, is the nodal Department for the formulation international best practices and taking into and operationalisation of enterprise-wide risk account the changing scope of activities in various management (ERM) in the Reserve Bank. During business areas, the revised RAM-OR is being the year, the focus of the Department was on fi nalised in consultation with stakeholders and is improving incident reporting, strengthening risk expected to be completed by September 2022. analysis and risk reporting through formulation Agenda for 2022-23 of risk tolerance limits (RTLs), insightful risk dashboards and risk indices. XI.47 For the year, the following goals for the Department have been proposed: Agenda for 2021-22  Harmonisation of Risk-Rating: XI.43 Last year, the Department had set out the Harmonisation of risk-rating as per following goals: RAM-OR with the risk assessment under  Roll-out of risk tolerance limits (RTLs) risk based internal audit (RBIA) and for other operational areas (Utkarsh) creating an institutional feedback loop; [Paragraph XI.44];  Automation of Risk Register Module:  Quantifi cation of IT and cyber risk (Utkarsh) Operationalising the automation of the [Paragraph XI.45]; and risk register module in the web-based Integrated Risk Monitoring and Incident  Review of the risk assessment Reporting System (IRIS); methodology for operational risk (RAM-OR) [Paragraph XI.46].  Framework for models used by different departments and outsourcing policy; and Implementation Status  Strengthening Application Security : This Roll-out of RTLs for Other Operational Areas shall comprise application profi ling at XI.44 Roll-out of RTLs has been achieved for all functional and technical level and reviewing identifi ed operational areas, viz., audit, accounting and establishing perimeter security unit, budget & business continuity, communication, (web application fi rewalls) protection for currency management, customer education, applications and developing a proper human resource, infrastructure management, response framework. 218GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT 5. INTERNAL AUDIT/INSPECTION with the established project objectives (Utkarsh) [Paragraph XI.50]; XI.48 The Inspection Department of the Reserve Bank examines, evaluates and reports on internal  Endeavouring to achieve full convergence control and governance processes and provides of risk-rating assessed under RBIA with risk assurance to the top management and the risk-rating assessed as per RAM-OR Central Board through risk-based internal audit (Utkarsh) [Paragraph XI.51]; and (RBIA) framework. Thus, the Department acts as  Implementing the revised risk rating and the third line of defence2 (viz., assurance) under scoring methodology across the Reserve enterprise-wide risk management (ERM) function Bank from January 2022 after making in the Reserve Bank while RMD, as second line of suitable changes in the AMRMS package defence, monitors and facilitates implementation and testing it under parallel run mode of effective risk management practices, including during the second half of the year 2021 reporting of risks to Risk Monitoring Committee (Paragraph XI.52). (RMC) and Audit and Risk Management Sub- Committee (ARMS) of the Central Board. The Implementation Status Department also oversees the functioning of XI.50 Four project audits (two IT including one the concurrent audit (CA) system and control on pilot basis and two non-IT) were successfully self-assessment audit (CSAA) in the Reserve conducted covering three auditee offi ces, viz., two Bank. The RBIA, CA and CSAA functions are CODs and one RO. The primary objective of these performed through an automated system named exercises was to assess, evaluate and provide audit management and risk monitoring system an independent, objective assessment regarding (AMRMS). The Department acts as secretariat to execution of the project by evaluating the project the Audit and Risk Management Sub-Committee plan, nature and extent of responsibilities, authority of the Central Board and also to the Executive and accountability of the project management Directors’ Committee (EDC) in overseeing the team, use of resources, timely completion and internal audit function. delivery of the project. Agenda for 2021-22 XI.51 The targeted convergence of risk XI.49 Last year, the Department had set out the ratings assessed under RBIA with those as following goals: determined under RAM-OR was satisfactory. There was, however, continuous monitoring and  Implementing full-fl edged project audit generation of convergence report to keep track for all the identifi ed high value IT and of the achievements and for reporting to the top non-IT projects of the Reserve Bank to management. assess effective management of cost, time and deliverables and to ensure that XI.52 The revised risk rating and scoring model, the management of projects are in-sync based on core and criticality of operations, would 2 The fi rst line of defence is management control, while the second line of defence involves various risk control, compliance and oversight functions established by the management. 219ANNUAL REPORT 2021-22 be implemented early, as per the recommendations requisition, and inputs from RMD will be considered of Internal Working Group (IWG) constituted for while computing the Compliance Index. relooking the entire gamut of issues of RBIA, XI.55 Automation of control self-assessment making it more risk focused. audit (CSAA) module in AMRMS has been Major Developments implemented and necessary training support has been provided. Handbooks of all AMRMS Risk-based Internal Audit – Constitution of Internal modules were updated and shared with all offi ces Working Group (IWG) and the systems are scheduled to be upgraded. XI.53 For making the RBIA process more risk Automation in AMRMS facilitated improvements focused and to have a relook at the entire gamut in planning and conduct of audit; provided of issues of RBIA, based on the role, risk, core uniformity and standardisation in audit reporting, and critical functions of the CODs/ROs, an Internal submission, processing and monitoring of Working Group (IWG) was constituted in August compliances; enabled data analytics and reporting 2021 under the Chairmanship of ED-in-Charge dashboards on key performance indicators of Inspection Department, with select Heads of (KPIs), documentation and record management, CODs and Regional Directors of ROs as and alerts in an integrated manner. This aided in members. The IWG has met twice during creating synergy and effi ciency among the internal 2021-22 and submitted its fi nal report in January audit operations and also in risk management and 2022. RBIA processes will be reoriented based risk assurance functions. on core/criticality of operations as per the recommendations of the IWG. XI.56 A Quality Assurance Division (QAD) was created within the Department during the year Other Initiatives with the objective of ensuring usage of proper XI.54 A “Compliance Index”, refl ecting the formats, style and language in RBIA inspection overall compliance position of CODs/ROs, based reports, quoting latest instructions besides on recommendations of the Internal Group providing assurance that the reports are prepared comprising members of select Departments [viz., and presented well. Risk Monitoring Department (RMD), Department Agenda for 2022-23 of Government and Bank Account (DGBA), Department of Economic and Policy Research XI.57 During the year, the Department will focus (DEPR), Department of Statistics and Management on the following goals: (DSIM) and Department of Supervision (DoS)]  Putting in place, a framework for feedback has been developed to assess the overall level loop with RMD so as to get near convergent of compliance of various audits in a particular outcomes on the overall operational risks auditee offi ce and also to ensure whether the risk (Utkarsh); ratings, arrived at after completion of the current cycle of RBIA and the position as refl ected in the  Full development and generation of visual Compliance Index, indicate identical direction of analytics reports for data mining and compliance. Going forward, other aspects like analysis purpose, and for management budget utilisation variance and additional budget information system (MIS) [Utkarsh]; 220GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT  Implementation of revised risk rating and XI.60 Amidst the second wave of the pandemic in scoring model based on the decisions/ March 2021, the Crisis Management Team (CMT) recommendations of IWG; met during the year to facilitate smooth functioning of the time-sensitive critical activities (TSCAs)  Making the RBIA more risk-focused while ensuring the safety of the Reserve Bank’s (Utkarsh); human resources. As the pandemic situation  Pursuing specialisation and capacity improved, the CMT decided to gradually wind up building as an area of priority (Utkarsh); the bio-bubble arrangements with an alternate  Developing a framework for deployment of plan in place for the future. With the onset of the skilled offi cers for inspection of specialised third wave, however, bio-bubble arrangements areas of departments (Utkarsh); and were put back in place and dismantled only after the ebbing of the pandemic wave.  Creation of zonal inspectorates (ZIs) in four zones for close monitoring of quality XI.61 As part of the oversight of External Funded of compliance by auditee offi ces with Institutions (EFIs), the Department continued independent reporting to Inspection to reinforce their governance by facilitating Department (Utkarsh). meetings of their Governing Boards and sub- committees. During the year, appointments were 6. CORPORATE STRATEGY AND BUDGET made to the vacant positions of Director in the MANAGEMENT National Institute of Bank Management (NIBM), XI.58 The Corporate Strategy and Budget the Centre for Advanced Financial Research and Department (CSBD) coordinates and formulates Learning (CAFRAL) and the Indian Institute of the Reserve Bank’s strategies, prepares its annual Bank Management (IIBM) in a transparent and fair budget and monitors its expenditure with a view manner. A Memorandum of Understanding (MoU) to ensuring budgetary discipline. The Department was executed between the Reserve Bank and also formulates and executes the Reserve Bank’s CAFRAL to ensure that CAFRAL moves in the business continuity plan (BCP) for its critical direction of fi nancial self-suffi ciency in the long- operations and acts as the nodal Department for run. Also, the Memorandum of Association (MoA) external institutions funded by the Reserve Bank. and Rules and Regulations of the Indira Gandhi Institute of Development and Research (IGIDR) XI.59 CSBD, being the nodal Department were revised in accordance with the statutory for business continuity management (BCM) provisions. framework of the Reserve Bank, continued to play a key role during the year in ensuring the smooth XI.62 Understanding the need for effi cient working of critical systems and business processes settlement of provident fund balances, especially in the Reserve Bank from a secured, quarantine in times of distress, the Reserve Bank introduced environment (bio bubble arrangements) through successive nomination facility for the members of the pandemic with a view to ensuring that critical the Reserve Bank of India Employees Provident activities function with zero downtime and with full Fund (RBIEPF), wherein members can make up effi cacy. to three successive nominations. 221ANNUAL REPORT 2021-22 Agenda for 2021-22 XI.67 Steps were initiated for development of a new Systems Applications and Products XI.63 For 2021-22, the Department had set out (SAP)3 based budget module for fully automated the following goals: budget administration with multi-dimensional MIS  Operationalising ‘Utkarsh’ dashboard facility. The module is expected to be rolled out in with an inbuilt early warning system for 2022-23. potential non-achievement of strategic Agenda for 2022-23 goals/milestones (Paragraph XI. 64); XI.68 The Department’s agenda for the year  Conducting a mid-term review of the includes the following: strategy framework ‘Utkarsh 2022’ by the Strategy Sub-Committee (Paragraph  Introducing a framework for rating XI. 65); budgeting units for promoting effi cient and effective budget management (Utkarsh);  Putting in place a BCM framework for pandemic (Paragraph XI. 66); and  Preparing, fi nalising and launching ‘Utkarsh 2.0' the Strategy Framework for  Rationalising additional budget sanction the period 2023-25; and automating the process (Paragraph XI. 67).  Streamlining operations in the ‘Unclaimed PF accounts’; and Implementation Status  Review of Reserve Bank of India XI.64 The work on implementation of ‘Utkarsh’ Expenditure Rules. dashboard was delayed due to the disruptions induced by COVID-19. The ‘Utkarsh’ dashboard 7. RAJBHASHA application is in an advanced stage of development XI.69 The Rajbhasha Department serves as the and is expected to be launched by mid-June 2022. nodal department to promote the usage of Hindi XI.65 As part of the mid-term review, a peer for ensuring compliance to the statutory provisions review of the milestones under ‘Utkarsh 2022’ of the Official Language Act, 1963; Rajbhasha was carried out. As at end-March 2022, 254 out Rules, 1976; the orders of the President of India of 352 milestones have been implemented, with and instructions from the Government around 9 months left for the goal implementation Departments. This involves various aspects of (December 31, 2022). Official Language Implementation Committee XI.66 In pursuance of the goals set for the year, (OLIC) of the Reserve Bank, Hindi training a survey on ensuring business continuity during inspections, Hindi correspondence, mandatory the pandemic was undertaken and inputs were expenses involved on the purchase of Hindi books obtained from the business units (BUs) to put in and Hindi advertisements, and other requirements place a stronger BCM framework for the pandemic, of bilingualisation. During the year, the Department which may be fi nalised by June 2022. has fulfilled the assurances given to the Hon’ble 3 A data processing software commonly used for enterprise resource planning (ERP). 222GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT Committee of Parliament on Official Language as a ready reckoner to all the ROs/CODs and has achieved the goals under the Annual (Paragraph XI.72); Programme 2021-22 regarding use of Hindi laid  To organise programmes on Rajbhasha down by the Central Government. Also, Policy for the senior offi cers of the Reserve notwithstanding the practical constraints imposed Bank (Paragraph XI.73); by the pandemic, the Department organised  To impart training to Rajbhasha offi cers lectures, training, workshops, Hindi Day functions on Rajbhasha inspection to increase and allied Hindi competitions for the staff to the effi cacy of Rajbhasha inspections promote the use of Hindi. Through all these (Paragraph XI.73); measures and other initiatives such as showcasing the “12(cid:255)”4 framework and strategy as envisaged in  To organise region-wise review meeting the “Annual Programme 2021-22” regarding the for all the three linguistic regions (i.e., A, B use of Hindi issued by the Department of Official and C) with the Rajbhasha offi cers posted Language, Government of India (GoI) and those in the respective ROs/CODs to strengthen reflecting the spirit of “Azadi Ka Amrit Mahotsav” 5, the monitoring system regarding use of Rajbhasha Department spearheaded its mission Hindi (Paragraph XI.74); and vision for promoting the use of Hindi in the  To monitor application softwares and day-to-day work and functions of the Reserve materials uploaded on the Reserve Bank. Bank’s website/EKP to ensure their Agenda for 2021-22 bilingualisation (Paragraph XI.75); and XI.70 Last Year, the Department had set out the  To strengthen the translation system following goals: by arranging training programmes on translation for Rajbhasha offi cers; and also  To publish a booklet on ‘Rajbhasha Policy: organising meetings of Translation Review An Introduction’ and disseminate it to Committee at regular intervals (Paragraph increase awareness among staff members XI.75). (Paragraph XI.71); Implementation Status  To prepare Annual Work Plan for implementation of Offi cial Language XI.71 The booklet, ‘Rajbhasha Policy: An Policy in accordance with the annual Introduction’, comprising the policies and programme and other instructions issued mandatory provisions related to Offi cial Language, by the Government of India and circulate it which would serve as a handy and one-point ready 4 12(cid:255) covers 12 Pillars, viz., Prerna (inspiration and motivation), Protsahan (encouragement), Prem (love and affection), Prize (rewards), Prashikshan (training), Prayog (usage), Prachar (advocacy), Prasar (transmission), Prabandhan (administration and management), Promotion, Pratibaddhta (commitment) and Prayas (efforts), under "Annual Programme for transacting the official work of the Union in Hindi" released by the Department of Official Language, Ministry of Home Affairs, GoI. 5 Azadi Ka Amrit Mahotsav is an initiative of the Government of India to celebrate and commemorate 75 years of progressive India and the glorious history of its people, culture and achievements. It commenced on March 12, 2021 starting a 75-week countdown to the 75th anniversary of Independence and will end on August 15, 2023. 223ANNUAL REPORT 2021-22 reference for the staff in their offi cial routine work, creative writing in Hindi in the Reserve Bank. was released on March 21, 2022. Under this scheme, results for the year 2020-21 were published on November 24, 2021. Also, on XI.72 Keeping in mind all the directives and the occasion of Hindi Diwas 2021, i.e., September implementation targets given in the Annual 14, 2021; various Hindi competitions were Programme 2021-22 for transacting the conducted for the staff members to promote the Rajbhasha-related offi cial work issued by use of Hindi by organising Hindi week/fortnight/ Government of India, an elaborate ‘Annual Work month by all CODs/ROs. Plan 2021-22’ regarding use of Hindi has been prepared. This target based comprehensive Training work plan was published on April 2, 2021 and XI.77 In pursuance of the Reserve Bank’s vision implemented in the Reserve Bank. statement “Utkarsh 2022” to enhance the skillset XI.73 The programme on Rajbhasha policy for of human resources for current and emerging senior offi cers was organised on February 15, challenges, one batch of Rajbhasha offi cers was 2022, where 37 offi cers participated. imparted training on general banking by ZTC, Kolkata during January 3-5, 2022. XI.74 In order to strengthen the monitoring system regarding use of Hindi, review meetings Publications with the Rajbhasha offi cers posted in region ‘A’, XI.78 The statutory publications of the Reserve was organised on June 29, 2021, and that for Bank, viz., Annual Report, Report on Trend and regions ‘B’ and ‘C’ were organised on December Progress of Banking in India, Monetary Policy 29 and 30, 2021, respectively. Report and other publications like the Financial XI.75 The Reserve Bank's website is regularly Stability Report, Weekly Statistical Supplement monitored to ensure bilingualisation and and monthly Reserve Bank of India Bulletins were compliance with the Rajbhasha policy. Three published in bilingual form and are available on the training programmes on translation, two at Reserve Bank’s website. Apart from the half-yearly Reserve Bank Staff College (RBSC), Chennai e-magazine, Rajbhasha Samachar, covering the and one by Central Translation Bureau, New progressive use of Hindi in the Reserve Bank, Delhi were conducted during the year, in which the half-yearly Hindi journal ‘Banking Chintan 53 Rajbhasha offi cers were trained. Also, the Anuchintan’, covering banking and fi nance related Department regularly organised the meetings of topics, was published by the Department. the Translation Review Committee on a quarterly Integrated Rajbhasha Reporting System basis. XI.79 Integrated Rajbhasha Reporting System Major Developments (IRRS), a software application was developed by XI.76 A scheme for e-magazines in Hindi was the Department to fulfi l the reporting requirements launched last year to encourage and reward ‘Hindi of the Rajbhasha policy, which is currently being in-house e-magazines’ (‘Hindi e-Grih Patrikayen’), used by CODs/ROs/TEs of the Reserve Bank published by ROs located in the linguistic regions, for the online submission of Rajbhasha related viz., 'A', 'B' and 'C', for the promotion of original reports. The application also provides a review of 224GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT the implementation status of various Rajbhasha  Takeover residential projects at Chennai policies at ROs and CODs. (Anna Nagar) and Delhi (Hauz Khas) which are nearing completion (Paragraph Agenda for 2022-23 XI.84); XI.80 During the year, the Department plans to  Commence construction of offi ce premises focus on the following goals: at Naya Raipur, residential projects at  Publication of new edition of Banking Dehradun and Jammu and residential- Glossary by December 2023 (Utkarsh); cum-ZTC project at Mumbai (Kharghar)  Preparation of Annual Work Plan of the [Paragraph XI.84]; Reserve Bank for the implementation of  Construct boundary walls at Shillong and Offi cial Language Policy in accordance Ranchi Offi ce plots (Paragraph XI.84); with the Annual Programme and other  Shift from User Acceptance Test (UAT) to instructions issued by GoI; production environment for implementation  To organise region-wise review meetings of enterprise project management with the Rajbhasha offi cers to assess the software for monitoring major projects' effectiveness of implementation regarding plots (Paragraph XI.85); the use of Hindi; and  Implement GREEN data platform for online  To organise training programmes for consolidation and analysis of Utkarsh data Rajbhasha offi cers to upgrade their and information on other green initiatives translation skills. and energy/water audit received from the ROs' plots (Paragraph XI.85); and 8. PREMISES DEPARTMENT  Continue with green initiatives (Paragraph XI.81 The vision of the Premises Department is XI.86). to provide ‘best in class’ and environment-friendly physical infrastructure by integrating architectural Implementation Status excellence and aesthetic appeal with green ratings XI.83 In 2021-22, developments were inspired in the Reserve Bank’s premises, while ensuring by the vision, as the Department endeavoured to the highest level of cleanliness. fulfi ll the goals set out in these areas. Several of Agenda for 2021-22 the goals set under Utkarsh have been surpassed by the Department. As against the goal for XI.82 Last year, the Department had set out the obtaining relevant green rating from GRIHA/IGBC6 following goals: for at least two existing offi ce buildings and seven  Achieve and improve upon the targets existing residential buildings by January 2022, set under Utkarsh for January 2022 green rating from IGBC has been received for (Paragraph XI.83); 6 Green Rating for Integrated Habitat Assessment (GRIHA)/Indian Green Building Council (IGBC). 225ANNUAL REPORT 2021-22 total of three offi ce buildings and eight residential XI.85 Implementation of Enterprise Project buildings during January 2021 to January 2022. Management software as well as the GREEN Further, as against the target of achieving 4.5 (Generation of Renewable Energy, Energy per cent of base year (year ended June 2018) Conservation and Neer Conservation) platform power consumption from renewable sources by is operating in production environment mode all Reserve Bank’s premises, aggregate energy and training of end-users has been conducted. generation from renewable sources was at 5.5 The ecosystem is expected to stabilise by end of per cent till January 2022. Reserve Bank achieved September 2022. energy saving of 22.7 per cent as against the target XI.86 As part of GREEN initiatives (other than of 3.5 per cent by January 2022 over the annual targeted under Utkarsh), the Reserve Bank has consumption in the base year ended June 2018. been generating renewable energy through solar Water conservation/savings stood at 24.0 per cent power plants installed at various offi ces and in January 2022 (y-o-y) over the consumption in residential colonies. D uring April 2021-March the base year ended June 2018 as against the 2022, solar power plants have been installed at 2 target of 7.5 per cent. The increase in energy offi ce and 7 residential premises. Consequently, savings and conservation of water was also due 28 offi ce premises and 51 residential premises to the restricted offi ce working hours on account had such solar power plants by end of March 2022, of localised and region-specifi c containment with solar power generation capacity enhanced measures induced by second wave of COVID-19. from 2,504 kWp (kilowatts Peak) [March 2021] to XI.84 Construction of residential project 3150 kWp (March 2022). Rainwater harvesting at Chennai (Anna Nagar) is completed, and systems have been installed at 20 offi ces and occupation certifi cate for four residential towers 47 residential buildings and sewage treatment of project at Delhi (Hauz Khas) have been plants at 4 offi ces and 12 residential buildings for received and of these, possession of two towers conservation and effi cient management of water has been taken up for allotment. The permission resources. Organic waste converters have also for construction has been obtained from local been installed at 14 offi ces and 52 residential authorities for the residential-cum-ZTC project premises. at Mumbai (Kharghar). Construction work has Major Developments commenced for Raipur offi ce building and work Construction Activities has been awarded for construction at Ranchi and Shillong offi ce plots. Work on Dehradun residential XI.87 The structure of the institutional building project will be starting in 2022-23 as groundwork, for Centre for Advanced Financial Research including planning, is mostly done. Progress of and Learning (CAFRAL) at Mumbai has been certain projects was hampered due to restrictions completed. The remaining structural work induced by the second wave of the COVID-19 (mechanical, electrical and plumbing) and fi nishing pandemic. works are in progress. 226GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT Other Initiatives premises at Chakala, Malad Phase I and Tapovan in Mumbai; XI.88 Land for construction of Greenfi eld Data Centre for the Reserve Bank has been acquired  Take forward construction of offi ce premises at Naya Raipur and residential- in Bhubaneswar. In Mumbai, additional offi ce cum-ZTC project at Mumbai (Kharghar); premises were taken on lease.  Strengthen and stabilise implementation of XI.89 Adoption of the RFID (Radio Frequency enterprise project management software Identifi cation) Technology for tagging and for monitoring major projects; and reconciliation of fi xed assets has been completed  Strengthen and stabilise GREEN data by all ROs. As at end-March 2022, 22 CODs have platform for online consolidation and also completed RFID tagging and reconciliation. analysis of Utkarsh data and information XI.90 During the year, 679 e-tenders were fl oated on other green initiatives and energy/water by CODs, ROs and TEs. Presently tenders beyond audit received from the ROs. `5 lakh are being invited through e-tendering, using the MSTC portal. 9. CONCLUSION XI.92 In sum, this chapter discussed Agenda for 2022-23 developments in the areas of governance, human XI.91 For the year 2022-23, the Department has resources, and also the measures adopted during set the following goals: the year for strengthening the risk monitoring and internal audit mechanism in the Reserve Bank.  Achieve the targets set under Utkarsh Human resources were strengthened through 2022; recruitments, and in-house and external trainings,  Complete construction of CAFRAL and relying extensively on online and e-Learning Dehradun Offi ce Projects; modes. While Rajbhasha Department ensured compliance with the statutory provisions of  Complete construction of boundary wall at the Offi cial Languages Act of the Government Ranchi and Shillong offi ce plots; of India, the Premises Department continued  Commence construction of residential with its efforts to provide environment friendly premises at Dehradun; physical infrastructure. The departments have evaluated their goals set for the year and set out  Execute MoU with Central Public Works the agenda for 2022-23. In the pandemic-induced Department (CPWD) and take up the environment, the Reserve Bank responded swiftly enabling works for starting the offi ce and comprehensively for securing critical business building project at Panaji; processes and ensured business continuity in the  Complete execution of MoU with CPWD fi nancial system along with safety and health of its and enabling works for residential human resources. 227ANNUAL REPORT 2021-22 Annex Table XI.1: Attendance in the Meeting of the Central Board of Directors during April 1, 2021 – March 31, 2022 Name of the Member Appointed/Nominated under RBI No. of Meetings No. of Meetings Act, 1934 (Section) Held Attended 1 2 3 4 Shaktikanta Das 8(1)(a) 6 6 Mahesh Kumar Jain 8(1)(a) 6 6 Michael Debabrata Patra 8(1)(a) 6 6 M. Rajeshwar Rao 8(1)(a) 6 6 T. Rabi Sankar* 8(1)(a) 6 6 Revathy Iyer 8(1)(b) 6 5 Sachin Chaturvedi 8(1)(b) 6 6 Natarajan Chandrasekaran# 8(1)(c) 5 3 Satish Kashinath Marathe 8(1)(c) 6 6 Swaminathan Gurumurthy 8(1)(c) 6 6 Debasish Panda^ 8(1)(d) 4 4 Ajay Seth 8(1)(d) 6 5 Sanjay Malhotra$ 8(1)(d) 1 1 *: Deputy Governor w.e.f. May 3, 2021. ^: Director till January 31, 2022. $: Director w.e.f. February 16, 2022. #: Director till March 3, 2022. 228GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT Table XI.2: Attendance in the Meeting of the Committees of Central Board during April 1, 2021 – March 31, 2022 Name of the Member Appointed/Nominated under No. of Meetings Held No. of Meetings Attended RBI Act,1934 (Section) 1 2 3 4 I. Committee of the Central Board (CCB) Shaktikanta Das 8(1)(a) 46 45 Mahesh Kumar Jain 8(1)(a) 46 43 Michael Debabrata Patra 8(1)(a) 46 42 M. Rajeshwar Rao 8(1)(a) 46 45 T. Rabi Sankar* 8(1)(a) 42 41 Revathy Iyer 8(1)(b) 27 27 Sachin Chaturvedi 8(1)(b) 28 28 Natarajan Chandrasekaran# 8(1)(c) 24 10 Satish Kashinath Marathe 8(1)(c) 26 26 Swaminathan Gurumurthy 8(1)(c) 24 07 Tarun Bajaj^ 8(1)(d) 02 02 Ajay Seth 8(1)(d) 28 28 ^: Director till April 23, 2021. *: Deputy Governor w.e.f. May 3, 2021. #: Director till March 3, 2022. II. Board for Financial Supervision (BFS) Shaktikanta Das Chairman 12 12 Mahesh Kumar Jain Vice-Chairman 12 12 Michael Debabrata Patra Member 12 10 M. Rajeshwar Rao Member 12 10 T. Rabi Sankar* Member 11 11 Satish Kashinath Marathe Member 12 11 Sachin Chaturvedi Member 12 10 *: Deputy Governor w.e.f. May 3, 2021. III. Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) Shaktikanta Das Chairman 1 1 T. Rabi Sankar* Vice-Chairman 1 1 Mahesh Kumar Jain Member 1 1 Michael Debabrata Patra Member 1 1 M. Rajeshwar Rao Member 1 1 Natarajan Chandrasekaran# Member 1 1 Sachin Chaturvedi$ Member 1 1 *: Deputy Governor w.e.f. May 3, 2021. $: Member w.e.f. September 27, 2021. #: Director till March 3, 2022. 229ANNUAL REPORT 2021-22 Table XI.3: Attendance in the Meeting of the Sub-Committees of the Board April 1, 2021 – March 31, 2022 Name of the Member Appointed/Nominated under No. of Meetings Held No. of Meetings Attended RBI Act, 1934 1 2 3 4 I. Audit and Risk Management Sub-Committee (ARMS) Revathy Iyer Chairperson 7 7 Shri Satish K. Marathe# Member 4 4 M. Rajeshwar Rao Member 7 7 #: Nominated as Member w.e.f. September 27, 2021. II. Building Sub-Committee (BSC) Satish K. Marathe Chairman 1 1 III. Human Resource Management Sub-Committee (HRM-SC) N. Chandrasekaran* Chairman - - *: Nominated as the Chairperson w.e.f. September 27, 2021 till March 3, 2022. IV. Information Technology Sub-Committee (IT-SC) Sachin Chaturvedi Chairman 2 2 Revathy Iyer# Member 2 1 #: Nominated as Member w.e.f. September 27, 2021. V. Strategy Sub-Committee (S-SC) N. Chandrasekaran* Chairperson - - Revathy Iyer# Member 1 1 Michael Debabrata Patra Member 1 1 *: Nominated as the Chairperson w.e.f. September 27, 2021 till March 3, 2022. # : Chairperson for the meeting held on July 8, 2021. 230GOVERNANCE, HUMAN RESOURCES AND ORGANISATIONAL MANAGEMENT Table XI.4: Attendance in the Meetings of Local Boards during April 1, 2021 to March 31, 2022 Name of the Member Appointed/Nominated under No. of Meetings Held No. of Meetings Attended RBI Act, 1934 1 2 3 4 Revathy Iyer, NALB Section 9(1) 4 4 R. N. Dubey, NALB Section 9(1) 4 4 NALB: Northern Area Local Board. Table XI.5: Attendance in the Meeting of Standing Committee of the Central Board of Directors in lieu of Local Board/s during April 1, 2021 to March 31, 2022 Name of the Member No. of Meetings Held No. of Meetings Attended 1 2 3 Revathy Iyer 7 7 Satish Kashinath Marathe 7 7 Note: Two meetings each were held for Eastern and Southern Areas and three meetings for Western Area. 231XII THE RESERVE BANK’S ACCOUNTS FOR 2021-22 The year 2020-21 was a transition year for the Reserve Bank as the accounting year was changed from ‘July to June’ to ‘April to March’ and therefore, the accounting year 2020-21 was of nine months period, i.e., ‘July 2020 to March 2021’. Thus, data presented in the Chapter for the current year, i.e., 2021-22 and earlier years (July to June) are for twelve months as compared to the nine months period for the previous year (July 2020 to March 2021). The size of the Reserve Bank's balance sheet increased by 8.46 per cent as on March 31, 2022, mainly reflecting its liquidity and foreign exchange operations during the year. While income for the year increased by 20.14 per cent, expenditure increased by 280.13 per cent. The year 2021-22 ended with an overall surplus of `30,307.45 crore as against `99,122 crore in the previous year, resulting in its decrease of 69.42 per cent. XII.1 The balance sheet of the Reserve Bank XII.2 The form and content of the balance sheet plays a critical role in the functioning of the and income statement have undergone changes country’s economy, largely reflecting the activities over the years based on the recommendations of carried out in pursuance of its currency issue certain committees (Box XII.1). function as well as monetary policy and reserve management objectives. Bo x XII.1 Form of Presentation of the Balance Sheet and Income Statement The form and presentation of the balance sheet and income income, all items of non-interest earning nature have been statement of the Reserve Bank has been prescribed in the grouped under a single head and shown as ‘Other Income’. RBI General Regulations, 1949. Over the years, there have Single income statement continues to be prepared for the been changes in the form of presentation of the balance Reserve Bank as a whole. sheet and income statement based on the recommendations Subsequently, based on the recommendations of the Expert of certain Committees. Committee to review the Economic Capital Framework of the The recommendations of the Technical Committee I Reserve Bank (Chairman: Dr. Bimal Jalan), certain changes (Chairman: Shri Y. H. Malegam) in respect of form and have also been introduced from the year 2020-21. These content of the financial statements were implemented from include – (i) change in accounting year of the Reserve the year 2014-15. Based on this, following changes have Bank from ‘July to June’ to ‘April to March’, in sync with the been introduced – (i) the Issue and Banking Department Government's fiscal year; (ii) with a view to providing a more balance sheets were merged to prepare a single balance transparent presentation of RBI’s Annual Accounts in respect sheet displaying at one place the total liabilities and assets of the components of economic capital, the ‘Risk Provisions of the Reserve Bank (however, the assets and liabilities of (Contingency Fund and Asset Development Fund)’ and Issue Department are shown distinctly on the face of the the balance in the ‘Revaluation Accounts’ which earlier single balance sheet); (ii) only main items of assets and formed part of the balance sheet head ‘Other Liabilities and liabilities are reported in the balance sheet while related Provisions’, are now shown as distinct balance sheet heads; details are given in accompanying schedules; (iii) as details and (iii) as risk provisions are shown separately now, the are given in the schedules, items of similar nature are nomenclature ‘Other Liabilities and Provisions’ has been grouped and shown as a single item; (iv) the nomenclature changed to ‘Other Liabilities’. of ‘Profit and Loss Account’ has been changed to ‘Income Statement’; and (v) since interest income is major source of Source: RBI. 232THE RESERVE BANK’S ACCOUNTS FOR 2021-22 Ta ble XII.1: Trends in Income, Expenditure and Net Income (Amount in ` crore) Item 2017-18 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 6 a) Income 78,280.66 1,93,035.88 1,49,672.46 1,33,272.75 1,60,112.13 b) Total Expenditure1 28,276.662 17,044.153 92,540.934 34,146.755 1,29,800.686 c) Net Income (a-b) 50,004.00 1,75,991.73 57,131.53 99,126.00 30,311.45 d) Transfer to funds7 4.00 4.00 4.00 4.00 4.00 e) Surplus transferred to the Central Government (c-d) 50,000.00 1,75,987.73 57,127.53 99,122.00 30,307.45 Note: 1. Includes provisions towards CF and ADF. 2. Includes a provision of `14,189.27 crore towards transfer to CF. 3. Includes a provision of `63.60 crore towards transfer to ADF 4. Includes a provision of `73,615 crore towards transfer to CF. 5. Includes a provision of `20,710.12 crore towards transfer to CF. 6. Includes provisions of `1,14,567.01 crore and `100 crore towards transfer to CF and ADF, respectively. 7. An amount of `1 crore each has been transferred to the National Industrial Credit (Long Term Operations) Fund, the National Housing Credit (Long Term Operations) Fund, the National Rural Credit (Long Term Operations) Fund and the National Rural Credit (Stabilisation) Fund during each of the fi ve years. XII.3 The key financial results of the Reserve gold deposit and gold held in India) constituted Bank’s operations during the year 2021-22 are set 71.78 per cent of total assets as on March 31, out in the following paragraphs. 2022 as against 26.42 per cent and 73.58 per cent, respectively, as on March 31, 2021. XII.4 The size of the balance sheet increased by `4,82,633.14 crore, i.e., 8.46 per cent from XII.5 Provisions of `1,14,567.01 crore and `57,07,669.13 crore as on March 31, 2021 to `100 crore were made and transferred to `61,90,302.27 crore as on March 31, 2022. The Contingency Fund (CF) and Asset Development increase on the asset side was due to increase Fund (ADF), respectively. The trends in income, expenditure, net disposable income and the in foreign investments, domestic investments, surplus transferred to the Central Government gold, and loans and advances by 4.28 per cent, are given in Table XII.1. 11.67 per cent, 30.07 per cent and 54.53 per cent, respectively. On the liability side, the increase was XII.6 The Independent Auditors’ Report, the due to increase in deposits and notes issued by balance sheet and the Income Statement for the 16.24 per cent and 9.86 per cent, respectively. year 2021-22 along with schedules, statement of Domestic assets constituted 28.22 per cent while Significant Accounting Policies and supporting the foreign currency assets and gold (including Notes to Accounts are as follows: 233ANNUAL REPORT 2021-22 INDEPENDENT AUDITORS’ REPORT To, The President of India Report on Audit of Financial Statements of the Reserve Bank of India Opinion We, the undersigned Auditors of the Reserve Bank of India (hereinafter referred to as the “Bank”), do hereby report to the Central Government upon the Balance Sheet of the Bank as on March 31, 2022 and the Income Statement for the year ended on that date (hereinafter referred to as “Financial Statements”), which have been audited by us. In our opinion and to the best of our information and according to explanations given to us and as shown by the books of accounts of the Bank, the Balance Sheet read with Schedules and Significant Accounting Policies is a full and fair Balance Sheet containing all necessary particulars and is properly drawn up in accordance with the requirements of the provisions of the Reserve Bank of India Act, 1934 (“the RBI Act, 1934”) and Regulations framed there under so as to exhibit true and correct view of the state of affairs of the Bank as on March 31, 2022 and its results of operations for the year ended on that date. Basis for Opinion We conducted our audit in accordance with the Standards on Auditing (“SAs”) issued by the Institute of Chartered Accountants of India (“ICAI”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the Financial Statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the Financial Statements. Information Other than the Financial Statements and Auditor’s Report Thereon The Management is responsible for the other information. The other information comprises the information included in the Notes to the Accounts but does not include the Financial Statements and our report thereon. Our opinion on the Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements The Bank’s Management and those Charged with Governance for the Financial Statements are responsible for the preparation of the Financial Statements that give a true and correct view of the state of affairs and results of operations of the Bank in accordance with the requirements of the provisions of the RBI Act, 1934 and Regulations framed thereunder and the accounting policies and practices followed by the Bank. This responsibility also includes maintenance of adequate accounting records and preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgements and estimates that are reasonable and prudent and the design, implementation and maintenance of internal control relevant to the preparation and presentation of the Financial Statements that give a true and correct view and are free from material misstatement, whether due to fraud or error. As per the RBI Act, 1934, the Bank can be liquidated only by the Central Government by order and in any other manner as it may direct. Also, while the fundamental basis of preparation of Financial Statements of the Bank are based on provisions of the RBI Act, 1934 and Regulations framed thereunder, the Management has adopted the accounting policies and practices which reflects its continuity as a Going concern. Those charged with governance are also responsible for overseeing the Bank’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance 234THE RESERVE BANK’S ACCOUNTS FOR 2021-22 is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (cid:129) Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (cid:129) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal financial control. (cid:129) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. (cid:129) Conclude on the appropriateness of management’s use of the Going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a Going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. (cid:129) Evaluate the overall presentation, structure and content of the Financial Statements, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Other Matters The audit of the Financial Statements of the Bank for the year ended March 31, 2021, was carried out and reported jointly by M/s Prakash Chandra Jain & Co. and M/s G. M. Kapadia & Co., Chartered Accountants, vide their unmodified audit report dated May 21, 2021, whose report has been furnished to us by the Management and which has been relied upon by us for the purpose of our audit of the financial information. Our opinion is not modified in respect of this matter. We report that we have called for information and explanations from the Bank considered necessary for the purpose of our audit and such information and explanations have been given to our satisfaction. We also report that the Financial Statements include the accounts of twenty-two accounting units of the Bank which have been audited by Statutory Branch Auditors and we have relied on their report in this regard. For Chandabhoy & Jassoobhoy For G. M. Kapadia & Co. Chartered Accountants Chartered Accountants (ICAI Firm Registration No. 101647W) (ICAI Firm Registration No. 104767W) Ambesh Dave Atul Shah Partner Partner Membership No. 049289 Membership No. 039569 UDIN:22049289AJHKHA6587 UDIN:22039569AJHLDU6907 Place: Mumbai Date: May 20, 2022 235ANNUAL REPORT 2021-22 RESERVE BANK OF INDIA BALANCE SHEET AS ON MARCH 31, 2022 (Amount in ` crore) Liabilities Schedule 2020-21 2021-22 Assets Schedule 2020-21 2021-22 Capital 5.00 5.00 Assets of Banking Department (BD) Reserve Fund 6,500.00 6,500.00 Notes, Rupee Coin, Small Coin 6 12.02 17.13 Other Reserves 1 234.00 236.00 Gold - BD 7 1,43,582.87 1,96,864.38 Deposits 2 14,91,537.70 17,33,787.56 Investments-Foreign-BD 8 12,29,940.41 11,41,127.75 Risk Provisions Investments-Domestic-BD 9 13,33,173.90 14,88,815.96 Contingency Fund 2,84,542.12 3,10,986.94 Bills Purchased and Discounted 0.00 0.00 Asset Development Fund 22,874.68 22,974.68 Loans and Advances 10 1,35,118.91 2,08,792.85 Revaluation Accounts 3 9,24,454.99 9,34,544.00 Investment in Subsidiaries 11 1,963.60 2,063.60 Other Liabilities 4 1,50,657.97 75,547.53 Other Assets 12 37,014.75 46,900.04 Liabilities of Issue Department Assets of Issue Department (ID) (As backing for Notes Issued) Notes Issued 5 28,26,862.67 31,05,720.56 Gold - ID 7 1,04,140.13 1,25,348.98 Rupee Coin 743.40 508.29 Investments-Foreign-ID 8 27,21,979.14 29,79,863.29 Investments-Domestic-ID 9 0.00 0.00 Domestic Bills of Exchange and 0.00 0.00 other Commercial Papers 28,26,862.67 31,05,720.56 Total Liabilities 57,07,669.13 61,90,302.27 Total Assets 57,07,669.13 61,90,302.27 R. Kamalakannan T. Rabi Sankar M. Rajeshwar Rao M. D. Patra M. K. Jain Shaktikanta Das Chief General Manager Deputy Governor Deputy Governor Deputy Governor Deputy Governor Governor 236THE RESERVE BANK’S ACCOUNTS FOR 2021-22 RESERVE BANK OF INDIA INCOME STATEMENT FOR THE YEAR ENDED MARCH 31, 2022 (Amount in ` crore) INCOME Schedule 2020-21 2021-22 Interest 13 69,057.09 95,088.76 Other Income 14 64,215.66 65,023.37 Total 1,33,272.75 1,60,112.13 EXPENDITURE Printing of Notes 4,012.09 4,984.80 Expenditure on Remittance of Currency 54.80 82.95 Agency Charges 15 3,280.06 4,400.62 Employee Cost 4,788.03 3,869.43 Interest 1.10 1.77 Postage and Telecommunication Charges 105.46 140.09 Printing and Stationery 17.00 22.58 Rent, Taxes, Insurance, Lighting, etc. 122.24 145.56 Repairs and Maintenance 76.49 109.17 Directors’ and Local Board Members’ Fees and Expenses 0.36 1.48 Auditors’ Fees and Expenses 4.90 6.49 Law Charges 8.57 14.03 Depreciation 200.09 280.99 Miscellaneous Expenses 765.44 1,073.71 Provisions 20,710.12 1,14,667.01 Total 34,146.75 1,29,800.68 Available Balance 99,126.00 30,311.45 Less: (a) Contribution to: i) National Industrial Credit (Long Term Operations) Fund 1.00 1.00 ii) National Housing Credit (Long Term Operations) Fund 1.00 1.00 (b) Transferable to NABARD: i) National Rural Credit (Long Term Operations) Fund1 1.00 1.00 ii) National Rural Credit (Stabilisation) Fund1 1.00 1.00 (c) Others Surplus payable to the Central Government 99,122.00 30,307.45 1. These funds are maintained by the National Bank for Agriculture and Rural Development (NABARD). R. Kamalakannan T. Rabi Sankar M. Rajeshwar Rao M. D. Patra M. K. Jain Shaktikanta Das Chief General Manager Deputy Governor Deputy Governor Deputy Governor Deputy Governor Governor 237ANNUAL REPORT 2021-22 SCHEDULES FORMING PART OF BALANCE SHEET AND INCOME STATEMENT (Amount in ` crore) 2020-21 2021-22 Schedule 1: Other Reserves (i) National Industrial Credit (Long Term Operations) Fund 30.00 31.00 (ii) National Housing Credit (Long Term Operations) Fund 204.00 205.00 Total 234.00 236.00 Schedule 2: Deposits (a) Government (i) Central Government 5,000.15 5,000.04 (ii) State Governments 42.48 42.45 Sub total 5,042.63 5,042.49 (b) Banks (i) Scheduled Commercial Banks 6,51,748.12 8,23,632.33 (ii) Scheduled State Co-operative Banks 8,893.19 7,592.50 (iii) Other Scheduled Co-operative Banks 9,848.31 10,871.51 (iv) Non-Scheduled State Co-operative Banks 4,560.21 5,089.60 (v) Other Banks 23,817.12 29,540.22 Sub total 6,98,866.95 8,76,726.16 (c) Financial Institutions outside India (i) Repo borrowing-Foreign 9,038.44 74,438.88 (ii) Reverse Repo Margin-Foreign 120.51 1,289.10 Sub total 9,158.95 75,727.98 (d) Others (i) Administrators of RBI Employee PF A/c 4,302.70 4,503.16 (ii) Depositors’ Education and Awareness Fund 39,264.25 48,262.85 (iii) Balances of Foreign Central Banks 1,226.67 491.28 (iv) Balances of Indian Financial Institutions 1,439.68 1,007.61 (v) Balances of International Financial Institutions 522.50 542.64 (vi) Mutual Funds 1.35 1.34 (vii) Others 7,31,712.02 7,21,482.05 Sub total 7,78,469.17 7,76,290.93 Total 14,91,537.70 17,33,787.56 Schedule 3: Revaluation accounts (i) Currency and Gold Revaluation Account (CGRA) 8,58,877.53 9,13,389.29 (ii) Investment Revaluation Account-Foreign Securities (IRA-FS) 8,853.67 0.00 (iii) Investment Revaluation Account-Rupee Securities (IRA-RS) 56,723.79 18,577.81 (iv) Foreign Exchange Forward Contracts Valuation Account (FCVA) 0.00 2,576.90 Total 9,24,454.99 9,34,544.00 Schedule 4: Other Liabilities (i) Provision for Forward Contracts Valuation Account (PFCVA) 6,127.35 0.00 (ii) Provision for payables 3,240.73 3,281.08 (iii) Gratuity and Superannuation Fund 28,497.67 28,872.79 (iv) Surplus payable to the Central Government 99,122.00 30,307.45 (v) Bills Payable 4.36 0.14 (vi) Miscellaneous 13,665.86 13,086.07 Total 1,50,657.97 75,547.53 Schedule 5: Notes Issued (i) Notes held in the Banking Department 11.98 17.07 (ii) Notes in circulation 28,26,850.69 31,05,703.49 Total 28,26,862.67 31,05,720.56 238THE RESERVE BANK’S ACCOUNTS FOR 2021-22 2020-21 2021-22 Schedule 6: Notes, Rupee Coin, Small Coin (i) Notes 11.98 17.07 (ii) Rupee Coin 0.03 0.05 (iii) Small Coin 0.01 0.01 Total 12.02 17.13 Schedule 7: Gold (a) Banking Department (i) Gold 1,43,582.87 1,92,169.72 (ii) Gold Deposit 0.00 4,694.66 Sub Total 1,43,582.87 1,96,864.38 (b) Issue Department 1,04,140.13 1,25,348.98 Total 2,47,723.00 3,22,213.36 Schedule 8: Investments-Foreign (i) Investments-Foreign-BD 12,29,940.41 11,41,127.75 (ii) Investments-Foreign-ID 27,21,979.14 29,79,863.29 Total 39,51,919.55 41,20,991.04 Schedule 9: Investments-Domestic (i) Investments-Domestic-BD 13,33,173.90 14,88,815.96 (ii) Investments-Domestic-ID 0.00 0.00 Total 13,33,173.90 14,88,815.96 Schedule 10: Loans and Advances (a) Loans and Advances to: (i) Central Government 0.00 0.00 (ii) State Governments 3,382.79 1,666.56 Sub total 3,382.79 1,666.56 (b) Loans and Advances to: (i) Scheduled Commercial Banks 90,252.18 94,365.75 (ii) Scheduled State Co-operative Banks 0.00 0.00 (iii) Other Scheduled Co-operative Banks 0.00 0.00 (iv) Non-Scheduled State Co-operative Banks 0.00 0.00 (v) NABARD 25,425.56 23,010.10 (vi) Others 6,905.32 14,506.94 Sub total 1,22,583.06 1,31,882.79 (c) Loans and Advances to Financial Institutions outside India: (i) Reverse Repo Lending-Foreign 9,129.72 75,190.78 (ii) Repo Margin-Foreign 23.34 52.72 Sub total 9,153.06 75,243.50 Total 1,35,118.91 2,08,792.85 Schedule 11: Investment in Subsidiaries/Associates (i) Deposit Insurance and Credit Guarantee Corporation (DICGC) 50.00 50.00 (ii) Bharatiya Reserve Bank Note Mudran (P) Ltd. (BRBNMPL) 1,800.00 1,800.00 (iii) Reserve Bank Information Technology (P) Ltd. (ReBIT) 50.00 50.00 (iv) National Centre for Financial Education (NCFE) 30.00 30.00 (v) Indian Financial Technology & Allied Services (IFTAS) 33.60 33.60 (vi) Reserve Bank Innovation Hub (RBIH) 0.00 100.00 Total 1,963.60 2,063.60 239ANNUAL REPORT 2021-22 2020-21 2021-22 Schedule 12: Other Assets (i) Fixed Assets (net of accumulated depreciation) 923.46 882.46 (ii) Accrued income (a + b) 34,643.53 41,769.61 a. on loans to employees 355.37 366.08 b. on other items 34,288.16 41,403.53 (iii) Swap Amortisation Account (SAA) 0.00 0.00 (iv) Revaluation of Forward Contracts Account (RFCA) 0.00 2,576.90 (v) Miscellaneous 1,447.76 1,671.07 Total 37,014.75 46,900.04 Schedule 13: Interest (a) Domestic Sources (i) Interest on holding of Rupee Securities 59,824.79 96,396.42 (ii) Net Interest on LAF Operations -17,957.86 -35,501.29 (iii) Interest on MSF Operations 12.38 37.63 (iv) Interest on Loans and Advances 1,709.00 1,501.82 Sub total 43,588.31 62,434.58 (b) Foreign Sources (i) Interest Income from Foreign Securities 23,059.63 31,559.33 (ii) Net Interest on Repo/Reverse Repo transactions 9.83 42.32 (iii) Interest on Deposits 2,399.32 1,052.53 Sub total 25,468.78 32,654.18 Total 69,057.09 95,088.76 Schedule 14: Other Income (a) Domestic Sources (i) Exchange 0.00 0.00 (ii) Discount 964.16 403.76 (iii) Commission 2,073.97 3,058.09 (iv) Rent Realised 5.19 11.38 (v) Profi t/Loss on sale and redemption of Rupee Securities 5,193.94 6,028.19 (vi) Depreciation on Rupee Securities inter portfolio transfer -8.12 -20.07 (vii) Amortisation of premium/discount on Rupee Securities 846.48 -1,717.97 (viii) Profi t/Loss on sale of Bank’s property 1.38 6.72 (ix) Provision no longer required and Miscellaneous Income -108.38 325.09 Sub total 8,968.62 8,095.19 (b) Foreign Sources (i) Amortisation of premium/discount on Foreign Securities -6,715.95 -15,286.09 (ii) Profi t/Loss on sale and redemption of Foreign Securities 11,348.84 3,002.39 (iii) Exchange gain/loss from Foreign Exchange transactions 50,629.18 68,990.55 (iv) Miscellaneous Income -15.03 221.33 Sub total 55,247.04 56,928.18 Total 64,215.66 65,023.37 Schedule 15: Agency Charges (i) Agency Commission on Government Transactions 2,611.05 3,858.95 (ii) Underwriting Commission paid to the Primary Dealers 642.95 486.95 (iii) Sundries (Handling charges and turnover commission paid to banks for Relief/ 6.30 12.29 Savings Bonds subscriptions; SBLA etc.) (iv) Fees paid to the External Asset Managers, Custodians, Brokers, etc. 19.76 42.43 Total 3,280.06 4,400.62 240THE RESERVE BANK’S ACCOUNTS FOR 2021-22 S TATEMENT OF SIGNIFICANT ACCOUNTING Department shall not be subject to any liability POLICIES FOR THE YEAR ENDED MARCH other than the liabilities of the Issue Department. 31, 2022 The RBI Act, 1934 requires that the assets of the Issue Department shall consist of gold coins, (a) General gold bullion, foreign securities, rupee coins and 1.1 Among other things, the Reserve Bank of rupee securities to such aggregate amount as is India was established under the Reserve Bank of not less than the total of the liabilities of the Issue India Act, 1934 (the RBI Act, 1934) “to regulate the Department. The RBI Act, 1934 requires that the issue of Bank notes and the keeping of reserves liabilities of the Issue Department shall be an with a view to securing monetary stability in India amount equal to the total of the amount of the and generally to operate the currency and credit currency notes of the Government of India and system of the country to its advantage”. Bank notes for the time being in circulation. 1.2 The main functions of the Reserve Bank are:- (b) Significant Accounting Policies a) Issue of Bank notes and circulation of coins; 2.1 Convention b) Acts as monetary authority and The financial statements are prepared in formulates, implements and monitors accordance with the RBI Act, 1934 and the the monetary policy, including acting as notifications issued thereunder and, in the form, the Lender of Last Resort; prescribed by the Reserve Bank of India General Regulations, 1949. These are based on historical c) Regulation and supervision of the cost except where it is modified to reflect financial system; revaluation and/or amortisation. The accounting d) Regulation and supervision of the policies followed in preparing the financial payment and settlement systems; statements are consistent with those followed in e) Acts as manager of foreign exchange; the previous year unless otherwise stated. f) Maintaining and managing the country’s 2.2 Revenue Recognition foreign exchange reserves; a) Income and expenditure are recognised on g) Acting as the banker to banks and the accrual basis except penal interest charged governments; from banks which is accounted for only when h) Acting as the debt manager of the there is certainty of realisation. Dividend governments; income on shares is recognised on accrual basis when the right to receive the same is i) Developmental functions to support established. national objectives. 1.3 The RBI Act, 1934 requires that the issue of b) Balances unclaimed and outstanding Bank notes should be conducted by the Reserve for more than three clear consecutive Bank in an Issue Department which shall be accounting years in certain transit accounts separated and kept wholly distinct from the including Drafts Payable Account, Payment Banking Department, and the assets of the Issue Orders Account, Sundry Deposit Account- 241ANNUAL REPORT 2021-22 Miscellaneous-BD, Remittance Clearance day of each month. Unrealised gains and Account, Earnest Money Deposit Account losses arising from such translation of foreign and Security Deposit Account are reviewed currency assets and liabilities are accounted and written back to income. Claims, if any, for in the CGRA. are considered and charged against income Foreign securities, other than Treasury Bills in the year of payment. (T-Bills), Commercial Papers and certain ‘Held c) Income and expenditure in foreign currency to Maturity’ securities [such as investments in are recorded at the exchange rates prevailing notes issued by the International Monetary on the last business day of the week ending Fund and bonds issued by India Infrastructure Friday/month/year, as applicable. Finance Company (IIFC), UK which are valued at cost] are marked-to-market on the d) Exchange gains/losses on sale of foreign last business day of each week ending Friday currencies and gold are accounted for using and the last business day of each month. the weighted average cost method for arriving Unrealised gains/losses on revaluation are at the cost. recorded in the ‘Investment Revaluation 2.3 Gold & Foreign Currency Assets and Account-Foreign Securities’ (IRA-FS). Credit Liabilities balance in IRA-FS is carried forward to the subsequent year. Debit balance, if any, at Transactions in gold and foreign currency assets the end of the year in IRA-FS is charged to and liabilities are accounted for on settlement date the Contingency Fund (CF) and the same basis. is reversed on the first working day of the a) Gold following accounting year. Gold (including gold deposit) is revalued on Foreign T-Bills and Commercial Papers the last business day of each week ending are carried at cost as adjusted by daily Friday and the last business day of each amortisation of discount/premium. Premium month at ninety (90) per cent of the London or discount on foreign securities is amortised Bullion Market Association (LBMA) gold price daily. Profit/loss on sale of foreign securities in US dollar and Rupee-US dollar market is recognised with respect to the amortised exchange rate on valuation days. Unrealised book value. On sale/redemption of foreign valuation gains/losses are accounted for in dated securities, valuation gain/loss in the Currency and Gold Revaluation Account relation to the securities sold/redeemed, lying (CGRA). in IRA-FS, is transferred to income account. b) F oreign Currency Assets and Liabilities c) Forward/Swap Contracts All foreign currency assets and liabilities Forward contracts entered into by the Reserve (excluding foreign currency received under Bank are revalued on a half yearly basis. swaps that are in the nature of repos While mark-to-market net gain is credited to and contracts where the rates are fixed the ‘Foreign Exchange Forward Contracts contractually) are translated at market Valuation Account’ (FCVA) with contra debit exchange rates on the last business day of to ‘Revaluation of Forward Contracts Account’ each week ending Friday and the last business (RFCA), mark-to-market net loss is debited 242THE RESERVE BANK’S ACCOUNTS FOR 2021-22 to FCVA with contra credit to the ‘Provision as borrowing of foreign currencies and are for Forward Contracts Valuation Account’ shown under ‘Deposits’, whereas Reverse (PFCVA). On maturity of the contract, the Repo transactions are treated as lending actual gain or loss is recognised in the income of foreign currencies and are shown under account and the unrealised gains/losses ‘Loans and Advances’. previously recorded in the FCVA, RFCA and e) Transactions in Derivatives PFCVA are reversed. At the time of half yearly Transactions in derivatives like Interest revaluation, the balance in FCVA and RFCA Rate Futures, Currency Futures, Interest or PFCVA as on that day is reversed and Rate Swaps and Overnight Indexed Swaps fresh revaluation is done for all outstanding undertaken as part of Reserve Management forward contracts. operations are marked-to-market periodically Debit balance in FCVA, if any, on the balance and the resultant gain/loss is booked in sheet date, is charged to the CF and reversed income account. on the first working day of the following f) Security Lending Transactions year. The balance in the RFCA and PFCVA The Reserve Bank participates in Security represents the net unrealised gains and Lending transactions as part of Reserve losses, respectively, on valuation of forward Management operations. The securities contracts. lent remain a part of the Reserve Bank’s In case of swaps at off-market rates that are Investments and continue to be amortised, in the nature of repo, the difference between accrue interest and are marked-to-market. the future contract rate and the rate at which 2.4 Transactions in Exchange Traded the contract is entered into is amortised Currency Derivatives (ETCD) over the period of the contract and recorded The ETCD transactions undertaken by the Reserve in the income account with contra in ‘Swap Bank as part of its intervention operations are Amortisation Account’ (SAA). The amounts marked-to-market on daily basis and the resultant recorded in the SAA are reversed on maturity gain/loss is booked in income account. of the underlying contracts. Further, the amounts received under these swaps are not 2.5 Domestic Investments subject to periodic revaluation. a) Rupee securities and oil bonds, except T-Bills While FCVA forms part of ‘Revaluation and those mentioned in (d), are marked-to- Accounts’, PFCVA forms part of ‘Other market as on the last business day of each Liabilities’ and RFCA and SAA forms part of week ending Friday and the last business ‘Other Assets’. day of each month. The unrealised gains/ losses on revaluation are accounted for in d) Repurchase Transactions ‘Investment Revaluation Account-Rupee The Reserve Bank participates in foreign Securities’ (IRA-RS). Credit balance in Repurchase transactions (Repo and Reverse IRA-RS is carried forward to the following Repo) as part of Reserve Management accounting year. Debit balance, if any, at operations. Repo transactions are treated the end of the year in IRA-RS is charged to 243ANNUAL REPORT 2021-22 the CF and the same is reversed on the first e-book reader) are charged to income in the working day of the following accounting year. year of acquisition. Easily portable electronic On sale/redemption of rupee securities/oil assets, such as laptops, etc. costing more bonds, valuation gain/loss in respect of rupee than `10,000 are capitalised and depreciation securities and oil bonds sold/redeemed, lying is calculated on monthly pro-rata basis at the in IRA-RS, is transferred to income account. applicable rate. Rupee securities and oil bonds are also c) Individual items of computer software costing subjected to daily amortisation. `1 lakh and above are capitalised and b) T-Bills are valued at cost. depreciation is calculated on monthly pro- c) Investments in shares of subsidiaries are rata basis at applicable rates. valued at cost. d) Depreciation on fixed assets, other than land d) Oil bonds and rupee securities earmarked and buildings, acquired and capitalised during for various staff funds [like Gratuity and the year (from April 1 to March 31) would be Superannuation, Provident Fund, Leave reckoned on a monthly pro-rata basis from the Encashment, Medical Assistance Fund month of capitalisation and effected on a half (MAF)], Depositors’ Education and yearly basis at prescribed rates depending Awareness (DEA) Fund and Payments upon the useful life of the assets applied. Infrastructure Development Fund (PIDF) are e) Depreciation on the following fixed assets is treated as ‘Held to Maturity’ and are held provided on a straight-line basis depending at amortised cost. on the useful life of an asset in the following e) Transactions in domestic investment are manner: accounted for on settlement date basis. Asset Category Useful life 2.6 Liquidity Adjustment Facility (LAF) Repo/ (Rate of Reverse Repo and Marginal Standing Facility Depreciation) (MSF) 1 2 Electrical installations, UPS, Motor 5 years Repo transactions under LAF and MSF are treated Vehicles, Furniture, Fixture, CVPS/SBS (20 per cent) as lending and are accordingly being shown under Machines, etc. Computers, Servers, Micro-processors, 3 years ‘Loans and Advances’ whereas Reverse Repo Printers, Software, Laptops, e-book (33.33 per cent) transactions under LAF are being treated as reader/i-Pad, etc. deposits and shown under ‘Deposits-Others’. f) Depreciation is provided on half year- 2.7 Fixed Assets end balances of fixed assets on monthly a) Fixed Assets are stated at cost less pro-rata basis. In case of additions/deletions depreciation except art and paintings and of assets other than land and building, freehold land which are held at cost. depreciation is calculated on monthly b) Fixed Assets, costing up to `1 lakh (except pro-rata basis including the month of easily portable electronic assets like laptop/ addition/deletion of such assets. 244THE RESERVE BANK’S ACCOUNTS FOR 2021-22 g) Depreciation on subsequent expenditure: ii. Impairment of buildings: For assessment of impairment, buildings are classified i. Subsequent expenditure incurred on an into two categories, as under: existing fixed asset which has not been fully depreciated in the books of accounts, a) Buildings which are in use but have is depreciated over the remaining useful been identified for demolition in life of the principal asset. future or will be discarded in future: The value in use of such buildings ii. Subsequent expenditure incurred on is the aggregate of depreciation modernisation/addition/overhauling for the future period up to the date of an existing fixed asset, which has it is expected to be discarded/ already been fully depreciated in the demolished. The difference between books of accounts, is first capitalised and the book value and aggregate of thereafter depreciated fully in the year in depreciation so arrived at is charged which the expenditure is incurred. as depreciation. h) Land and building: The accounting treatment b) Buildings which have been in respect of land and building is as follows: discarded/vacated: These buildings Land are shown at realisable value (net i. Land acquired on leasehold basis for a selling price, if the asset is likely period of more than 99 years is treated to be sold in future) or scrap value as if it is on a perpetual lease basis. less demolition cost (if it is to be Such leases are considered as freehold demolished). If the resultant amount properties and accordingly, not subjected is negative, then the carrying value to amortisation. of such buildings is shown at `1. The ii. Land acquired on lease up to 99 years is difference between the book value amortised over the period of the lease. and realisable value (net selling price)/scrap value less demolition iii. Land acquired on a freehold basis is not cost is charged as depreciation. subject to any amortisation. 2.8 Employee Benefits Buildings a) The Reserve Bank contributes monthly at i. The life of all buildings is assumed as a determined rate to Provident Fund for the thirty years and depreciation is charged eligible employees and these contributions on a ‘straight-line’ basis over a period are charged to income in the year to which it of thirty years. In respect of buildings relates. constructed on lease hold land (where the lease period is less than thirty years) b) Other liability on account of long-term depreciation is charged on a ‘straight- employee benefits is provided based on an line’ basis over the lease period of the actuarial valuation under the ‘Projected Unit land. Credit’ method. 245ANNUAL REPORT 2021-22 NOTES TO ACCOUNTS for financial assistance to eligible financial institutions. Since 1992-93, a token amount XII.7 LIABILITIES OF THE RESERVE BANK of `1 crore is being contributed each year to XII.7.1 Capital the Fund. The balance in the fund stood at The Reserve Bank was constituted as a private `31 crore as on March 31, 2022. shareholders’ bank in 1935 with an initial paid- b) National Housing Credit (Long Term up capital of `5 crore. The Reserve Bank was Operations) Fund nationalised with effect from January 1, 1949 and its entire ownership remains vested with This fund was set up in January 1989 in the Government of India. The paid-up capital terms of Section 46D of the RBI Act, 1934 continues to be `5 crore in terms of Section 4 of for extending financial accommodation to the RBI Act, 1934. the National Housing Bank (NHB). The initial corpus of `50 crore has been enhanced by XII.7.2 Reserve Fund annual contributions from the Reserve Bank The original Reserve Fund of `5 crore was created thereafter. From the year 1992-93, only a in terms of Section 46 of the RBI Act, 1934 as token amount of `1 crore is being contributed contribution from the Central Government for the each year. The balance in the fund stood at currency liability of the then sovereign government `205 crore as on March 31, 2022. taken over by the Reserve Bank. Thereafter, an Note: Contribution to other Funds amount of `6,495 crore was credited to this fund from out of gains on periodic revaluation of gold There are two other Funds constituted in up to October 1990, taking it to `6,500 crore. The terms of Section 46A of the RBI Act, 1934, fund has been static since then as the unrealised viz., National Rural Credit (Long Term gain/loss on account of valuation of gold and Operations) Fund and National Rural Credit foreign currency is since being booked in the (Stabilisation) Fund which are maintained by Currency and Gold Revaluation Account (CGRA) the National Bank for Agriculture and Rural which appears under the head ‘Revaluation Development (NABARD) for which a token Accounts’. amount of `1 crore each is set aside and XII.7.3 Other Reserves transferred to NABARD every year. This includes National Industrial Credit (Long XII.7.4 Deposits Term Operations) Fund and National Housing These represent the balances maintained with the Credit (Long Term Operations) Fund. Reserve Bank, by banks, the Central and State a) National Industrial Credit (Long Term Governments, All India Financial Institutions, such Operations) Fund as, Export Import Bank (EXIM Bank), NABARD, This fund was created in July 1964, in terms etc., Foreign Central Banks, International Financial of Section 46C of the RBI Act, 1934 with an Institutions, balances in Administrator of RBI initial corpus of `10 crore. The fund witnessed Employees’ Provident Fund, DEA Fund, amount annual contributions from the Reserve Bank outstanding against Reverse Repo, MAF, PIDF, 246THE RESERVE BANK’S ACCOUNTS FOR 2021-22 etc. Total deposits increased by 16.24 per cent `75,727.98 crore as on March 31, 2022, due from `14,91,537.70 crore as on March 31, 2021 to to increase in volume of repo transactions `17,33,787.56 crore as on March 31, 2022. during the year. a) Deposits – Government d) Deposits – Others The Reserve Bank acts as the banker ‘Deposits – Others’ consists of balances of to the Central Government in terms of Administrator of RBI Employees Provident Sections 20 and 21 and as banker to the Fund, balance in DEA Fund, balances State Governments by mutual agreement of Foreign Central Banks, Indian and in terms of Section 21A of the RBI Act, International Financial Institutions, MAF, 1934. Accordingly, the Central and State PIDF, amount outstanding under Reverse Governments maintain deposits with Repo, etc. The amount under ‘Deposits- the Reserve Bank. The balances held Others’ decreased marginally by 0.28 per by the Central and State Governments cent from `7,78,469.17 crore as on March were `5,000.04 crore and `42.45 crore, 31, 2021 to `7,76,290.93 crore as on March respectively, as on March 31, 2022 as 31, 2022. compared to `5,000.15 crore and `42.48 crore, respectively, as on March 31, 2021. XII.7.5 Risk Provisions b) Deposits – Banks There are two risk provisions of the Reserve Bank, viz., Contingency Fund (CF) and Asset Banks maintain balance in their current Development Fund (ADF). The provision made accounts with the Reserve Bank to provide for towards these funds are made in terms of Section the Cash Reserve Ratio (CRR) requirements 47 of the RBI Act, 1934. The details are as under: and for working funds to meet payment and settlement obligations. The deposits held a) Contingency Fund (CF) by banks increased by 25.45 per cent from This is a specific provision meant for meeting `6,98,866.95 crore as on March 31, 2021 to unexpected and unforeseen contingencies, `8,76,726.16 crore as on March 31, 2022. including depreciation in the value of The increase in this head is on account of restoration of CRR in a phased manner, with securities, risks arising out of monetary/ banks required to maintain CRR at 4 percent exchange rate policy operations, systemic of Net Demand and Time Liabilities (NDTL) risks and any risk arising on account of the at March end 2022, as compared to CRR special responsibilities enjoined upon the requirement of 3.5 percent of NDTL as on Reserve Bank. As on March 31, 2022, an March 31, 2021 as also increase in excess amount of `94,249.54 crore was charged to CRR holdings by banks. CF on account of debit balance of Investment Revaluation Account-Foreign Securities c) Deposits – Financial Institutions outside India (IRA-FS). The charge to CF is reversed on The balance under the head increased from the first working day of the following year. `9,158.95 crore as on March 31, 2021 to Further, an amount of `1,14,567.01 crore was 247ANNUAL REPORT 2021-22 also provided for towards CF. Accordingly, XII.7.6 Revaluation Accounts the balance in CF as on March 31, 2022 The unrealised marked-to-market gains/losses was `3,10,986.94 crore as compared to are recorded in revaluation heads, viz., Currency `2,84,542.12 crore as on March 31, 2021. and Gold Revaluation Account (CGRA), b) Asset Development Fund (ADF) Investment Revaluation Accounts (IRA) and Foreign Exchange Forward Contracts Valuation The Asset Development Fund was created in Account (FCVA). The details are as under: 1997-98 and the balance therein represents provision specifically made till date towards a) Currency and Gold Revaluation Account investments in subsidiaries and associate (CGRA) institutions and meet internal capital The major sources of market risk faced by expenditure. An amount of `100 crore was the Reserve Bank are currency risk, interest provided towards ADF on account of new rate risk and movement in gold prices. investment in Reserve Bank Innovation Hub Unrealised gains/losses on valuation of (RBIH). Based on the above, the balance in Foreign Currency Assets (FCA) and Gold are ADF as on March 31, 2022 was `22,974.68 not taken to the income account but instead crore as compared to `22,874.68 crore as on accounted for in the CGRA. Net balance March 31, 2021. in CGRA, therefore, varies with the size of the asset base, its valuation and movement Table XII.2: Balances in Risk provisions in the exchange rate and the price of gold. (` crore) CGRA provides a buffer against exchange rate/gold price fluctuations. It can come As on Balance in Balance in Total CF and CF ADF ADF as under pressure if there is an appreciation Percentage to Total of the rupee vis-à-vis major currencies or a Assets fall in the price of gold. When CGRA is not 1 2 3 4=(2+3) 5 sufficient to fully meet exchange losses, it June 30, 2018 2,32,107.76 22,811.08 2,54,918.84 7.05 is replenished from the CF. During 2021- June 30, 2019 1,96,344.35@ 22,874.68@@ 2,19,219.03 5.34 June 30, 2020 2,64,033.94$ 22,874.68 2,86,908.62 5.38 22, the balance in CGRA increased from March 31, 2021 2,84,542.12* 22,874.68 3,07,416.80 5.39 `8,58,877.53 crore as on March 31, 2021 March 31, 2022 3,10,986.94^ 22,974.68^^ 3,33,961.62 5.39 to `9,13,389.29 crore as on March 31, 2022 @: The decline in the CF is due to writing back of excess mainly due to depreciation of rupee and rise provision of `52,637 crore as on June 30, 2019. @@: Increase in ADF is due to provision of `30 crore and `33.60 in the international price of gold. crore on account of investment in NCFE and IFTAS, respectively. b) Investment Revaluation Account-Foreign $: Increase in CF is the net impact of provision of `73,615 crore and charging of the debit balance in the FCVA amounting to Securities (IRA-FS) `5,925.41 crore as on June 30, 2020. *: Increase in CF is the net impact of provision of `20,710.12 The foreign dated securities are marked-to- crore and charging of the debit balance in the FCVA market on the last business day of each week amounting to `6,127.35 crore as on March 31, 2021. ^: Increase in CF is the net impact of provision of `1,14,567.01 ending Friday and the last business day of crore and charging of the debit balance in the IRA-FS each month and the unrealised gains/losses amounting to `94,249.54 crore as on March 31, 2022. ^^: Increase in ADF is due to provision of `100 crore on account arising therefrom are transferred to the IRA- of investment in RBIH. FS. The balance in IRA-FS decreased from 248THE RESERVE BANK’S ACCOUNTS FOR 2021-22 `8,853.67 crore as on March 31, 2021 to d) Foreign Exchange Forward Contracts `(-)94,249.54 crore as on March 31, 2022 Valuation Account (FCVA) because of increase in yields across the Marking to market of outstanding forward maturities for all major markets. As per the contracts as on March 31, 2022 resulted in a extant policy, the debit balance of `94,249.54 net unrealised gain of `2,576.90 crore, which crore in IRA-FS was adjusted against the CF was credited to the FCVA with contra debit on March 31, 2022 which was reversed on to Revaluation of Forward Contracts Account the first working day of the following year. (RFCA) as compared to net unrealised loss Accordingly, the balance in IRA-FS as on of `6,127.35 crore in 2020-21, which was March 31, 2022 was Nil. debited to the FCVA with contra credit to c) Investment Revaluation Account–Rupee PFCVA and the said debit balance of FCVA Securities (IRA-RS) was, accordingly, adjusted with CF in 2020-21. Rupee securities and oil bonds (with XII.7.7 Other Liabilities exception as mentioned under significant ‘Other Liabilities’ decreased by 49.85 per cent accounting policy) held as assets of the from `1,50,657.97 crore as on March 31, 2021 to Banking Department are marked-to-market `75,547.53 crore as on March 31, 2022, primarily as on the last business day of each week due to decrease in surplus payable to the Central ending Friday and the last business day Government. of each month and the unrealised gains/ losses arising therefrom are booked in IRA- i. Provision for Forward Contracts Valuation RS. The balance in IRA-RS decreased from Account (PFCVA) `56,723.79 crore as on March 31, 2021 to The balance was Nil in this account as on `18,577.81 crore as on March 31, 2022 March 31, 2022 as against `6,127.35 crore due to net impact of: (a) hardening of yields as on March 31, 2021. across the yield curve leading to mark-to- market losses; and (b) booking of unrealised Balances in Revaluation Accounts and gain into realised gain on sale of rupee PFCVA for the last five years is given in securities. Table XII.3. Table XII.3: Balances in CGRA, IRA-FS, IRA-RS, FCVA and PFCVA (` crore) As on CGRA IRA-FS IRA-RS FCVA PFCVA 1 2 3 4 5 6 June 30, 2018 6,91,640.97 0.00 13,285.22 3,261.92 0.00 June 30, 2019 6,64,479.74 15,734.96 49,476.26 1,303.96 0.00 June 30, 2020 9,77,141.23 53,833.99 93,415.50 0.00 5,925.41 March 31, 2021 8,58,877.53 8,853.67 56,723.79 0.00 6,127.35 March 31, 2022 9,13,389.29 0.00 18,577.81 2,576.90 0.00 249ANNUAL REPORT 2021-22 ii. Provision for payables v. Miscellaneous This represents the year end provisions made This is a residual head representing items for expenditure incurred but not defrayed and such as interest earned on earmarked income received in advance/payable, if any. securities, amounts payable on account of The balance under this head increased by leave encashment, medical provisions for 1.25 per cent from `3,240.73 crore as on employees, global provision, etc. The balance March 31, 2021 to `3,281.08 crore as on under this head decreased from `13,665.86 March 31, 2022. crore as on March 31, 2021 to `13,086.07 crore as on March 31, 2022. iii. Surplus payable to the Central Government XII.7.8 Liabilities of Issue Department-Notes Under Section 47 of the RBI Act, 1934, after Issued making provisions for bad and doubtful debts, depreciation in assets, contribution to staff The liabilities of Issue Department reflect the and superannuation funds and for all matters quantum of currency notes in circulation. Section for which provisions are to be made by or 34(1) of the RBI Act, 1934 requires that all under the Act or that are usually provided banknotes issued by the Reserve Bank since by bankers, the balance of the profits of the April 1, 1935 and the currency notes issued by the Bank is required to be paid to the Central Government of India before the commencement Government. Under Section 48 of the RBI Act, of operations of the Reserve Bank, be part 1934, the Reserve Bank is not liable to pay of the liabilities of the Issue Department. The income tax or super tax on any of its income, ‘Notes Issued’ increased by 9.86 per cent from profits or gains. Accordingly, after adjusting `28,26,862.67 crore as on March 31, 2021 to the expenditure, provisions for CF and ADF `31,05,720.56 crore as on March 31, 2022. Earlier, and contribution of `4 crore to four statutory an amount of `10,719.37 crore, representing the funds, the surplus payable to the Central value of Specified Bank Notes (SBNs) not paid Government for the year 2021-22 amounted was transferred to ‘Other Liabilities’ as on June to `30,307.45 crore (including `493.92 crore, 30, 2018. In terms of Gazette Notification issued same as previous year, payable towards the by Government of India on May 12, 2017, the difference in interest expenditure borne by the Reserve Bank has made payments to the extent Government, consequent on conversion of of `4.30 crore towards exchange value of SBNs special securities into marketable securities). to eligible tenderers during the year ended March iv. Bills Payable 31, 2022. The Reserve Bank provides remittance XII.8 ASSETS OF THE R E SERVE BANK facilities for its constituents through issue XII.8.1 ASSETS OF BANKING DEPARTMENT of Demand Drafts (DDs) and Payment i) Notes, Rupee Coin and Small Coin Orders (POs) (besides electronic payment mechanism). The balance under this This head represents the balances of bank head represents the unclaimed DDs/POs. notes, one-rupee notes, rupee coins of 1, 2, The amount outstanding under this head 5, 10 and 20 and small coins kept to meet the decreased from `4.36 crore as on March 31, day to day requirements of banking functions 2021 to `0.14 crore as on March 31, 2022. conducted by the Reserve Bank. The balance 250THE RESERVE BANK’S ACCOUNTS FOR 2021-22 as on March 31, 2022 was `17.13 crore as iii) Bills Purchased and Discounted against `12.02 crore as on March 31, 2021. Though the Reserve Bank can undertake ii) Gold - Banking Department (BD) purchase and discounting of commercial bills under the RBI Act, 1934, no such activity As on March 31, 2022, total gold held by the was undertaken in 2021-22. Consequently, Reserve Bank was 760.42 metric tonnes as there was no such asset in the books of the compared to 695.31 metric tonnes as on Reserve Bank as on March 31, 2022. March 31, 2021. The increase is on account of addition of 65.11 metric tonnes of gold iv) Investments-Foreign-Banking during the year. Department (BD) Of 760.42 metric tonnes as on March 31, Foreign Currency Assets (FCA) of the 2022, 295.82 metric tonnes of gold is held Reserve Bank include: (i) deposits with as backing for Notes Issued as compared to other central banks; (ii) deposits with the 292.30 metric tonnes as on March 31, 2021 Bank for International Settlements (BIS); and is shown separately as an asset of Issue (iii) deposits with commercial banks Department. The balance 464.60 metric overseas; (iv) investments in foreign T-Bills tonnes as on March 31, 2022 as compared and securities; and (v) Special Drawing to 403.01 metric tonnes on March 31, 2021 Rights (SDR) acquired from the Government is treated as an asset of Banking Department of India (GoI). (Table XII.4). The FCA is reflected under two heads in the The value of gold (including gold deposit) held balance sheet: (a) ‘Investments-Foreign-BD’ as asset of Banking Department increased by shown as an asset of Banking Department 37.11 per cent from `1,43,582.87 crore as on and (b) ‘Investments-Foreign-ID’ shown as an March 31, 2021 to `1,96,864.38 crore as on asset of Issue Department. March 31, 2022. This increase is on account ‘Investments-Foreign-ID’ are FCA, eligible as of addition of 61.59 metric tonnes of gold and per Section 33(6) of the RBI Act, 1934, used also due to increase in the price of gold and for backing of Notes Issued. The remaining depreciation of INR vis-à-vis USD. of FCA constitutes ‘Investments-Foreign-BD’. The position of FCA for the last two years is Table XII.4: Physical Holding of Gold given in Table XII.5. As on March As on 31, 2021 March 31, 2022 v) Investments-Domestic-Banking Department (BD) Volume in Volume in metric tonnes metric tonnes Investments comprise dated Government 1 2 3 Rupee Securities, State Development Gold held as backing for Notes 292.30 295.82 Issued (held in India) Loans, T-Bills and Special Oil Bonds. Gold (including Gold Deposit) 403.01 464.60 The Reserve Bank’s holding of domestic held as asset of Banking Department (held abroad) securities increased by 11.67 per cent, from Total 695.31 760.42 `13,33,173.90 crore as on March 31, 2021 251ANNUAL REPORT 2021-22 Table XII.5: Details of Foreign Currency Assets (FCA) (` crore) Particulars As on March 31 2021 2022 1 2 3 I Investments-Foreign-BD* 12,29,940.41 11,41,127.75 II Investments-Foreign-ID 27,21,979.14 29,79,863.29 Total 39,51,919.55 41,20,991.04 *: Includes shares in BIS and Society for Worldwide Interbank Financial Telecommunications (SWIFT) and SDR transferred from GoI valued at `11,286.57 crore as on March 31, 2022 compared to `11,155.96 crore as on March 31, 2021. Note: 1. The Reserve Bank has agreed to make resources available under the IMF’s New Arrangements to Borrow (NAB). Effective January 1, 2021, India’s commitment under NAB stands at SDR 8.88 billion (`93,035.29 crore/US$12.29 billion). As on March 31, 2022, investments amounting to SDR 0.09 billion (`928.33 crore/US$0.12 billion) have been made under NAB. 2. The Reserve Bank has agreed to invest up to an amount, the aggregate of which shall not exceed US$5 billion (`37,861.90 crore), in the bonds issued by India Infrastructure Finance Company (UK) Limited. As on March 31, 2022, the Reserve Bank has invested US$1.44 billion (`10,904.23 crore) in such bonds. 3. During the year 2013-14, the Reserve Bank and GoI entered into a MoU for transfer of SDR holdings from GoI to RBI in a phased manner. As on March 31, 2022, SDR 1.05 billion (`10,975 crore/US$1.45 billion) were held by the Reserve Bank. 4. With a view to strengthening regional fi nancial and economic cooperation, the Reserve Bank has agreed to offer an amount of US$2 billion both in foreign currency and Indian rupee under the SAARC Swap Arrangement to SAARC member countries. As on March 31, 2022, Swap with Bhutan and Sri Lanka, amounting to US$0.20 billion (`1,517.87 crore) and US$0.40 billion (`3,028.96 crore) respectively, is outstanding. 5. The nominal value of foreign securities posted as collateral and margin in repurchase and IRF transactions was `74,830.06 crore/US$9.88 billion and the nominal value of those received under reverse repurchase transactions was `77,984.34 crore/US$10.30 billion as on March 31, 2022. 6. The nominal value of foreign securities lent under Security Lending arrangement was `42.03 crore/ US$0.006 billion. to `14,88,815.96 crore as on March 31, OD and Special Drawing Facility (SDF) 2022. The increase was mainly on account of to the State Governments in terms of liquidity management operations conducted Section 17(5) of the RBI Act, 1934. by way of net purchase of government The WMA limit, in case of the Central securities amounting to `2,13,976 crore (face Government, is fixed from time to time value). in consultation with the GoI and in case of State Governments, the limits are A part of Investments-Domestic-BD is also fixed based on the recommendations of earmarked for various staff funds, DEA Fund Advisory Committee/Group constituted and PIDF as explained in para 2.5(d). As o n for this purpose. There were no loans and March 31, 2022, `85,178 crore (face value) advances lying outstanding to the Central was earmarked for the said funds. Government as on March 31, 2021 as vi) Loans and Advances well as on March 31, 2022 as the Central Government was in surplus on both the a) Central and State Governments days whereas loans and advances to These loans are extended in the form State Governments decreased by 50.73 of Ways and Means Advances (WMA) per cent from `3,382.79 crore as on and Overdraft (OD) to the Central March 31, 2021 to `1,666.56 crore as on Government and in the form of WMA/ March 31, 2022. 252THE RESERVE BANK’S ACCOUNTS FOR 2021-22 b) Loans and Advances to Commercial, March 31, 2022, primarily due to Co-operative Banks, NABARD and increase in loans and advances to Others SIDBI.  Loans and Advances to Commercial c) Loans and Advances to Financial and Co-operative Banks: These Institutions outside India include amounts outstanding against Repo under Liquidity The balances under the head increased Adjustment Facility (LAF) and from `9,153.06 crore as on March 31, Marginal Standing Facility (MSF) 2021 to `75,243.50 crore as on March and special liquidity facility to 31, 2022 due to increase in volume of banks. The amount outstanding reverse repo transactions during the increased from `90,252.18 crore as year. on March 31, 2021 to `94,365.75 vii) Investment in Subsidiaries/Associates crore as on March 31, 2022 due to increase in funds availed by The total holding of the Reserve Bank in its banks under Special Long-Term subsidiaries/associate institutions increased Repo Operations (SLTRO) and from `1,963.60 crore as on March 31, 2021 to on-tap Targeted Long-Term Repo `2,063.60 crore as on March 31, 2022 as the Operations (TLTRO) during the Reserve Bank invested an amount of `100 year. crore in Reserve Bank Innovation Hub (RBIH).  Loans and Advances to NABARD: The comparative position of investment in The Reserve Bank can extend subsidiaries/associate institutions as on loans to NABARD under Section March 31, 2021 and March 31, 2022 is given 17(4E) of the RBI Act, 1934. The in Table XII.6. balance under this head decreased from `25,425.56 crore as on March viii) Other Assets 31, 2021 to `23,010.10 crore as on ‘Other Assets’ comprise fixed assets (net March 31, 2022. of depreciation), accrued income, Swap  Loans and Advances to Others: The Amortisation Account (SAA), Revaluation balance under this head represents of Forward Contracts Account (RFCA) and loans and advances to National miscellaneous assets. Miscellaneous assets Housing Bank (NHB), Small comprise mainly loans and advances to Industries Development Bank of staff, amount spent on projects pending India (SIDBI) and liquidity support completion, security deposit paid, etc. The provided to Primary Dealers (PDs). amount outstanding under ‘Other Assets’ The balance under this head increased by 110.08 per cent from increased by 26.71 per cent from `37,014.75 `6,905.32 crore as on March 31, crore as on March 31, 2021 as compared to 2021 to `14,506.94 crore as on `46,900.04 crore as on March 31, 2022. 253ANNUAL REPORT 2021-22 Table XII.6: Holdings in Subsidiaries/Associates in 2021-22 (` crore) Subsidiaries/ Associates 2020-21 2021-22 Per cent Holding as on March 31, 2022 1 2 3 4 a) Deposit Insurance and Credit Guarantee Corporation (DICGC) 50.00 50.00 100 b) Bharatiya Reserve Bank Note Mudran (P) Ltd. (BRBNMPL) 1,800.00 1,800.00 100 c) Reserve Bank Information Technology (P) Ltd. (ReBIT) 50.00 50.00 100 d) National Centre for Financial Education (NCFE) 30.00 30.00 30 e) Indian Financial Technology & Allied Services (IFTAS) 33.60 33.60 100 f) Reserve Bank Innovation Hub (RBIH) 0.00 100.00 100 Total 1,963.60 2,063.60 a) Swap Amortisation Account (SAA) This increase in the value of gold during the year is on account of addition of 3.52 metric tonnes As on March 31, 2022 as well as on and, also due to increase in the price of gold and March 31, 2021, the balance in SAA depreciation of INR vis-à-vis USD. Consequent was NIL as there were no outstanding upon the increase in Notes Issued, Investments- contracts of swaps which were in nature Foreign-ID held as its backing increased by 9.47 of repo at off market rate. per cent from `27,21,979.14 crore as on March b) Revaluation of Forward Contracts 31, 2021 to `29,79,863.29 crore as on March Account (RFCA) 31, 2022. The balance of Rupee Coins held by The balance in RFCA was `2,576.90 the Issue Department decreased by 31.63 per crore as on March 31, 2022 representing cent from `743.40 crore as on March 31, 2021 to net marked-to-market gain on `508.29 crore as on March 31, 2022. outstanding forward contracts as against FOREIGN EXCHANGE RESERVES Nil on March 31, 2021. XII.9 Foreign Exchange Reserves (FER) XII.8.2 Assets of Issue Department comprises FCA, Gold, SDR holdings and Reserve The eligible assets of the Issue Department held Tranche Position (RTP). The SDR holdings as backing for Notes Issued consist of gold coins, acquired from GoI form part of the Reserve Bank’s gold bullion, foreign securities, rupee coins, rupee balance sheet and is included under ‘Investments- securities and Domestic Bills of Exchange. The Foreign-BD’. The SDR holdings remaining with Reserve Bank holds 760.42 metric tonnes of GoI and the RTP, which represents India’s quota gold, of which 295.82 metric tonnes are held as contribution to IMF in foreign currency, is not a part backing for Notes Issued as on March 31, 2022 of the Reserve Bank’s balance sheet. The position (Table XII.4). The value of gold held as asset of of FER as on March 31, 2021 and March 31, 2022 Issue Department increased by 20.37 per cent in Indian Rupees and the US dollar, which is the from `1,04,140.13 crore as on March 31, 2021 numéraire currency for our FER, is furnished in to `1,25,348.98 crore as on March 31, 2022. Tables XII.7 (a) and (b). 254THE RESERVE BANK’S ACCOUNTS FOR 2021-22 Table XII.7(a): Foreign Exchange Reserves (Rupee) (` crore) Components As on Variation March 31, 2021 March 31, 2022 Absolute Per cent 1 2 3 4 5 Foreign Currency Assets (FCA) 39,24,167.84^ 40,94,564.98# 1,70,397.14 4.34 Gold (including gold deposit) 2,47,723.00@ 3,22,213.36* 74,490.36 30.07 Special Drawing Rights (SDR) 10,863.73 1,43,051.88 1,32,188.15 1,216.78 Reserve Tranche Position (RTP) in IMF 36,198.01 38,988.28 2,790.27 7.71 Foreign Exchange Reserves (FER) 42,18,952.58 45,98,818.50 3,79,865.92 9.00 ^: Excludes (a) SDR holdings of the Reserve Bank amounting to `10,847.81 crore, which is included under the SDR holdings; (b) Investment of `13,621.79 crore in bonds issued by IIFC (UK); and (c) `1,454.19 crore lent to Bhutan and `1,827.92 crore lent to Maldives under the Currency Swap arrangement made available for SAARC countries. #: Excludes (a) SDR holdings of the Reserve Bank amounting to `10,975 crore, which is included under the SDR holdings; (b) Investment of `10,904.23 crore in bonds issued by IIFC (UK); and (c) `1,517.87 crore lent to Bhutan and `3,028.96 crore lent to Sri Lanka under the Currency Swap arrangement made available for SAARC countries. @: Of this, Gold valued at `1,04,140.13 crore is held as an asset of Issue Department and Gold (including gold deposit) valued at `1,43,582.87 crore is held as an asset of Banking Department. *: Of this, Gold valued at `1,25,348.98 crore is held as an asset of Issue Department and Gold (including gold deposit) valued at `1,96,864.38 crore is held as an asset of Banking Department. Table XII.7(b): Foreign Exchange Reserves (USD) (US$ billion) Components As on Variation March 31, 2021 March 31, 2022 Absolute Per cent 1 2 3 4 5 Foreign Currency Assets (FCA) 536.69* 540.72** 4.03 0.75 Gold (including gold deposit) 33.88 42.55 8.67 25.59 Special Drawing Rights (SDR) 1.49 18.89 17.40 1,167.79 Reserve Tranche Position (RTP) in IMF 4.92 5.14 0.22 4.47 Foreign Exchange Reserves (FER) 576.98 607.30 30.32 5.25 *: Excludes (a) SDR holdings of the Reserve Bank amounting to US$1.48 billion, which is included under the SDR holdings; (b) US$1.86 billion invested in bonds of IIFC (UK); and (c) BTN equivalent to US$0.20 billion equivalent of INR currency lent to Bhutan and US$0.25 billion lent to Maldives under the Currency Swap arrangement made available for SAARC countries. **: Excludes (a) SDR holdings of the Reserve Bank amounting to US$1.45 billion, which is included under the SDR holdings; (b) US$1.44 billion invested in bonds of IIFC (UK); and (c) BTN equivalent to US$0.20 billion equivalent of INR currency lent to Bhutan and US$0.40 billion lent to Sri Lanka under the Currency Swap arrangement made available for SAARC countries. ANALYSIS OF INCOME AND EXPENDITURE (vi) Depreciation on Rupee Securities inter portfolio transfer (vii) Rent Realised (viii) Profit/ INCOME Loss on sale of Bank’s property and (ix) Provision XII.10 The components of Reserve Bank’s no longer required and Miscellaneous Income. income are ‘Interest’ and ‘Other Income’ including Certain items of income such as interest on LAF (i) Discount (ii) Exchange (iii) Commission repo, Repo in foreign security and exchange (iv) Amortisation of premium/discount on Foreign and Rupee Securities (v) Profit/Loss on sale and gain/loss from foreign exchange transactions are redemption of Foreign and Rupee Securities reported on net basis. 255ANNUAL REPORT 2021-22 Table XII.8: Earnings from Foreign Sources (` crore) Item Variation 2020-21 2021-22 Absolute Per cent 1 2 3 4 5 Foreign Currency Assets (FCA) 39,51,919.55 41,20,991.04 1,69,071.49 4.28 Average FCA 38,49,940.15 42,42,514.17 3,92,574.02 10.20 Earnings from FCA (interest, discount, exchange gain/loss, capital gain/loss on securities) 80,715.82 89,582.36 8,866.54 10.98 Earnings from FCA as per cent of average FCA 2.10 2.11 0.01 0.48 Earnings from Foreign Sources Earnings from Domestic Sources XII.11 The income from foreign sources XII.12 The net income from domestic sources increased by 10.98 per cent from `80,715.82 increased by 34.20 per cent from `52,556.93 crore crore in 2020-21 to `89,582.36 crore in 2021-22. in 2020-21 to `70,529.77 crore in 2021-22 mainly The rate of earnings on foreign currency assets on account of net impact of: (a) increase in interest was 2.11 per cent in 2021-22 as compared to income on holding of Rupee Securities (including 2.10 per cent in 2020-21 (Table XII.8). oil bonds); and (b) increase in net outgo of interest under LAF/MSF due to absorption of surplus liquidity in the banking system (Table XII.9). Table XII.9: Earnings from Domestic Sources (` crore) Variation Item 2020-21 2021-22 Absolute Per cent 1 2 3 4 5 Earnings (I+II+III+IV) 52,556.93 70,529.77 17,972.84 34.20 I. Earnings from Rupee Securities and Discounted Instruments i) Interest on holding of Rupee Securities (including oil bonds) 59,824.79 96,396.42 36,571.63 61.13 ii) Profi t/Loss on sale and redemption of Rupee Securities 5,193.94 6,028.19 834.25 16.06 iii) Depreciation on Rupee Securities inter portfolio transfer -8.12 -20.07 -11.95 -147.17 iv) Amortisation of premium/discount on Rupee Securities (including oil bonds) 846.48 -1,717.97 -2,564.45 -302.95 v) Discount 964.16 403.76 -560.40 -58.12 Sub total (i+ii+iii+iv+v) 66,821.25 1,01,090.33 34,269.08 51.28 II. Interest on LAF/MSF i) Net Interest on LAF Operations -17,957.86 -35,501.29 -17,543.43 -97.69 ii) Interest on MSF operations 12.38 37.63 25.25 203.96 Sub total (i+ii) -17,945.48 -35,463.66 -17,518.18 -97.62 III. Interest on Other Loans and Advances i) Government (Central & States) 264.04 296.34 32.30 12.23 ii) Banks & Financial Institutions 1,400.63 1,149.57 -251.06 -17.92 iii) Employees 44.33 55.91 11.58 26.12 Sub total (i+ii+iii) 1,709.00 1,501.82 -207.18 -12.12 IV. Other Earnings i) Exchange 0.00 0.00 0.00 0.00 ii) Commission 2,073.97 3,058.09 984.12 47.45 iii) Rent realised, Profi t/Loss on sale of Bank’s Property, provision no longer required -101.81 343.19 445.00 437.09 and miscellaneous income Sub total (i+ii+iii) 1,972.16 3,401.28 1,429.12 72.46 256THE RESERVE BANK’S ACCOUNTS FOR 2021-22 XII.13 Interest on holding of Rupee Securities XII.18 Interest on Loans and Advances (including oil bonds) increased from `59,824.79 a) Central and State Governments: Interest crore in 2020-21 to `96,396.42 crore in 2021-22 income on loans and advances extended to on account of higher holding of rupee securities Central and State Governments increased in 2021-22 and current accounting year being of by 12.23 per cent from `264.04 crore in twelve months as compared to the nine months 2020-21 to `296.34 crore in 2021-22. Of period for 2020-21. the total, interest income received from the XII.14 The Net Interest Income from Liquidity Central Government on account of WMA/OD Adjustment Facility (LAF)/Marginal Standing decreased from `2.28 crore in 2020-21 to Nil Facility (MSF) operations decreased from `(-) in 2021-22 and interest income received from 17,945.48 crore in 2020-21 to `(-)35,463.66 crore the State Governments on account of WMA/ in 2021-22 due to higher surplus liquidity in the OD/SDF increased by 13.21 per cent from banking system leading to higher net interest `261.76 crore in 2020-21 to `296.34 crore outgo under LAF/MSF and current accounting in 2021-22. The net increase in earning was year being of twelve months as compared to the due to higher utilisation of SDF/WMA/OD nine months period for 2020-21. facility by the State Governments in 2021-22, primarily on account of current accounting XII.15 Profit on sale and redemption of Rupee year being of twelve months as compared to Securities increased from `5,193.94 crore in the nine months period for 2020-21. 2020-21 to `6,028.19 crore in 2021-22 primarily on account of sale operations amounting to `64,085 b) Banks & Financial Institutions: Interest on crore (Face Value) in 2021-22 and conversion of loans and advances to banks and financial securities by the GoI with the Reserve Bank for institutions decreased by 17.92 per cent from `1,19,701 crore in 2021-22. `1,400.63 crore in 2020-21 to `1,149.57 crore in 2021-22. XII.16 Amortisation of premium/discount on Rupee Securities (including oil bonds): The c) Employees: Interest on loans and advances premium/discount on Rupee Securities and oil to employees increased by 26.12 per cent bonds held by the Reserve Bank, are amortised from `44.33 crore in 2020-21 to `55.91 crore on daily basis during the period of residual in 2021-22. maturity. The net income from premium/discount XII.19 Commission: The commission income on amortisation of Rupee Securities decreased increased by 47.45 per cent from `2,073.97 from `846.48 crore in 2020-21 to `(-)1,717.97 crore in 2020-21 to `3,058.09 crore in crore in 2021-22. 2021-22. This was mainly due to the net effect XII.17 Discount: The income from holding of of: (a) increase in management commission discounted instruments (T-Bills) decreased from received for servicing outstanding Central and `964.16 crore in 2020-21 to `403.76 crore in State Government loans including savings bonds, 2021-22. T-Bills and Cash Management Bills (CMBs); 257ANNUAL REPORT 2021-22 (b) increase in floatation charges recovered from ii) Employee Cost the Central and State Governments for the loans The total employee cost decreased by issued during the year; and (c) current accounting 19.19 per cent from `4,788.03 crore in year being of twelve months as compared to the 2020-21 to `3,869.43 crore in 2021-22. The nine months period for 2020-21. decrease was due to decrease in Reserve XII.20 Rent Realised, Profit/Loss on sale of Bank’s expenditure towards accrued Bank’s property, Provision No Longer Required liabilities of various superannuation funds in 2021-22. and Miscellaneous Income: Earnings from these income heads increased from `(-)101.81 crore in iii) Agency Charges/Commission 2020-21 to `343.19 crore in 2021-22. a) Agency Commission on Government EXPENDI TURE Transactions XII.21 The Reserve Bank incurs expenditure in The Reserve Bank discharges the the course of performing its statutory functions function of banker to governments by way of agency charges/commission, printing through a large network of agency bank of notes, expenditure on remittance of currency, branches that serve as retail outlets for besides employee related and other expenses. The governments’ receipts and payments. total expenditure of the Reserve Bank increased The Reserve Bank pays commission to by 280.13 per cent from `34,146.75 crore in these agency banks at prescribed rates. 2020-21 to `1,29,800.68 crore in 2021-22 (Table The agency commission paid on account XII.10). of government business increased by 47.79 per cent from `2,611.05 crore in i) Interest payment 2020-21 to `3,858.95 crore in 2021-22. During 2021-22, an amount of `1.77 crore The increase was primarily on account of was paid as interest to Dr. B. R. Ambedkar current accounting year being of twelve Fund (set up for giving scholarship to wards months as compared to the nine months of staff) and Employees Benevolent Fund. period for 2020-21. Table XII.10: Expenditure (` crore) Item 2017-18 2018-19 2019-20 2020-21 2021-22 1 2 3 4 5 6 i. Interest payment 0.97 1.16 1.34 1.10 1.77 ii. Employee Cost 3,848.51 6,851.07 8,928.06 4,788.03 3,869.43 iii. Agency Charges/Commission 3,903.06 3,910.21 3,876.08 3,280.06 4,400.62 iv. Printing of Notes 4,912.52 4,810.67 4,377.84 4,012.09 4,984.80 v. Provisions 14,189.27 63.60 73,615.00 20,710.12 1,14,667.01 vi. Others 1,422.33 1,407.44 1,742.61 1,355.35 1,877.05 Total (i+ii+iii+iv+v+vi) 28,276.66 17,044.15 92,540.93 34,146.75 1,29,800.68 258THE RESERVE BANK’S ACCOUNTS FOR 2021-22 b) Underwriting Commission Paid to iv) Printing of Notes Primary Dealers (PDs) The supply of notes during the year The expenditure on account of 2021-22 at 2,22,505 lakh pieces was underwriting commission to Primary 0.36 per cent lower than that of the year Dealers decreased from `642.95 crore 2020-21 (2,23,301 lakh pieces). The [inclusive of reimbursement of `159.92 expenditure incurred on printing of Bank crore on account of legacy Service Tax notes increased from `4,012.09 crore in (ST) and GST payments] in 2020-21 2020-21 to `4,984.80 crore in 2021-22. to `486.95 crore in 2021-22. The large v) Provisions quantum of government borrowing and uncertainty in domestic and global In 2021-22, provisions of `1,14,567.01 economic conditions continued to weigh crore and `100 crore were made towards on market sentiments and resulted in transfer to Contingency Fund (CF) and Asset Primary Dealers demanding a higher Development Fund (ADF), respectively. commission to underwrite the issuances vi) Others of dated government securities. Other expenses comprises expenditure on c) Sundries remittance of currency, printing and stationery, This includes the expenses incurred on audit fees and related expenses, miscellaneous handling charges, turnover commission expenses, etc., which increased by 38.49 paid to banks for Relief/Savings per cent from `1,355.35 crore in 2020-21 to Bonds subscriptions and Commission `1,877.05 crore in 2021-22. paid on Securities Borrowing and Lending Arrangement (SBLA), etc. CONTINGENT LIABILITIES The commission paid under this head XII.22 Total contingent liabilities of the Reserve increased from `6.30 crore in 2020-21 to Bank amounted to `958.98 crore. The main `12.29 crore in 2021-22. component of it being partly paid shares, d) Fees Paid to the External Asset denominated in SDR, of Bank for International Managers, Custodians, Brokers, etc. Settlements (BIS) held by the Reserve Bank. The Fees paid for external asset managers, uncalled liability on partly paid shares of the BIS custodial and broker services increased as on March 31, 2022 was `934.68 crore. The from `19.76 crore in 2020-21 to `42.43 balances are callable at three months’ notice by a crore in 2021-22. decision of the BIS Board of Directors. 259ANNUAL REPORT 2021-22 PRIOR PERIOD TRANSACTIONS XII.23 For the purpose of disclosure, prior period transactions of `1 lakh and above only have been considered. The prior period transactions under expenditure and income amounted to `61.45 crore and `(-)978.37 crore, respectively. Payment to Micro and Small Enterprises under the Micro, Small & Medium Enterprises Development Act, 2006 XII.24 The following table sets forth the cases of delayed payments of the principal amount or interest due thereon to Micro and Small Enterprises: (` crore) Particulars Principal Interest 1 2 3 i. the principal amount and the interest due thereon remaining unpaid (due for more than - - 45 days) to any supplier (micro or small enterprises) as at March 31, 2022; ii. the amount of interest paid along with the principal amount paid to the supplier for delay 0.04 0.001 beyond 45 days during the year; iii. the amount of delayed payment paid to the supplier during the year beyond 45 days - - without adding the interest due thereon (for the period of delay in making payment); iv. the amount of interest accrued and remaining unpaid at the end of the accounting year; - - v. the amount of further interest remaining due and payable even in the succeeding years, NA NA until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23. NA: Not Applicable. PREVIOUS YEAR’S FIGURES in terms of Section 50 of the RBI Act, 1934. The accounts of the Reserve Bank for the year 2021-22 XII.25 Figures for the previous year have been were audited by M/s Chandabhoy & Jassoobhoy, rearranged, wherever necessary, to make them Mumbai and M/s G. M. Kapadia & Co., Mumbai, as comparable with the current year. the Statutory Central Auditors and M/s Ray & Ray, AUDITORS Kolkata, M/s Sundaram & Srinivasan, Chennai XII.26 The statutory auditors of the Reserve and M/s S. K. Mittal & Co., New Delhi as Statutory Bank are appointed by the Central Government Branch Auditors. 260CHRONOLOGY OCF MHAJRORO PNOLOICYL AONNGOUYNC OEMFENTS ANNEX I MAJOR POLICY ANNOUNCEMENTS: APRIL 2021 TO MARCH 20221 Date of Policy Initiative Announcement Monetary Policy Department April 7, 2021 (cid:129) The monetary policy committee (MPC) decided to keep the policy repo rate unchanged at 4.0 per cent and to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that infl ation remains within the target going forward.2 (cid:129) Special refi nance facilities for a total amount of `50,000 crore were granted to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB) to enable them to meet sectoral credit needs.3 May 5, 2021 To further incentivise inclusion of unbanked micro, small, and medium enterprises (MSMEs) into the banking system, cash reserve ratio (CRR) exemption available to scheduled commercial banks (SCBs) for exposures up to `25 lakh and for credit disbursed up to the fortnight ending October 1, 2021 was extended till December 31, 2021. June 4, 2021 Special refi nance facility for a total amount of `16,000 crore was provided to SIDBI to meet short- and medium-term credit needs of MSMEs to kick-start the investment cycle with additional focus on smaller MSMEs and businesses, including those in credit defi cient and aspirational districts. August 6, 2021 The enhanced limit for availing funds up to 3 per cent of net demand and time liabilities (NDTL) under the marginal standing facility (MSF) was extended for a further period of six months, i.e., up to December 31, 2021, to provide comfort to banks on their liquidity requirements. December 8, 2021 The borrowing limit under the MSF was restored to the pre-pandemic level of 2 per cent from 3 per cent, effective January 1, 2022. Financial Inclusion and Development Department April 7, 2021 (cid:129) The priority sector lending (PSL) classifi cation was extended to cover lending by banks to non- banking fi nancial companies (NBFCs) for on-lending up to September 30, 2021. (cid:129) The PSL limit for loans against negotiable warehouse receipts (NWRs)/electronic negotiable warehouse receipts (eNWRs) was enhanced from `50 lakh to `75 lakh per borrower. May 5, 2021 The PSL classifi cation was permitted to the fresh credit extended by small fi nance banks (SFBs) to registered NBFC - microfi nance institutions (NBFC - MFIs) and other MFIs (societies, trusts, etc.), which are members of the Reserve Bank recognised ‘self-regulatory organisation’ of the sector, and which have a ‘gross loan portfolio’ of up to `500 crore as on March 31, 2021, for the purpose of on- lending to individuals. Bank credit as above was permitted up to 10 per cent of the bank’s total priority sector portfolio as on March 31, 2021. 1 The list is indicative in nature and details are available on the Reserve Bank’s website. 2 The MPC maintained status quo on the repo rate and the accommodative stance in all its subsequent meetings in 2021-22. 3 This comprised `25,000 crore to NABARD for refi nancing regional rural banks (RRBs), cooperative banks and microfi nance institutions (MFIs); `15,000 crore to SIDBI for on-lending/refi nancing; and `10,000 crore to NHB for supporting housing fi nance companies (HFCs). Advances under this facility were provided at the Reserve Bank’s policy repo rate. 261ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement July 7, 2021 A new defi nition was provided for MSMEs. Further, retail and wholesale trade were included under the defi nition of MSMEs for the limited purpose of priority sector lending and were allowed to be registered on Udyam Portal. August 9, 2021 The limit of collateral free loans to self-help groups (SHGs) under Deendayal Antyodaya Yojana - National Rural Livelihoods Mission (DAY- NRLM) was enhanced from `10 lakh to `20 Lakh. August 17, 2021 A composite fi nancial inclusion index (FI Index) was developed in consultation with the government and respective sectoral regulators, to capture the extent of fi nancial inclusion across the country. October 8, 2021 In view of the increased traction observed in the delivery of credit to the underserved/unserved segments of the economy, the PSL facility - banks’ lending to NBFCs for on-lending - was further extended till March 31, 2022. February 18, 2022 The validity of the existing Entrepreneurs Memorandum (EM) and Udyog Aadhaar Memorandum (UAMs) of the MSMEs was extended up to March 31, 2022. Financial Markets Regulation Department April 1, 2021 Directions on call, notice and term money markets were issued, allowing participants the fl exibility of setting their own lending limits in the call, notice and term money markets within extant prudential regulatory norms. May 31, 2021 Investment limit for foreign portfolio investors (FPIs) in government securities, under the medium-term framework, for the fi nancial year 2021-22, was notifi ed. June 4, 2021 (cid:129) Directions on certifi cates of deposit (CDs) were issued, allowing regional rural banks (RRBs) to issue CDs and banks to buyback CDs. (cid:129) Authorised dealer (AD) category-I banks were permitted to lend to FPIs for placing margins with Clearing Corporation of India Limited (CCIL) for the settlement of transactions in government securities within their credit risk management frameworks. June 7, 2021 FPIs/custodian banks were provided with an extended time window for reporting their government securities transactions to Negotiated Dealing System-Order Matching (NDS-OM) platform. June 25, 2021 The prudential borrowing limits for transactions in call, notice and term money markets were revised. July 8, 2021 With a view to enabling an orderly, safe and sound transition from the London Interbank Offered Rate (LIBOR) regime, the Reserve Bank regulated entities (REs) were advised to (i) cease entering into new fi nancial contracts that reference LIBOR and instead use any widely accepted alternative reference rate (ARR) as soon as practicable and in any event by December 31, 2021; (ii) incorporate provisions for fallbacks to ARRs in fi nancial contracts that reference LIBOR and the maturity of which falls after the cessation of the LIBOR setting; (iii) undertake a comprehensive review of all direct and indirect LIBOR exposures and put in place a framework to mitigate risks arising from such exposures; and (iv) continue efforts to sensitise clients about the transition. September 16, 2021 Directions for market-makers in over-the-counter (OTC) derivative products were revised for setting robust standards of governance, risk management and assessment of customer suitability and appropriateness in derivative business, in line with best international practices. 262CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement November 8, 2021 In pursuance of the Union Budget 2021-22 announcement, FPIs were permitted to invest in debt securities issued by Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). February 10, 2022 (cid:129) The investment limit under the voluntary retention route (VRR) was increased by `1,00,000 crore to `2,50,000 crore with effect from April 1, 2022. (cid:129) The revised credit derivative directions were issued, permitting market participants to utilise single name credit default swap (CDS) contracts in the OTC segment and the stock exchanges. Retail users have been permitted to buy protection only for hedging. Non-retail users, viz., regulated fi nancial entities, FPIs, etc., have been permitted to (i) buy protection for hedging and for purposes other than hedging; and (ii) sell protection. (cid:129) Banks in India having AD category-I licence under the Foreign Exchange Management Act (FEMA), 1999 were permitted to undertake transactions in the offshore foreign currency settled overnight indexed swap (FCS-OIS) market with non-residents and other AD category-I banks. Financial Markets Operations Department April 7, 2021 (cid:129) The secondary market G-sec acquisition programme (G-SAP) was announced, under which the Reserve Bank committed upfront to a specifi c amount of open market purchases of government securities with a view to enable stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. The fi rst such auction was conducted on April 15, 2021 for an amount of `25,000 crore. (cid:129) With a view to increase the focus of liquidity measures on the revival of activity in specifi c sectors, the on-tap targeted long-term repo operations (TLTRO) scheme announced on October 9, 2020 and initially made available up to March 31, 2021, was extended by a period of six months, i.e., up to September 30, 2021. It was later extended up to December 31, 2021. May 5, 2021 (cid:129) To boost provision of immediate liquidity for ramping up COVID-19 related healthcare infrastructure and services in the country, the on-tap liquidity window of `50,000 crore with tenors of up to three years at the repo rate was opened till March 31, 2022, and later extended up to June 30, 2022. Under the scheme, banks could provide fresh lending support to a wide range of entities including vaccine manufacturers; importers/suppliers of vaccine and priority medical devices; hospitals/ dispensaries; pathology labs and diagnostic centres; manufacturers and suppliers of oxygen and ventilators; importers of vaccines and COVID-related drugs; COVID-related logistics fi rms and also patients for treatment. By way of an additional incentive, such banks were eligible to park their surplus liquidity up to the size of the COVID-19 loan book with the Reserve Bank under the reverse repo window at a rate which is 25 basis points (bps) lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate. (cid:129) To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the second wave of the pandemic, it was decided to conduct special three-year long-term repo operations (SLTRO) of `10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to `10 lakh per borrower. This facility was initially made available till October 31, 2021. It was later extended to December 31, 2021 and made on-tap. 263ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement June 4, 2021 (cid:129) A separate liquidity window of `15,000 crore with tenors of up to three years at the repo rate was opened till March 31, 2022 for certain contact intensive sectors, i.e., hotels and restaurants; tourism - travel agents, tour operators and adventure/heritage facilities; aviation ancillary services - ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organisers, spa clinics and beauty parlours/saloons. By way of an incentive, banks were permitted to park their surplus liquidity up to the size of the loan book created under this scheme with the Reserve Bank under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate. The scheme was later extended till June 30, 2022. (cid:129) It was decided to undertake G-SAP 2.0 in Q2:2021-22 and conduct secondary market purchase operations of `1.20 lakh crore to support the market. August 6, 2021 (cid:129) In view of the prevailing liquidity conditions, it was decided to conduct 14-day variable rate reverse repo (VRRR) auctions of `2.5 lakh crore on August 13, 2021; `3.0 lakh crore on August 27, 2021; `3.5 lakh crore on September 9, 2021; and `4.0 lakh crore on September 24, 2021. (cid:129) On March 27, 2020, banks were allowed to avail of funds under the MSF by dipping into the statutory liquidity ratio (SLR) up to an additional one per cent of NDTL, i.e., cumulatively up to 3 per cent of NDTL. This facility, which was initially available up to June 30, 2020, was later extended in phases up to December 31, 2021. From January 1, 2022, banks were again allowed to dip up to 2 per cent of NDTL for overnight borrowing under the MSF. December 8, 2021 (cid:129) As a step towards rebalancing the liquidity surplus, it was decided to provide one more option to banks to prepay the outstanding amount of funds availed under the targeted long-term repo operations (TLTRO 1.0 and 2.0) announced on March 27, 2020, and April 17, 2020. (cid:129) In an effort to continue to rebalance the liquidity surplus, it was decided to enhance the 14-day VRRR auction amounts on a fortnightly basis in the following manner: `6.5 lakh crore on December 17; and further to `7.5 lakh crore on December 31. Consequently, from January 2022 onwards, liquidity absorption was announced to be undertaken mainly through the auction route. Foreign Exchange Department May 12, 2021 It has been notifi ed vide circular dated May 12, 2021 that fi nancial contribution from an Indian sponsor to an Alternative Investment Fund (AIF) set up in an overseas jurisdiction, including International Financial Services Centres (IFSCs) in India, will be treated as overseas direct investment (ODI). June 17, 2021 AD category-I banks were directed vide circular dated June 17, 2021 to upload the data in respect of number of applications received and the total amount remitted under the liberalised remittance scheme through the extensible business reporting language (XBRL) system instead of the online return fi ling system (ORFS), from July 1, 2021, onwards. September 8, 2021 In view of the impending cessation of LIBOR as benchmark rate, clause (ii) of sub-regulation 1 of Regulation 15 relating to Foreign Exchange Management Act (FEMA) was amended vide notifi cation dated September 8, 2021 indicating the rate of interest, if any, payable on the advance payment shall not exceed 100 bps above the LIBOR or other applicable benchmark as may be directed by the Reserve Bank, as the case may be. 264CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement September 28, 2021 In view of the impending cessation of LIBOR as benchmark rate, a circular was issued on September 28, 2021, advising the use of any alternative reference rate (ARR) in place of LIBOR for interest payable in respect of export/import transactions. December 8, 2021 In view of the imminent discontinuance of LIBOR, extant guidelines of external commercial borrowings, trade credits, and structured obligations have been revised with effect from December 8, 2021, to include any widely accepted interbank rate or ARR of 6-month tenor, applicable to the currency of borrowing, as benchmark rate. Further, to account for differences in credit risk and term premia between LIBOR and the ARRs, for all new foreign currency (FCY) external commercial borrowings (ECBs) and trade credits (TCs), the maximum spread has been revised upwards by 50 bps, to 500 bps and 300 bps, respectively. December 10, 2021 It has been directed vide circular dated December 10, 2021 that with effect from October 1, 2022, AD category-I banks shall obtain legal entity identifi er (LEI) number from the resident entities (non- individuals) intending to undertake capital or current account transactions of `50 crore and above (per transaction) under FEMA, 1999. December 15, 2021 Indian passport holders as well as persons of Indian origin (PIO), carrying the Overseas Citizen of India Card along with their passports, have been allowed to carry outside and bring into India, at the time of his/her return, only Indian currency notes and/or foreign currency in USD, the total value of which may not exceed `11,000, while traveling to Gurdwara Darbar Sahib, Kartarpur, Narowal, Pakistan through the Sri Kartarpur Sahib Corridor. January 6, 2022 Based on a Directorate General of Foreign Trade (DGFT) notifi cation, the Master Direction on import of goods and services was amended to permit qualifi ed jewellers, as notifi ed by International Financial Services Centres Authority (IFSCA), to import gold under specifi c Indian Trade Classifi cation – Harmonised System [ITC (HS)] Codes through India International Bullion Exchange IFSC Limited (IIBX). February 18, 2022 As part of the implementation of the interim recommendations of the Regulations Review Authority (RRA 2.0), vide circular dated February 18, 2022, it has been proposed to convert certain paper- based/e-mail-based returns into online fi ling and to discontinue/merge a few returns. Department of Regulation April 1, 2021 Customer due diligence of all the members of SHGs may be undertaken at the time of credit linking of SHGs. Master Direction on know your customer (KYC) was amended in this regard. April 5, 2021 The Master Directions on gold monetisation scheme (GMS), 2015 was amended, with the change of instructions regarding GMS mobilisation, collection & testing agent (GMCTA), amount of deposit, reference rate to be used for valuation of gold into Indian rupees, among others. April 7, 2021 Guidelines were issued to ensure consistency of approach across lending institutions in applying the asset classifi cation norms in respect of their borrowers and the methodology adopted for refund of the compound interest charged during March 1, 2020 to August 31, 2020. April 8, 2021 The limit of maximum balance at the end of the day has been enhanced from `1 lakh to `2 lakh per individual customer of payments banks with immediate effect. 265ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement April 12, 2021 Government of India (GoI) has extended the validity of the interest equalisation scheme (IES) for pre and post shipment rupee export credit by three months, i.e., up to June 30, 2021. Accordingly, a circular was issued stating that the extension of IES takes effect from April 1, 2021 and ends on June 30, 2021, covering a period of three months and that operational instructions under the scheme would continue to remain in force during the extended period. April 22, 2021 In view of the continuing uncertainty caused by the second wave of COVID-19 in the country, it was crucial that banks remain resilient and proactively raise and conserve capital as a bulwark against unexpected losses. Therefore, it was decided to allow commercial banks to declare dividend on equity shares from the profi ts for the fi nancial year ended March 31, 2021, subject to the quantum of dividend being not more than 50 per cent of the amount determined as per the dividend pay-out ratio prescribed under extant instructions. Cooperative banks were allowed to declare dividend on equity shares from the profi ts of the fi nancial year ended March 31, 2021, as per the extant instructions. April 26, 2021 (cid:129) Shivalik Small Finance Bank Limited commenced operations as a SFB with effect from April 26, 2021. (cid:129) Based on the feedback received on the discussion paper on ‘Governance in Commercial Banks in India’ issued by the Reserve Bank in June 2020, comprehensive review of corporate governance framework of banks has been carried out. The operative part of the framework was issued as a prelude to the Master Direction on Corporate Governance, proposed to be issued in due course. April 29, 2021 The Reserve Bank joined the Network for Greening the Financial System (NGFS) as a Member on April 23, 2021. The NGFS is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the fi nancial sector, while mobilising mainstream fi nance to support the transition towards a sustainable economy. The Reserve Bank expects to benefi t from the membership of NGFS by learning from and contributing to global efforts on green fi nance which has assumed signifi cance in the context of climate change. May 5, 2021 (cid:129) In view of the resurgence of COVID-19, the Resolution Framework 2.0 was announced, which permits lending institutions to restructure eligible loans, which had not been restructured under Resolution Framework 1.0 dated August 6, 2020, and were classifi ed as standard as on March 31, 2021, while classifying the restructured exposures as standard subject to conditions. The framework shall have to be invoked by September 30, 2021 and will have to be implemented within 90 days from the date of invocation. Even in respect of MSME accounts as well as other eligible accounts restructured under earlier schemes, lending institutions have been permitted, as a one-time measure, to review the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring. (cid:129) In view of the impact on banks due to COVID-19, as a measure to enable capital conservation, banks have been permitted to utilise 100 per cent of fl oating provisions/countercyclical provisioning buffer held by them as on December 31, 2020 for making specifi c provisions for non-performing assets (NPAs) with prior approval of their boards. Such utilisation is permitted with immediate effect and up to March 31, 2022. 266CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement (cid:129) In terms of the Master Direction on KYC, REs have been instructed to carry out periodic updation of KYC of existing customers. Keeping in view the COVID-19 related restrictions in various parts of the country, REs were advised, that in respect of the customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/enforcement agency/court of law, etc. REs were also advised to continue engaging with such customers to get their KYC updated. May 6, 2021 Exclusion of “Lakshmi Vilas Bank Ltd.” from the Second Schedule of the Reserve Bank of India Act, 1934. May 10, 2021 (cid:129) The periodic updation of the KYC information is to be carried out by REs at least once in 2 years, 8 years and 10 years for high-risk, medium-risk and low-risk customers, respectively. Master Direction on KYC was amended to simplify the process. (cid:129) The video-based customer identifi cation process (V-CIP), introduced in January 2020, was expanded in scope vide amendment dated May 10, 2021, to the Master Direction on KYC. Following major changes have been carried out in this regard: (i) customer due diligence (CDD) of proprietor of proprietorship fi rm and authorised signatories & benefi cial owners (BOs) of legal entities (LEs) have been allowed using V-CIP; (ii) updation/periodic updation of KYC of account holders can be carried out using V-CIP; (iii) conversion of existing accounts opened in non-face to face mode using Aadhaar OTP based e-KYC authentication into a fully KYC compliant account can be carried out using V-CIP; (iv) the scope of V-CIP has been expanded to include the use of KYC records downloaded from the central KYC registry (CKYCR) and equivalent e-document of offi cially valid documents (OVDs) including OVDs issued through Digilocker; and (v) certain amendments have been made to enhance the robustness and security of the V-CIP infrastructure and processes. May 11, 2021 Considering the reduction in the interest rates paid on savings bank account by banks, it has been decided that interest rate payable by banks on unclaimed interest-bearing deposit shall be 3 per cent simple interest per annum with effect from May 11, 2021. May 24, 2021 A circular on voluntary amalgamation of district central cooperative banks (DCCBs) with state cooperative bank (StCB) under the provisions of Section 44A, read with Section 56 of the Banking Regulation (BR) Act, 1949 was amended vide BR (Amendment) Act, 2020 (39 of 2020). The circular was issued for dissemination of the amended statutory provisions and consequent changes in the procedure/indicative benchmarks for amalgamation of DCCBs with StCB. May 31, 2021 REs were advised against citing/quoting the April 6, 2018 circular on ‘Prohibition on dealing in Virtual Currencies (VCs)’. It was also advised to them that they may continue to carry out customer due diligence processes in line with regulations governing standards for KYC, Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of REs under Prevention of Money Laundering Act (PMLA), 2002 in addition to ensuring compliance with relevant provisions under FEMA for overseas remittances. June 4, 2021 Under Resolution Framework 2.0 for resolution of COVID-19 related stress, the aggregate exposure thresholds for individuals, small businesses and MSMEs was `25 crore. On a review, the above exposure threshold was increased to `50 crore. June 14, 2021 The consultative document on review of regulatory framework for microfi nance was released. 267ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement June 23, 2021 Gold (Metal) Loans (GML) are extended by nominated/designated banks to exporters or domestic manufacturers of gold jewellery. So far, borrowers had no option to use physical gold to repay the outstanding loan as they were required to repay the amount only in Indian rupee (INR) representing the value of the borrowed gold. Guidelines in this regard were reviewed and banks are now required to provide an option to borrowers to repay a part of the GML in physical gold in lots of one kg or more, provided the GML was extended out of locally sourced/GMS-linked gold and the gold used for repayment conforms to the prescribed standards and is delivered on behalf of the borrower to the lending bank directly by a refi ner or a central agency acceptable to the bank, without the borrower’s involvement. June 24, 2021 Unlike banks, there were no guidelines in place with regard to distribution of dividend by NBFCs. Keeping in view the increasing signifi cance of NBFCs in the fi nancial system and their inter-linkages with different segments, it was decided to formulate guidelines on dividend distribution by NBFCs. Accordingly, a draft circular on ‘Declaration of Dividend by NBFCs’ was issued on December 9, 2020, for public comments. Based on the feedback received, fi nal guidelines were issued on June 24, 2021. June 25, 2021 (cid:129) With the growing complexities in the banking sector and increase in size and scope of business, primary (urban) cooperative banks (UCBs) face diverse and greater degree of risks in their business. Therefore, UCBs having asset size of `5,000 crore or above have been advised to appoint a Chief Risk Offi cer (CRO). They have also been advised to set up a risk management committee of the board in order to provide the required level of attention on various aspects of risk management. (cid:129) A circular on appointment of Managing Director (MD)/Whole-Time Director (WTD) in UCBs was issued by the Reserve Bank on June 25, 2021. The circular prescribes ‘fi t and proper’ criteria, remuneration, tenure, etc. for the post of MD/WTD in UCBs. It also advises UCBs to seek the Reserve Bank’s prior approval (and process thereof) for appointment/re-appointment/termination of appointment of MD/WTD. The circular was issued to enhance the governance standards in UCBs and to give effect to the provisions of the BR (Amendment) Act, 2020. June 28, 2021 In order for cooperative banks to put in place necessary safeguards for addressing the risks inherent in outsourcing, the ‘Guidelines for Managing Risk in Outsourcing of Financial Services by Cooperative Banks’ were issued. July 1, 2021 GoI extended the validity of the interest equalisation scheme (IES) for pre and post shipment rupee export credit for three months up to September 30, 2021. July 2, 2021 The extant instructions on interest on overdue domestic term deposits as contained in Section 9 (b) of Master Direction – Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 and the Master Direction – Reserve Bank of India (Cooperative Banks – Interest Rate on Deposits) Directions, 2016 were amended. It was advised that if a term deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower. July 7, 2021 Inclusion of “Shivalik Small Finance Bank Limited” in the second schedule of the Reserve Bank of India Act, 1934. July 9, 2021 The instructions on mandatory leave for employees posted in sensitive positions or areas of operation were reviewed and accordingly a revised circular was issued. 268CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement July 14, 2021 To implement provisions of the Banking Regulation (Amendment) Act, 2020 [as applicable to primary (urban) cooperative banks (UCBs) from June 29, 2020] and with a view to undertake a general review of the extant instructions in the matter, draft guidelines on ‘Issue and regulation of share capital and securities - Primary (Urban) Cooperative Banks’ were placed in the public domain for comments from the sector participants and other interested parties. July 20, 2021 Master Direction on CRR and SLR containing the instructions for all type of banks, was issued. July 23, 2021 A circular was issued on the subject ‘Loans and Advances - Regulatory Restrictions’, wherein, the existing limits for loans to directors of other banks and relatives of directors (of own banks as also other banks) were revised. July 29, 2021 The list of approved credit rating agencies and minimum investment grade credit rating for deposits of housing fi nance companies (HFCs), were aligned with the relevant regulations applicable for NBFCs. August 4, 2021 Instructions were issued to banks vide circulars dated August 6, 2020, November 2, 2020 and December 14, 2020 on ‘Opening of Current Accounts by Banks - Need for Discipline’ with a view to enforce credit discipline among borrowers as well as to facilitate better monitoring by the lenders. Based on the requests from banks for additional time to resolve the ongoing operational issues, and in order to ensure non-disruptive implementation of the instructions, it was decided to permit banks time till October 31, 2021 to implement the provisions of the circular. August 6, 2021 (cid:129) In view of the discontinuance of LIBOR as a benchmark rate after December 2021, banks have been permitted to extend export credit using any other widely accepted ARR in the currency concerned. (cid:129) For derivative contracts, as per extant instructions, change in any of the parameters of the original contract is treated as a restructuring and the resultant change in the mark-to-market value of the contract on the date of restructuring is required to be cash settled. Since the change in reference rate from LIBOR was a "force majeure" event, banks were advised that change in reference rate from LIBOR/LIBOR-related benchmarks to an ARR would not be treated as restructuring. (cid:129) The resolution plans implemented in terms of the resolution framework for COVID-19 related stress issued on August 6, 2020 were required to achieve certain fi nancial parameters by March 31, 2022. In view of the resurgence of the COVID-19 pandemic in 2021 and recognising the diffi culties it may pose for the borrowers in meeting the operational parameters, it was decided to defer the target date to October 1, 2022 for meeting the specifi ed thresholds in respect of the four operational parameters, viz., total debt/earnings before interest, taxes, depreciation and amortisation (TD/ EBITDA), current ratio, debt service coverage ratio (DSCR) and average debt service coverage ratio (ADSCR). However, the target date for achieving the total outside liabilities/adjusted tangible net worth (TOL/ATNW) ratio, as crystallised in terms of the resolution plan, was kept unchanged as March 31, 2022. August 9, 2021 SCBs were allowed to avail of funds under the MSF by dipping into the SLR up to three per cent of their NDTL outstanding at the end of the second preceding fortnight. This facility, which was initially available up to June 30, 2020, was later extended up to December 31, 2021, providing comfort to banks on their liquidity requirements and also to enable them to meet their liquidity coverage ratio (LCR) requirements. 269ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement August 18, 2021 The instructions on providing safe deposit locker/safe custody article facility by banks have been revised on August 18, 2021, in the public interest. The revised instructions have come into force from January 1, 2022 (except where otherwise specifi ed) and be applicable to both new and existing safe deposit lockers and safe custody articles facility with the banks. August 25, 2021 (cid:129) A Master Direction – Classifi cation, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2021 - incorporating all the existing guidelines/instructions/directives on the subject has been issued to enable banks to have current instructions at one place. (cid:129) Post simplifi cation of the procedure of notifi cation of HFCs having assets worth `100 crore and above as ‘Financial Institution’ under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 by the GoI, previously prescribed criteria for such notifi cation of HFCs have been withdrawn. August 30, 2021 (cid:129) A Master Direction – Reserve Bank of India (Financial Statements - Presentation and Disclosures) Directions, 2021 - comprehensively consolidating the existing instructions for presentation of fi nancial statements and disclosures in notes to accounts was issued for banks. This Master Direction also broadly harmonises the disclosure requirements across the banking industry by covering all commercial banks [including RRBs and local area banks (LABs)] and UCBs. (cid:129) It was observed that though extant guidelines governing compensation of whole-time directors/ chief executive offi cers/material risk takers and control function staff in private sector banks issued on November 4, 2019 required share-linked instruments to be fair valued on the date of grant using Black-Scholes model, banks do not recognise grant of the share-linked compensation as an expense in their books of account concurrently. Therefore, in the interest of better clarity, the following sentence has been added to the extant instructions: “The fair value thus arrived at should be recognised as expense beginning with the accounting period for which approval has been granted”. September 9, 2021 In the absence of a formal cross-border resolution regime, there was a need to ring-fence the operations of the branches of a foreign bank in India. In this background, large exposure framework (LEF) was made applicable to exposure of foreign bank branches on their Head Offi ce (HO). In order to address the additional capital burden on such banks due to introduction of LEF, instructions were issued introducing a credit risk mitigation (CRM) mechanism which allowed the gross exposure of foreign bank branches to HO (including overseas branches) to be offset with the CRM, while reckoning LEF limits, subject to certain conditions. The CRM can comprise of cash/unencumbered approved securities held under Section 11(2)(b)(i) of the Banking Regulation Act,1949, the sources of which should be interest-free funds from HO or remittable surplus retained in the Indian books (reserves). Foreign bank branches have been permitted to exclude all derivative contracts executed prior to April 1, 2019 (grandfathering), while computing derivative exposure on the HO. September 13, 2021 NBFCs, payment system providers and payment system participants desirous of undertaking Aadhaar e-KYC authentication were advised to apply for Aadhaar authentication licence – KYC User Agency (KUA) or sub-KUA, to the Reserve Bank for forwarding to Unique Identifi cation Authority of India (UIDAI) after following the due process. 270CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement September 24, 2021 In order to facilitate the diversifi cation of credit risk originating in the banking sector and ensure market-based credit products for diversifi ed set of investors having commensurate capacity and risk appetite, there has been a recognised need for the further development of credit risk market in India. In this regard, the Reserve Bank issued Master Directions on ‘Securitisation of Standard Assets’ and ‘Transfer of Loan Exposures’ to facilitate development of such a robust market. October 4, 2021 (cid:129) Guidelines were issued to provide clarity on the eligible limit for foreign currency and rupee denominated overseas additional tier 1 (AT1) bonds. (cid:129) Consequent to the enhancement in family pension of employees of banks, a special dispensation was given: banks were allowed the option to amortise the additional expenditure over a period not exceeding fi ve years beginning with the fi nancial year ending March 31, 2022, subject to a minimum of 1/5th of the total amount involved being expensed every year. October 7, 2021 Inclusion of “Paytm Payments Bank Limited” in the second schedule of the Reserve Bank of India Act, 1934. October 14, 2021 A circular was issued to make it mandatory for credit institutions to report the relationship segment (RS) data to credit information companies (CICs) in a phased manner. October 22, 2021 A discussion paper titled ‘Revised Regulatory Framework for NBFCs - A Scale-based Approach’ was issued for public comments on January 22, 2021. Based on the feedback received, the scale based regulatory framework for NBFCs has been put in place on October 22, 2021. October 26, 2021 To enable LABs to have current instructions on the subject at one place, a Master Direction on prudential norms on capital adequacy, incorporating all the existing guidelines / instructions / directives, was issued. October 28, 2021 The Master Directions on Gold Monetisation Scheme (GMS), 2015 did not contain specifi c instructions to designated banks for calculation of interest in case of premature closure of Medium- and Long-Term Government Deposit (MLTGD) under GMS before/after lock-in period in case of death of depositor and also in case of default of loan taken against MLTGD certifi cate. The requisite amendments in the Master Direction were carried out to include details of applicable interest rates, based on the actual period for which the deposit has run (divided into various time buckets). Being premature closure in nature, the applicable interest rates are lower than those applicable to MLTGD deposits in normal course. Nonetheless, in case of premature closure due to death, applicable interest rate is 0.125 per cent higher than those for premature closure due to loan default. October 29, 2021 In order to enforce credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders, instructions on the manner of opening of cash credit/overdraft (CC/OD) and current/collection accounts by banks were issued on August 6, 2020. Taking into account the feedback received from Indian Banks Association (IBA) and other stakeholders, guidelines were revised, allowing borrowers, to whom the exposure of the banking system is less than `5 crore, to open current accounts and CC/ OD accounts without any restrictions. Further, a borrower with CC/OD facility is permitted to maintain current accounts with any one of the banks with which it has CC/OD facility. Other lending banks have been permitted to open collection accounts for such customers. November 1, 2021 Unity Small Finance Bank Limited (USFB) commenced operations as a SFB with effect from November 1, 2021. 271ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement November 2, 2021 Report of the committee to review the legal and regulatory framework applicable to asset reconstruction companies (ARCs) was released for public comments. November 11, 2021 In view of the impending discontinuance of LIBOR as a benchmark rate, it was decided to permit banks to offer interest rates on Foreign Currency Non-Resident (Bank) Deposits [FCNR (B)] deposits using widely accepted ‘Overnight ARR for the respective currency’ with upward revision in the interest rates ceiling by 50 bps. November 12, 2021 (cid:129) In order to ensure uniformity in the implementation of income recognition, asset classifi cation and provisioning pertaining to advances (IRACP norms) across all lending institutions, certain aspects of the extant regulatory guidelines were clarifi ed and/or harmonised. The circular clarifi ed on specifi cation of due date/repayment date, operational aspect of classifi cation of account as Special Mention Account (SMA) and NPA, defi nition of ‘out of order’, aligning 90 days delinquency norm for NPA classifi cation in case of interest payments, upgradation of accounts classifi ed as NPAs and income recognition policy for loans with moratorium on payment of interest. (cid:129) Further, in order to increase awareness among the borrowers related to concept of asset classifi cation of loan accounts, the Reserve Bank vide this circular required lending institutions, to put in place consumer education literature on their websites, explaining with examples, the concepts of date of overdue, SMA and NPA classifi cation and upgradation, with specifi c reference to day-end process. November 22, 2021 Members of the public were cautioned through a public notice informing that some of the cooperative societies are using the word “Bank” which is in violation of Section 7 of Banking Regulation (BR) Act and are accepting deposits from non-members/nominal members/associate members which tantamount to conducting banking business in violation of the provisions of the BR Act, 1949. November 26, 2021 An Internal Working Group constituted on June 12, 2020 to review extant ‘Ownership Guidelines and Corporate Structure for Indian Private Sector Banks’ has made 33 recommendations. A press release was issued stating that the Reserve Bank had accepted 21 recommendations (some with partial modifi cations) including the recommendation on increasing the promoter holding to 26 per cent of paid-up voting equity share capital, reporting of pledge of shares by promoters, increasing minimum initial capital requirement for licensing new banks and relaxation of listing norms for SFBs to be set up in future. The remaining 12 recommendations are under examination. December 8, 2021 To provide greater operational fl exibility, general permission was granted to banks incorporated in India for infusion of capital in overseas branches and subsidiaries and retention in and repatriation/ transfer of profi ts therefrom, subject to the banks meeting the regulatory capital requirements and having approval of their boards for the same. December 10, 2021 Scheduled banks were allowed to avail of funds under the MSF by dipping into the SLR up to three per cent of their NDTL outstanding at the end of the second preceding fortnight. This facility, which was initially available up to June 30, 2020, was later extended in phases up to December 31, 2021. However, with the return to normal dispensation, scheduled banks will be able to dip into the SLR up to two per cent of NDTL, instead of three per cent for overnight borrowing under the MSF, with effect from January 1, 2022. 272CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement December 15, 2021 As part of convergence of regulations for banks with Basel III standards, a draft Master Direction on minimum capital requirements for operational risk was issued for comments of stakeholders. December 30, 2021 Keeping in view the COVID-19 related restrictions in various parts of the country, REs were advised that in respect of the customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/enforcement agency/court of law, etc. REs were also advised to continue engaging with such customers to get their KYC updated. In view of the prevalent uncertainty due to new variant of COVID-19, the relaxation has been extended till March 31, 2022. January 4, 2022 Inclusion of “Airtel Payments Bank Limited” in the second schedule of the Reserve Bank of India Act, 1934. January 6, 2022 The limit for aggregate funding from small business customers was increased from `5 crore to `7.5 crore for the purpose of LCR and Net Stable Funding Ratio (NSFR). January 14, 2022 (cid:129) Extant regulatory instructions on classifi cation and valuation of investment portfolio by SCBs are largely based on a framework introduced in October 2000, drawing upon the then prevailing global standards and best practices. In view of the subsequent signifi cant developments in global standards on classifi cation, measurement, and valuation of investments, the linkages with the capital adequacy framework as well as progress in the domestic fi nancial markets, there is a need to review and update these norms. Accordingly, a discussion paper covering all the relevant aspects was placed in the public domain for comments. It, inter alia, proposes symmetric recognition of unrealised gains and losses with concerns on such recognition addressed through prudential fi lters on regulatory capital and dividend distribution supplemented by enhanced disclosures. (cid:129) Regulations were issued pertaining to the manner of fi ling of particulars of transactions with the central registry by a trade receivables discounting system (TReDS) on behalf of factors in case of factoring transactions undertaken on TReDS platform. (cid:129) Regulations were issued pertaining to the manner of granting the certifi cate of registration (CoR) to companies which propose to do factoring business. In addition to NBFC-Factors, all non- deposit taking NBFC-investment and credit companies (NBFC-ICCs) with asset size of `1,000 crore and above have been allowed to undertake factoring business, subject to meeting certain conditions. February 15, 2022 A circular dated November 12, 2021 was issued on prudential norms on ‘Income Recognition, Asset Classifi cation and Provisioning pertaining to Advances – Clarifi cations’, with the objective of bringing uniformity in application of extant IRACP norms by lending institutions, apart from increasing consumer education with respect to the concept of IRACP norms. On a review, it was decided to provide NBFCs time till September 30, 2022 to put in place the necessary systems to implement the above provision. March 3, 2022 In order to facilitate investment in capital of umbrella organisation (UO) of UCB sector by primary (urban) cooperative banks, it was clarifi ed that the investment in UO by UCBs shall be exempted from the prudential limits prescribed for investment in non-SLR securities and unlisted securities. 273ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement March 8, 2022 (cid:129) The extant instructions for UCBs on issue and regulation of capital funds have been reviewed keeping in view the amended Banking Regulation Act, 1949. (cid:129) The GoI extended the validity of the interest equalisation scheme (IES) for pre and post shipment rupee export credit up to March 31, 2024 or till further review, whichever is earlier. The extension takes effect from October 1, 2021 and ends on March 31, 2024. March 9, 2022 National Bank for Financing Infrastructure and Development (NaBFID) has been set up as a Development Financial Institution to support the development of long-term infrastructure fi nancing in India. NaBFID shall be regulated and supervised as an All India Financial Institution (AIFI) by the Reserve Bank. It shall be the fi fth AIFI, after EXIM Bank, NABARD, NHB and SIDBI. March 14, 2022 A comprehensive regulatory framework for microfi nance loans was issued, which has been made applicable to all REs lending in the microfi nance sector. March 23, 2022 The Master Direction on ‘Classifi cation, Valuation and Operation of Investment Portfolio of Commercial Banks’ was amended to provide clarifi cation, inter alia, that the investment in category I and category II alternative investment funds, which includes venture capital funds (VCFs), shall receive the same prudential treatment as applicable for investment in VCFs. March 31, 2022 (cid:129) The Bilateral Netting of Qualifi ed Financial Contracts Act, 2020 has been notifi ed by the Government of India vide gazette notifi cation dated October 1, 2020. The Act provides a legal framework for enforceability of bilateral netting of qualifi ed fi nancial contracts (QFC). The Reserve Bank vide notifi cation dated March 9, 2021, has since notifi ed (a) “derivatives”; and (b) “repo” and “reverse repo” transactions as defi ned under the Reserve Bank of India Act, 1934 as a QFC. Accordingly, select instructions contained in various circulars/directions of the Reserve Bank were modifi ed/ amended appropriately. (cid:129) Master Direction on ‘Classifi cation, Valuation and Operation of Investment Portfolio of Commercial Banks’ was amended to clarify that the investments in special securities received from the GoI towards banks’ recapitalisation requirement from the fi nancial year 2021-22 onwards shall be recognised at fair value/market value on initial recognition in held to maturity (HTM). The fair value/ market value of these securities shall be arrived on the basis of the prices/yield to maturity of similar tenor central government securities put out by Financial Benchmarks India Pvt. Ltd. Department of Supervision April 27, 2021 A circular on ‘Guidelines for Appointment of Statutory Central Auditors (SCAs)/ Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)’ was issued on April 27, 2021, with a view to improve the quality of fi nancial reporting by REs. These guidelines provide necessary instructions for appointment of SCAs/SAs, the number of auditors, their eligibility criteria, tenure and rotation, etc. while ensuring the independence of auditors. The guidelines are applicable from fi nancial year 2021-22 and onwards. However, UCBs and NBFCs were given the fl exibility to adopt these guidelines from H2:2021-22 so that there is no disruption. June 11, 2021 Risk-Based Internal Audit (RBIA) guidelines were extended to all deposit taking HFCs and non-deposit taking HFCs with asset size of `5,000 crore and above. November 2, 2021 Revised prompt corrective action (PCA) framework for SCBs was issued to enable supervisory intervention at appropriate time and require the SCB to initiate and implement remedial measures in a timely manner, so as to restore its fi nancial health. 274CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement November 16, 2021 16 redundant circulars were withdrawn as per the interim recommendations of Regulations Review Authority (RRA 2.0). December 14, 2021 Considering the growing size of NBFCs and their substantial interconnectedness with other segments of the fi nancial system, a PCA framework for NBFCs was introduced to further strengthen the supervisory tools applicable to NBFCs. The PCA framework for NBFCs shall come into effect from October 1, 2022, based on the fi nancial position of NBFCs on or after March 31, 2022. February 23, 2022 To provide for seamless customer interface in digital offerings and transactions relating to products and services with anywhere/anytime facility, enable integration of NBFCs’ functions, provide centralised database and accounting records, and be able to generate suitable management information system (MIS), both for internal purposes and regulatory reporting, NBFCs-Middle Layer and NBFCs-Upper Layer with 10 and more ‘fi xed point service delivery units’ as on October 1, 2022 were mandated to implement ‘Core Financial Services Solution (CFSS)’, akin to the Core Banking Solution (CBS) to be adopted by banks by September 30, 2025. NBFC-Base Layer, NBFC-Middle and Upper Layers with fewer than 10 ‘fi xed point service delivery units’ may consider implementation of a CFSS for their own benefi t. Consumer Education and Protection Department November 12, 2021 (cid:129) Reserve Bank - Integrated Ombudsman Scheme (RB-IOS), 2021 was launched adopting ‘One Nation One Ombudsman’ approach to make the alternate dispute redress mechanism simpler and more responsive to the customers of entities regulated by the Reserve Bank by integrating the erstwhile three Ombudsman schemes – (i) the Banking Ombudsman Scheme, 2006, as amended up to July 1, 2017; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019. (cid:129) A ‘Centralised Receipt and Processing Centre’ was set up at the Reserve Bank, Chandigarh as a single point of contact for complainants and for receiving complaints by email and through physical modes. Additionally, a Contact Centre with a toll-free number - 14448 was operationalised in Hindi, English and in eight regional languages (nine regional languages as on March 31, 2022). November 15, 2021 The Reserve Bank directed deposit-taking NBFCs (NBFCs-D) with 10 or more branches and Non- Deposit taking NBFCs (NBFCs-ND) with asset size of `5,000 crore and above having public customer interface to appoint Internal Ombudsman (IO) at the apex of their internal grievance redress mechanism within a period of six months from the date of issue of the direction, except for certain types of NBFCs as mentioned in the direction. Internal Debt Management Department March 31, 2021 The ways and means advances (WMA) limit for the GoI for H1:2021-22 (April 2021 to September 2021) was fi xed at `1,20,000 crore. April 23, 2021 (cid:129) The existing interim WMA limit of `51,560 crore for all states/ UTs was extended for six months, i.e., up to September 30, 2021. (cid:129) Relaxed overdraft (OD) regulations were continued to be in force, wherein, the number of days for which a state/UT can be in OD continuously was increased from 14 working days to 21 working days, and the number of days for which a state/UT can be in OD in a quarter was increased from 36 working days to 50 working days. 275ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement July 12, 2021 As part of continuing efforts to increase the retail participation in G-Secs, the ‘RBI Retail Direct’ scheme was announced on July 12, 2021 for improving ease of access by retail investors through online access to the G-secs market - both primary and secondary - along with the facility to open their gilt securities account with the Reserve Bank. September 27, 2021 The WMA limit for the GoI for H2:2021-22 (October 2021 to March 2022) was fi xed at `50,000 crore. October 8, 2021 (cid:129) The existing interim WMA limit of `51,560 crore for state governments/UTs were extended for another six months up to March 31, 2022. (cid:129) Relaxed OD regulations for state governments/UTs were extended for six months, i.e., up to March 31, 2022. November 12, 2021 The RBI Retail Direct portal (https://rbiretaildirect.org.in) was launched by the Hon’ble Prime Minister on November 12, 2021. January 4, 2022 To support the RBI Retail Direct Scheme by providing liquidity in the secondary market, a “Retail Direct Scheme - Market Making” was launched, in terms of which, the primary dealers (PDs) were required to be present on the NDS-OM platform (odd-lot and request for quotes segments) throughout market hours and respond to buy/sell requests from Retail Direct Gilt Account Holders. Department of Currency Management August 10, 2021 A scheme of penalty for non-replenishment of ATMs was introduced for banks/white label ATM operators (WLAOs) to ensure that suffi cient cash is made available to the public through ATMs. August 27, 2021 Under the overarching objectives of better customer service to the public with regard to distribution of coins, the quantum of incentive payable to banks for distribution of coins was increased. March 28, 2022 The Ink Manufacturing Unit (Varnika) of Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), set up at Mysuru, was dedicated to the nation by the Governor, RBI. Department of Payment and Settlement Systems May 19, 2021 Guidelines were issued mandating Prepaid Payment Instruments (PPIs) interoperability, enhancing the limit for full KYC PPIs to `2 lakh, and permitting cash withdrawals using full-KYC PPIs of non-bank PPI issuers. June 4, 2021 It was announced that National Automated Clearing House (NACH) shall be made available on all days of the week, effective August 1, 2021. June 10, 2021 Guidelines were issued with the revised interchange fee and customer charges for ATM transactions. June 14, 2021 (cid:129) Mobile prepaid recharge was permitted as a biller category in Bharat Bill Payment System (BBPS). (cid:129) Guidelines were issued regarding new investment from or through non-compliant Financial Action Task Force (FATF) jurisdictions in Payment System Operators (PSOs). July 28, 2021 Access criteria was revised to permit authorised non-bank PSOs, viz., PPI issuers, card networks and white label ATM operators to participate in Centralised Payment Systems (CPS) as direct members. August 3, 2021 A framework for outsourcing of payment and settlement-related activities by PSOs was issued prescribing minimum standards to manage risks in outsourcing of payment and / or settlement-related activities. 276CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS Date of Policy Initiative Announcement August 25, 2021 Scope of device-based tokenisation was extended to include consumer devices – laptops, desktops, wearables (wrist watches, bands, etc.), Internet of Things (IoT) devices, etc. August 26, 2021 Street vendors, identifi ed as part of the Pradhan Mantri Street Vendor's AatmaNirbhar Nidhi (PM SVANidhi Scheme) in tier-1 and tier-2 centres, were included as benefi ciaries under the Payments Infrastructure Development Fund (PIDF) scheme. August 27, 2021 (cid:129) Indo Nepal remittance facility scheme was enhanced with increase in the per-transaction ceiling to `2 lakh and removal of the cap of 12 remittances per year per remitter. (cid:129) Master Direction on issuance and operation of PPIs (MD-PPIs) was revised with changes broadly related to change in classifi cation of PPIs, clarifi cations to existing instructions, deletion of certain clauses which are no longer relevant, etc. September 7, 2021 Instructions were issued to extend the device-based tokenisation framework to Card-on-File Tokenisation (CoFT). September 14, 2021 A project was announced to link fast payment systems in India (UPI) and Singapore (PayNow). October 8, 2021 The per-transaction limit in Immediate Payment Service (IMPS) was increased from `2 lakh to `5 lakh for channels other than SMS and Interactive Voice Response System (IVRS). December 8, 2021 (cid:129) Enablement of small value transactions through an “on-device” wallet in UPI application was announced. (cid:129) The transaction limit for payments through UPI for Retail Direct Scheme and IPO applications was increased from `2 lakh to `5 lakh. January 3, 2022 Framework was issued to enable small value digital payments in offl ine mode using cards, wallets, mobile devices, etc. February 10, 2022 (cid:129) The NACH mandate limit was increased from `1 crore to `3 crore for TReDS settlements. (cid:129) Payment and Settlement Systems Regulations, 2008 were amended for discontinuing certain monthly/quarterly/annual returns prescribed and removing redundant operational guidelines. February 22, 2022 Advisory was issued cautioning the public against PPIs (non-closed) issued by unauthorised entities. March 8, 2022 (cid:129) UPI123Pay was launched to enable UPI payments for feature phone users. (cid:129) DigiSaathi, a 24x7 helpline to address the queries of digital payment users across products, was launched. March 25, 2022 Framework was prescribed for capturing geo-tagging information of payment system touch points deployed by banks/non-bank PSOs. 277CHROANNNOULALO RGEPYOR OT 2F02 1M-22AJOR POLICY ANNEX II ANNOUNCEMENTS TO MITIGATE THE IMPACT OF COVID-19: APRIL 2021 TO MARCH 20221 Date of Policy Initiative Announcement A. Government of India (GoI) April 1, 2021 (cid:129) Credit guarantee scheme for subordinate debt (CGSSD) extended up to September 30, 2021. (cid:129) The Ministry of Finance released an amount of `11,830 crore to 11 states for completing reforms under the scheme of fi nancial assistance to states for capital expenditure. April 11, 2021 GoI prohibited the export of Remdesivir injection and active pharmaceutical ingredient (API) in the wake of surge in COVID-19 cases. April 26, 2021 A dedicated helpdesk was set up by the Central Board of Indirect Taxes and Customs (CBIC) for handling queries related to COVID-19 on imports and handhold the trade, industry and individuals for expeditious customs clearance. April 30, 2021 (cid:129) Additional amount of `15,000 crore to be provided to states as interest free 50-year loan for spending on capital projects under the scheme of fi nancial assistance to states for capital expenditure during 2021-22. (cid:129) Added import of oxygen concentrators for personal use to list of exempted categories, where customs clearance is sought as ''gifts", till July 31, 2021. May 1, 2021 (cid:129) First instalment of `8,873.6 crore for state disaster response fund (SDRF) was released in advance and up to 50 per cent of the SDRF amount was allowed to be used by the states for COVID-19 containment measures. (cid:129) Government extended timelines of certain tax compliances in view of the COVID-19 pandemic. These include extension of the last date of fi ling for objections to dispute resolution panel (DRP), fi ling of return of income, among others, from April 1, 2021 to May 31, 2021. May 2, 2021 Announcement of various relief measures for taxpayers under the goods and services tax (GST) law in view of the COVID-19 pandemic, which include, waiver of late fee, reduction in rate of interest, amendments in central GST (CGST) rule, extension of due date of fi ling GST return 1 (GSTR-1), invoice furnishing facility (IIF), GST return 4 (GSTR-4) and input tax credit-04 (ITC-04), among others. May 3, 2021 Notifi cations regarding ad hoc exemption from the integrated GST (IGST) on imports of specifi ed COVID-19 relief material donated from abroad like Remdesivir injection, medical grade oxygen, COVID-19 vaccines, among others, until June 30, 2021. May 5, 2021 Pradhan Mantri Garib Kalyan Anna Yojana (Phase III), under which additional free distribution of food grains over and above the normal National Food Security Act (NFSA) entitlements of 5 kilogram/ person/month to all NFSA benefi ciaries was extended for two more months - May to June 2021. The programme intends to ensure food security of poor and vulnerable in both rural and urban areas. May 18, 2021 Ministry of Agriculture and Farmers Welfare released a memorandum on continued benefi t of 2 per cent interest subvention (IS) to banks and 3 per cent prompt repayment incentive (PRI) to farmers for short-term loans for agriculture and allied activities, including animal husbandry, dairying and fi sheries (AHDF) up to `3 lakh per farmer (up to `2 lakh for AHDF), due between March 1, 2021, and June 30, 2021, for an extended repayment date up to June 30, 2021. 1 The list is indicative in nature and details for government related measures and those of the Reserve Bank are available on their respective websites. 278CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS ON COVID-19 Date of Policy Initiative Announcement May 20, 2021 Extension of certain timelines in view of the COVID-19 pandemic: (cid:129) The statement of fi nancial transactions (SFT), statement of reportable account, statement of deduction of tax for 2020-21, required to be furnished on or before May 31, 2021 may be furnished on or before June 30, 2021. (cid:129) The certifi cate of tax deducted at source required to be furnished to the employee by June 15, 2021, may be furnished on or before July 15, 2021. May 28, 2021 Recommendations of 43rd GST Council meeting: (cid:129) COVID-19 related medical goods, including amphotericin-B for free distribution to be given full exemption from custom duty and IGST up to August 31, 2021. (cid:129) Amnesty scheme to provide relief to taxpayers regarding late fee for pending returns and rationalisation of late fee for future tax period. (cid:129) Simplifi cation of annual return for 2020-21, with the fi ling of annual return in form GSTR-9/9A for 2020-21 to be optional for taxpayers having aggregate annual turnover up to `2 crore. Self- certifi cation of reconciliation statement, among others, were certain facilities that were additionally provided. May 30, 2021 The scope of emergency credit line guarantee scheme (ECLGS) was enlarged as under: (cid:129) Under ECLGS 4.0, 100 per cent guarantee cover to loans up to `2 crore to hospitals/nursing homes/clinics/medical colleges for setting up on-site oxygen generation plants with interest rate capped at 7.5 per cent. (cid:129) Borrowers who are eligible for restructuring as per the Reserve Bank’s guidelines of May 5, 2021 and had availed loans under ECLGS 1.0 of overall tenure of four years comprising of repayment of interest only during the fi rst 12 months with repayment of principal and interest in 36 months thereafter, would be able to avail a tenure of fi ve years for their ECLGS loan, i.e., repayment of interest only for the fi rst 24 months with repayment of principal and interest in 36 months thereafter. (cid:129) Additional ECLGS assistance of up to 10 per cent of the outstanding as on February 29, 2020 to borrowers covered under ECLGS 1.0, in tandem with restructuring as per the Reserve Bank’s guidelines of May 5, 2021. (cid:129) Current ceiling of `500 crore of loan outstanding for eligibility under ECLGS 3.0 to be removed, subject to maximum additional ECLGS assistance to each borrower being limited to 40 per cent or `200 crore, whichever is lower. (cid:129) Civil aviation sector to be eligible under ECLGS 3.0. (cid:129) Validity of ECLGS extended to September 30, 2021 or till guarantees for an amount of `3 lakh crore are issued. Disbursement under the scheme permitted up to December 31, 2021. June 1, 2021 Restricted exports of amphotericin-B injections. June 15, 2021 GoI simplifi ed registration process for micro, small and medium enterprises (MSMEs). Now only permanent account number (PAN) and Aadhaar are required for MSME registration. June 23, 2021 Extension of Pradhan Mantri Garib Kalyan Anna Yojana (Phase-IV), from July 2021 up to November 2021. 279ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement June 28, 2021 Announcement of relief package of `6,28,993 crore to support Indian economy in its fi ght against the COVID-19 pandemic: • `1.1 lakh crore loan guarantee scheme for COVID-19 affected sectors. (cid:129) Additional `1.5 lakh crore for ECLGS. (cid:129) Credit guarantee scheme to facilitate loans to 25 lakh persons through microfi nance institutions (MFIs). (cid:129) Financial support to more than 11,000 registered tourists/guides/travel and tourism stakeholders. (cid:129) Free one month tourist visa to fi rst 5 lakh tourists. (cid:129) Additional subsidy of `14,775 crore for Di Ammonium Phosphate (DAP) and Phosphatic and Potassic (P&K) fertilisers. (cid:129) An additional amount of `23,220 crore for public health with emphasis on children and paediatric care/paediatric beds. (cid:129) 21 varieties of bio-fortifi ed crops for nutrition, climate resilience and other traits to be dedicated to the nation. (cid:129) Revival of North Eastern Regional Agricultural Marketing Corporation (NERAMAC) with a package of `77.5 crore. • `33,000 crore boost for project exports through national export insurance account (NEIA). • `88,000 crore boost to export insurance cover. • `19,041 crore for broadband to each village through BharatNet public-private partnership (PPP) model. (cid:129) Extension of tenure of production linked incentive (PLI) scheme for large scale electronics manufacturing till 2025-26. • `3.03 lakh crore for reform-based result-linked power distribution scheme. (cid:129) New streamlined process for PPP projects and asset monetisation. June 30, 2021 (cid:129) Loan guarantee scheme for COVID affected sectors (LGSCAS), would be applicable to all eligible loans sanctioned up to March 31, 2022, or till an amount of `50,000 crore is sanctioned, whichever is earlier, to provide fi nancial guarantee cover for brownfi eld expansion and greenfi eld projects related to health/medical infrastructure. (cid:129) Approval for additional funding up to `1,50,000 crore under ECLGS, till September 30, 2021, or till an amount of `4,50,000 crore is sanctioned under the guaranteed emergency credit line (GECL), whichever is earlier. (cid:129) Extension of last date of registration under AatmaNirbhar Bharat Rojgar Yojana (ABRY), from June 30, 2021 to March 31, 2022. July 8, 2021 Approval provided for India COVID-19 emergency response and health systems preparedness package (Phase II), at a cost of `23,123 crore. July 14, 2021 GoI approved continuation of rebate of state and central taxes and levies (RoSCTL) on export of apparel/garments and made-ups till March 31, 2024 at the existing rates. 280CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS ON COVID-19 Date of Policy Initiative Announcement July 19, 2021 (cid:129) Tax exemption to taxpayers who suffered on account of the COVID-19 and had to incur sum for medical treatment of the COVID-19 after taking help from employer or any person. (cid:129) Financial support to public research institutes and industry for developing COVID-19 vaccine. August 16, 2021 Restricted exports of COVID-19 rapid antigen testing kits. September 17, 2021 Extension of timelines for compliances under the Income Tax Act, 1961 in the following cases, as under: (cid:129) Time limit for intimation of Aadhaar number to the Income Tax Department for linking of PAN with Aadhaar was extended from September 30, 2021 to March 31, 2022. (cid:129) The due date for completion of penalty proceedings under the Act was extended from September 30, 2021 to March 31, 2022. (cid:129) Further, the time limit for issuance of notice and passing of order by the adjudicating authority under the Prohibition of Benami Property Transactions Act, 1988, was extended to March 31, 2022. September 28, 2021 Extension of foreign trade policy (FTP) 2015-20 till March 31, 2022. September 29, 2021 Extension of ECLGS till March 31, 2022 or till guarantees for an amount of `4.5 lakh crore are issued under the scheme, whichever is earlier. Further, the last date of disbursement under the ECLGS was also extended to June 30, 2022. October 4, 2021 (cid:129) CGSSD extended up to March 31, 2022. It will aid stressed MSMEs. (cid:129) Restricted exports of syringes with or without needles. November 19, 2021 Ministry of MSMEs launched the special credit linked capital subsidy scheme (SCLCSS) for services sector. This scheme has a provision of 25 per cent capital subsidy for procurement of plant and machinery and service equipment. November 24, 2021 Extension of Pradhan Mantri Garib Kalyan Anna Yojana (Phase V), for a period of another 4 months, i.e., December 2021 till March 2022 at 5 kg foodgrains per person per month free of cost for all the benefi ciaries covered under the NFSA. January 10, 2022 Restricted exports of enoxaparin (formulation and API) and intra-venous immunoglobulin (IVIG) [formulations and API]. February 1, 2022 The Union Budget 2022-23 seeks to complement macro-economic level growth with a focus on micro- economic level all-inclusive welfare. The key announcements included: (cid:129) Extension of ECLGS up to March 2023 and its guarantee cover to be expanded by `50,000 crore. The total cover would be `5 lakh crore. (cid:129) Extension of CGSSD up to March 2023. (cid:129) Additional credit of `2 lakh crore for MSMEs through revamped credit guarantee trust for micro and small enterprises (CGTMSE). (cid:129) Government to roll out raising and accelerating MSME performance (RAMP) programme with an outlay of `6,000 crore. (cid:129) Interlinking the portals of Udyam, e-Shram, national career service (NCS) and ASEEM 2. 2 AatmaNirbhar Skilled Employee Employer Mapping. 281ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement • `1 lakh crore allocated to assist states in catalysing overall investments in 2022-23. The outlay for the scheme for fi nancial assistance to states for capital investment to be enhanced from `10,000 crore in 2021-22 (budget estimates) to `15,000 crore in 2021-22 (revised estimates). (cid:129) Tax incentive was earlier available to eligible start-ups established before March 31, 2022. In order to assist the start-ups for recouping from the effects of pandemic, the period for incorporation of the eligible start-up was extended by one more year up to March 31, 2023. (cid:129) Announcement of national tele mental health programme to provide better access to quality mental health counselling and care services. (cid:129) To impart supplementary teaching and to build a resilient mechanism for education delivery, one class-one TV channel programme of Pradhan Mantri eVIDYA, would be introduced. March 26, 2022 Extension of Pradhan Mantri Garib Kalyan Anna Yojana (Phase-VI), for another 6 months (April- September 2022). March 30, 2022 The coverage, scope and extent of benefi ts under ECLGS 3.0 pertaining to hospitality, travel, tourism and civil aviation sectors has been expanded as follows: (cid:129) New borrowers in the sectors covered under ECLGS 3.0 who have borrowed after March 31, 2021 and up to January 31, 2022 will also now be eligible to avail of emergency credit facilities under ECLGS 3.0. (cid:129) The extent of emergency credit facilities that may be availed of under ECLGS 3.0 has been increased for eligible borrowers in all sectors covered under ECLGS 3.0. Eligible borrowers in all such sectors (other than the civil aviation sector) are now permitted to avail up to 50 per cent of their highest fund-based credit. This is subject to the existing maximum limit of `200 crore per borrower. Eligible borrowers in the civil aviation sector can avail of up to 50 per cent of their highest total fund and non-fund-based credit outstanding, subject to a maximum of `400 crore per borrower. March 31, 2022 Extension of FTP 2015-20 till September 30, 2022. B. Reserve Bank of India Monetary Policy Department April 7, 2021 (cid:129) The monetary policy committee (MPC) decided to keep the policy repo rate unchanged at 4.0 per cent and to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that infl ation remains within the target going forward.3 (cid:129) Special refi nance facilities for a total amount of `50,000 crore were granted to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB) to enable them to meet sectoral credit needs.4 3 The MPC maintained status quo on the repo rate and the accommodative stance in all its subsequent meetings in 2021-22. 4 This comprised `25,000 crore to NABARD for refi nancing regional rural banks (RRBs), cooperative banks and microfi nance institutions (MFIs); `15,000 crore to SIDBI for on-lending/refi nancing; and `10,000 crore to NHB for supporting housing fi nance companies (HFCs). Advances under this facility were provided at the Reserve Bank’s policy repo rate. 282CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS ON COVID-19 Date of Policy Initiative Announcement May 5, 2021 To further incentivise inclusion of unbanked MSMEs into the banking system, cash reserve ratio (CRR) exemption available to scheduled commercial banks (SCBs) for exposures up to `25 lakh and for credit disbursed up to the fortnight ending October 1, 2021 was extended till December 31, 2021. June 4, 2021 Special refi nance facility for a total amount of `16,000 crore was provided to SIDBI to meet short- and medium-term credit needs of MSMEs to kick-start the investment cycle with additional focus on smaller MSMEs and businesses, including those in credit defi cient and aspirational districts. August 6, 2021 The enhanced limit for availing funds up to three per cent of net demand and time liabilities (NDTL) under the marginal standing facility (MSF) was extended for a further period of six months, i.e., up to December 31, 2021, to provide comfort to banks on their liquidity requirements. December 8, 2021 The borrowing limit under the MSF was restored to the pre-pandemic level of 2 per cent from 3 per cent, effective January 1, 2022. Financial Inclusion and Development Department May 5, 2021 The priority sector lending (PSL) classifi cation was permitted to the fresh credit extended by small fi nance banks (SFBs) to registered NBFC - microfi nance institutions (NBFC - MFIs) and other MFIs (societies, trusts, etc.), which are members of the Reserve Bank recognised ‘self-regulatory organisation’ of the sector, and which have a ‘gross loan portfolio’ of up to `500 crore as on March 31, 2021, for the purpose of on-lending to individuals. Bank credit as above was permitted up to 10 per cent of the bank’s total priority sector portfolio as on March 31, 2021. Financial Markets Operations Department April 7, 2021 (cid:129) The on-tap targeted long-term repo operations (TLTRO) scheme announced on October 9, 2020, and initially made available up to March 31, 2021, was extended by a period of six months, i.e., up to September 30, 2021. It was later extended till December 31, 2021. May 5, 2021 (cid:129) It was decided to open an on-tap term liquidity window of `50,000 crore to ease access to emergency health services, with tenors of up to three years at the repo rate till March 31, 2022. It aimed to boost provision of immediate liquidity for ramping up COVID-related healthcare infrastructure and services in the country. The scheme was later extended up to June 30, 2022. (cid:129) To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the pandemic, it was decided to conduct special three- year long-term repo operations (SLTRO) of `10,000 crore at repo rate for SFBs, to be deployed for fresh lending of up to `10 lakh per borrower. This facility was initially made available till October 31, 2021. It was later extended to December 31, 2021 and made on-tap. June 4, 2021 It was decided to open a separate liquidity window for contact intensive sectors for an amount of `15,000 crore with tenors of up to three years at the repo rate till March 31, 2022. It was later extended up to June 30, 2022. Foreign Exchange Department April 7, 2021 In the normal course, borrowers of external commercial borrowings (ECBs) are allowed to park ECB proceeds in term deposits with authorised dealer (AD) category-I banks in India for a maximum period of 12 months cumulatively. With a view to provide relief to ECB borrowers during the COVID-19 pandemic, it was decided to relax this stipulation as a one-time measure. Accordingly, unutilised ECB proceeds drawn down on or before March 1, 2020, could be parked in term deposits with authorised dealer category-I banks in India prospectively, for an additional period up to March 1, 2022. 283ANNUAL REPORT 2021-22 Date of Policy Initiative Announcement Department of Regulation April 7, 2021 Guidelines were issued to ensure consistency of approach across lending institutions in applying the asset classifi cation norms in respect of their borrowers and the methodology adopted for refund of the compound interest charged during March 1, 2020 to August 31, 2020. April 22, 2021 In view of the continuing uncertainty caused by the second wave of COVID-19 in the country, it was crucial that banks remain resilient and proactively raise and conserve capital as a bulwark against unexpected losses. Therefore, it was decided to allow commercial banks to declare dividend on equity shares from the profi ts for the fi nancial year ended March 31, 2021, subject to the quantum of dividend being not more than 50 per cent of the amount determined as per the dividend pay-out ratio prescribed under extant instructions. Cooperative banks were allowed to declare dividend on equity shares from the profi ts of the fi nancial year ended March 31, 2021, as per the extant instructions. May 5, 2021 (cid:129) In view of the resurgence of COVID-19, the Resolution Framework 2.0 was announced, which permits lending institutions to restructure eligible loans, which had not been restructured under Resolution Framework 1.0 dated August 6, 2020, and were classifi ed as standard as on March 31, 2021, while classifying the restructured exposures as standard subject to conditions. The framework shall have to be invoked by September 30, 2021 and will have to be implemented within 90 days from the date of invocation. Even in respect of MSME accounts as well as other eligible accounts restructured under earlier schemes, lending institutions have been permitted, as a one-time measure, to review the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring. (cid:129) It was decided to extend the exemption available for SCBs to deduct the amount equivalent to credit disbursed to new MSME borrowers, up to `25 lakh per borrower, from their NDTL for calculation of the CRR for credit disbursed up to the fortnight ending October 1, 2021 to the fortnight ending December 31, 2021. (cid:129) In view of the impact on banks due to COVID-19, as a measure to enable capital conservation, banks have been permitted to utilise 100 per cent of fl oating provisions/countercyclical provisioning buffer held by them as on December 31, 2020 for making specifi c provisions for NPAs with prior approval of their boards. Such utilisation is permitted with immediate effect and up to March 31, 2022. (cid:129) In terms of the Master Direction on know your customer (KYC), regulated entities (REs) have been instructed to carry out periodic updation of KYC of existing customers. Keeping in view the COVID-19 related restrictions in various parts of the country, REs were advised, that in respect of the customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/enforcement agency/court of law, etc. REs were also advised to continue engaging with such customers to get their KYC updated. June 4, 2021 (cid:129) In view of the diffi culties faced by cooperative banks [i.e., urban cooperative banks (UCBs), state cooperative banks and central cooperative banks] due to COVID-19 pandemic, the timeline for submission of returns under Section 31 of the Banking Regulation Act 1949 (As Applicable to Cooperative Societies) for the fi nancial year ended March 31, 2021, was extended by three months, i.e., till September 30, 2021. 284CHRONOLOGY OF MAJOR POLICY ANNOUNCEMENTS ON COVID-19 Date of Policy Initiative Announcement (cid:129) Under Resolution Framework 2.0 for resolution of COVID-19 related stress, the aggregate exposure thresholds for individuals, small businesses and MSMEs was `25 crore. On a review, the above exposure threshold was increased to `50 crore. August 6, 2021 The resolution plans implemented in terms of the resolution framework for COVID-19 related stress issued on August 6, 2020 were required to achieve certain fi nancial parameters by March 31, 2022. In view of the resurgence of the COVID-19 pandemic in 2021 and recognising the diffi culties it may pose for the borrowers in meeting the operational parameters, it was decided to defer the target date to October 1, 2022 for meeting the specifi ed thresholds in respect of the four operational parameters, viz., total debt/earnings before interest, taxes, depreciation and amortisation (TD/EBITDA), current ratio, debt service coverage ratio (DSCR) and average debt service coverage ratio (ADSCR). However, the target date for achieving the total outside liabilities/adjusted tangible net worth (TOL/ATNW) ratio, as crystallised in terms of the resolution plan, was kept unchanged as March 31, 2022. August 9, 2021 SCBs were allowed to avail of funds under the MSF by dipping into the SLR up to three per cent of their NDTL outstanding at the end of the second preceding fortnight. This facility, which was initially available up to June 30, 2020, was later extended up to December 31, 2021, providing comfort to banks on their liquidity requirements and also to enable them to meet their liquidity coverage ratio (LCR) requirements. December 30, 2021 Keeping in view the COVID-19 related restrictions in various parts of the country, REs were advised that in respect of the customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/enforcement agency/court of law, etc. REs were also advised to continue engaging with such customers to get their KYC updated. In view of the prevalent uncertainty due to new variant of COVID-19, the relaxation has been extended till March 31, 2022. Internal Debt Management Department April 23, 2021 (cid:129) The existing interim ways and means advances (WMA) limit of `51,560 crore for all states/UTs was extended for six months, i.e., up to September 30, 2021. (cid:129) Relaxed overdraft (OD) regulations were continued to be in force, wherein, the number of days for which a state/UT can be in OD continuously was increased from 14 working days to 21 working days, and the number of days for which a state/UT can be in OD in a quarter was increased from 36 working days to 50 working days. October 8, 2021 (cid:129) The existing interim WMA limit of `51,560 crore for state governments/UTs were extended for another six months up to March 31, 2022. (cid:129) Relaxed OD regulations for state governments/UTs were extended for six months, i.e., up to March 31, 2022. Department of Payment and Settlement Systems May 21, 2021 Timeline prescribed for compliance in respect of a few areas (net-worth requirement for existing non- bank prepaid payment instrument (PPI) issuers, timeline for existing non-bank payment aggregators to apply to the Reserve Bank for seeking authorisation to offer payment aggregator services, etc.) was extended. 285ANNUAL REPORT 2021-22 APPENDIX TABLE 1: MACROECONOMIC AND FINANCIAL INDICATORS Item Average Average 2019-20 2020-21 2021-22 2003-04 2009-10 to to 2007-08 2013-14 (5 years) (5 years) 1 2 3 4 5 6 I. Real Economy I.1 Real GDP at market prices (% change)* 7.9 6.7 3.7 -6.6 8.9 I.2 Real GVA at basic prices (% change)* 7.7 6.3 3.8 -4.8 8.3 I.3 Foodgrains Production (Million tonnes)** 213.6 248.8 297.5 308.7 314.5 I.4 a) Food Stocks (Million tonnes)*** 18.6 50.1 74.0 78.0 74.0 b) Procurement (Million tonnes)*** 39.3 61.3 80.2 97.2 107.2 c) Off-take (Million tonnes)*** 41.5 57.0 62.2 93.1 102.3 I.5 Index of Industrial Production (% change)& 9.3 3.5 -0.8 -8.4 11.3 I.6 Index of Eight Core Industries (% change)& 5.9 5.8 0.4 -6.4 10.4 I.7 Gross Domestic Saving Rate (% of GNDI at current prices)* 33.6 33.9 29.4 27.8 - I.8 Gross Domestic Investment Rate (% of GDP at current prices)* 35.2 38.0 30.7 27.3 - II. Prices II.1 Consumer Price Index (CPI) Combined (average % change) - - 4.8 6.2 5.5 II.2 CPI-Industrial Workers (average % change) 5.0 10.3 7.5 5.0 5.1 II.3 Wholesale Price Index (average % change) 5.5 7.1 1.7 1.3 13.0 III. Money and Credit&& III.1 Reserve Money (% change) 20.4 12.1 9.4 18.8 12.3 III.2 Broad Money (M3) (% change) 18.6 14.7 8.9 12.2 8.7 III.3 a) Aggregate Deposits of Scheduled Commercial Banks (% change) 20.2 15.0 7.9 11.4 8.9 b) Bank Credit of Scheduled Commercial Banks (% change) 26.7 16.7 6.1 5.6 9.6 IV. Financial Markets IV.1 Interest rates (%) a) Call/Notice Money rate 5.6 7.2 5.4 3.4 3.3 b) 10 year G-sec yield 7.0 8.0 6.7 6.0 6.3 c) 91-Days T-bill yield - - 5.5 3.3 3.5 d) Weighted Average cost of Central Government Borrowings - - 6.9 5.8 6.3 e) Commercial Paper 7.7 8.4 6.6 4.2 4.3 f) Certifi cate of Deposits 8.9 8.2 5.9 4.3 4.1 IV.2 Liquidity (` lakh crore ) a) LAF Outstanding~ - - 2.6 4.1 5.9 b) MSS Outstanding~~ - - - - - c) Average Daily Call Money Market Turnover 0.2 0.3 0.3 0.2 0.2 d) Average Daily G-sec Market Turnover 0.1 0.2 0.6 0.4 0.4 e) Variable Rate Repo~ - - 0.895 0.005 0.000 f) Variable Rate Reverse Repo~ - - 1.2 0.0 2.8 g) MSF~ - - 0.020 0.001 0.0005 V. Government Finances# V.1 Central Government Finances (% of GDP) a) Revenue Receipts 10.0 9.2 8.4 8.3 8.8 b) Capital Outlay 1.6 1.6 1.6 1.6 2.3 c) Total Expenditure 14.9 15.0 13.4 17.7 15.9 d) Gross Fiscal Defi cit 3.7 5.4 4.7 9.2 6.7 V.2 State Government Finances## a) Revenue Defi cit (% of GDP) 0.0 -0.1 0.6 2.0 0.5 b) Gross Fiscal Defi cit (% of GDP) 2.7 2.3 2.6 4.7 3.5 c) Primary Defi cit (% of GDP) 0.3 0.6 0.9 2.7 1.6 286APPENDIX TABLES APPENDIX TABLE 1: MACROECONOMIC AND FINANCIAL INDICATORS (Concld.) Item Average Average 2019-20 2020-21 2021-22 2003-04 2009-10 to to 2007-08 2013-14 (5 years) (5 years) 1 2 3 4 5 6 VI. External Sector VI.1 Balance of Payments^ a) Merchandise Exports (% change) 25.3 12.2 -5.0 -7.5 51.8 b) Merchandise Imports (% change) 32.3 9.7 -7.6 -16.6 68.3 c) Trade Balance/GDP (%) -5.5 -9.1 -5.6 -3.8 -5.9 d) Invisible Balance/GDP (%) 5.2 5.8 4.7 4.7 4.7 e) Current Account Balance/GDP (%) -0.3 -3.3 -0.9 0.9 -1.2 f) Net Capital Flows/GDP (%) 4.7 3.8 2.9 2.4 3.9 g) Reserve Changes [(BoP basis) (US$ billion) -40.3 -6.6 -59.5 -87.3 -63.5 [(Increase (-)/Decrease (+)] VI.2 External Debt Indicators$ a) External Debt Stock (US$ billion) 156.5 359.0 558.3 573.7 614.9 b) Debt-GDP Ratio (%) 17.8 20.9 20.9 21.2 20.0 c) Import cover of Reserves (in Months) 14.0 8.5 12.0 17.4 13.1 d) Short-term Debt to Total Debt (%) 13.6 21.3 19.1 17.6 18.6 e) Debt Service Ratio (%) 8.3 5.6 6.5 8.2 4.9 f) Reserves to Debt (%) 113.7 84.8 85.6 100.6 103.0 VI.3 Openness Indicators (%)^ a) Export plus Imports of Goods/GDP 30.7 41.0 28.2 26.0 33.0 b) Export plus Imports of Goods & Services/GDP 41.3 53.2 40.3 38.2 45.6 c) Current Receipts plus Current Payments/GDP 47.1 59.4 46.2 44.4 51.5 d) Gross Capital Infl ows plus Outfl ows/GDP 37.3 50.4 40.2 42.5 47.9 e) Current Receipts & Payments plus Capital Receipts & Payments/ 84.4 109.8 86.4 86.9 99.4 GDP VI.4 Exchange Rate Indicators a) Exchange Rate (Rupee/US Dollar) End of Period 43.1 51.1 75.4 73.5 75.8 Average 44.1 51.2 70.9 74.2 74.5 b) 40-Currency REER (% change)*** 3.1^^ 0.8 2.6 0.3 1.2 c) 40-Currency NEER (% change)*** 1.7^^ -4.9 0.6 -4.2 -0.8 d) 6-Currency REER (% change) 5.7^^ 2.3 3.3 -1.7 0.4 e) 6-Currency NEER (% change) 2.6^^ -5.1 0.7 -6.8 -1.6 - : Not Available. * : Data are at 2011-12 base year series. ** : Data for 2021-22 are Third Advance Estimates for agriculture production. *** : Data for 2021-22 are provisional. & : Data for 2021-22 are provisional and pertain to April 2021- March 2022. && : Data for 2021-22 are provisional and is outstanding as on March 25, 2022. $ : Data for 2021-22 are provisional and pertain to end-December 2021. ~ : Outstanding as on March 31. ~~ : Outstanding as on last Friday of the fi nancial year. # : Data for 2021-22 are revised estimates. ## : Data for 2020-21 are provisional accounts (PA) fi gures of 26 States available with Comptroller and Auditor General and budget estimates (BE) for the remaining 5 States/UTs. ^ : Data for 2021-22 are provisional and pertain to April-December 2021 unless indicated otherwise. ^^ : Data in column 2 is average of period 2005-06 to 2007-08. Note : 1. For Index of Industrial Production, data in column 2 and 3 at 2011-12 base year. 2. Base year for WPI is 2011-12=100 for annual data and 2004-05=100 for average of 5 years infl ation. Base for CPI-IW is 2001=100 till August 2020 and 2016=100 from September 2020 onwards 3. For Average Daily G-sec Market Turnover, outright trading turnover is in central government dated securities (based on calendar days). 4. LAF negative value means injection. 5. Base year for 6- and 40-currency NEER/REER indices is 2015-16=100. REER fi gures are based on Consumer Price Index. Source : RBI, National Statistical Offi ce, Ministry of Agriculture & Farmers Welfare, Ministry of Commerce and Industry, Food Corporation of India (FCI), Labour Bureau and Budget documents of the central and state governments. 287ANNUAL REPORT 2021-22 APPENDIX TABLE 2 : GROWTH RATES AND COMPOSITION OF REAL GROSS DOMESTIC PRODUCT (At 2011-12 Prices) (Per cent) Sector Growth Rate Share Average 2019-20 2020-21 2021-22* 2019-20 2020-21 2021-22* 2014-15 to 2021-22 1 2 3 4 5 6 7 8 Expenditure Side GDP 1. Private Final Consumption Expenditure 5.3 5.2 -6.0 7.6 56.9 57.3 56.6 2. Government Final Consumption Expenditure 6.4 3.4 3.6 4.8 10.2 11.3 10.9 3. Gross Fixed Capital Formation 5.3 1.6 -10.4 14.6 31.8 30.5 32.0 4. Change in Stocks -218.5 -58.8 -110.7 -1723.9 0.7 -0.1 1.3 5. Valuables 14.0 -14.2 26.4 63.0 1.1 1.5 2.3 6. Net Exports -37.8 -16.1 39.1 -102.7 -3.5 -2.3 -4.2 a) Exports 3.3 -3.4 -9.2 21.1 19.4 18.8 20.9 b) Less Imports 5.1 -0.8 -13.8 29.9 22.9 21.1 25.2 7. Discrepancies -13.2 164.2 -39.8 -28.4 2.7 1.8 1.2 8. GDP 5.4 3.7 -6.6 8.9 100.0 100.0 100.0 GVA at Basic Prices (Supply Side) 1. Agriculture, forestry and fi shing 3.5 5.5 3.3 3.3 15.0 16.3 15.5 2. Industry 5.7 -2.2 -1.8 10.4 21.8 22.5 22.9 of which: a) Mining and quarrying 3.2 -1.5 -8.6 12.6 2.4 2.3 2.4 b) Manufacturing 6.1 -2.9 -0.6 10.5 17.1 17.9 18.2 c) Electricity, gas, water supply and other utility 5.8 2.2 -3.6 7.8 2.3 2.3 2.3 services 3. Services 5.7 5.7 -7.8 8.8 63.2 61.2 61.5 of which: a) Construction 3.7 1.2 -7.3 10.0 7.9 7.7 7.8 b) Trade, hotels, transport, communication and 5.3 5.9 -20.2 11.6 20.3 17.1 17.6 services related to broadcasting c) Financial, real estate and professional services 6.5 6.7 2.2 4.3 21.9 23.5 22.7 d) Public Administration, defence and other services 6.6 6.3 -5.5 12.5 13.1 13.0 13.5 4. GVA at basic prices 5.3 3.8 -4.8 8.3 100.0 100.0 100.0 *: Second advance estimates of national income for 2021-22. Source: National Statistical Offi ce (NSO). 288APPENDIX TABLES APPENDIX TABLE 3: GROSS SAVINGS (Per cent of GNDI) Item 2017-18 2018-19 2019-20 2020-21 1 2 3 4 5 I. Gross Savings 31.7 31.3 29.4 27.8 1.1 Non-fi nancial corporations 11.6 10.7 10.4 9.9 1.1.1 Public non-fi nancial corporations 1.4 1.3 1.4 1.4 1.1.2 Private non-fi nancial corporations 10.2 9.4 9.0 8.5 1.2 Financial corporations 2.2 1.8 2.9 2.8 1.2.1 Public fi nancial corporations 1.4 0.9 1.5 1.4 1.2.2 Private fi nancial corporations 0.9 0.9 1.3 1.4 1.3 General Government -1.2 -1.4 -3.1 -6.7 1.4 Household sector 19.0 20.0 19.2 21.9 1.4.1 Net fi nancial saving 7.5 7.8 7.9 11.5 Memo: Gross fi nancial saving 11.9 11.8 11.7 15.5 1.4.2 Saving in physical assets 11.2 12.0 11.1 10.2 1.4.3 Saving in the form of valuables 0.3 0.2 0.2 0.2 GNDI: Gross national disposable income. Note: Net fi nancial saving of the household sector is obtained as the difference between gross fi nancial savings and fi nancial liabilities during the year. Source: NSO. 289ANNUAL REPORT 2021-22 APPENDIX TABLE 4: INFLATION, MONEY AND CREDIT (Per cent) Infl ation Consumer Price Index (All India)# Rural Urban Combined 2019-20 2020-21 2021-22 2019-20 2020-21 2021-22 2019-20 2020-21 2021-22 1 2 3 4 5 6 7 8 9 10 General Index (All Groups) 4.3 5.9 5.4 5.4 6.5 5.6 4.8 6.2 5.5 Food and beverages 4.8 7.1 3.9 8.1 7.7 4.7 6.0 7.3 4.2 Housing … … … 4.5 3.3 3.7 4.5 3.3 3.7 Fuel and light 1.1 0.3 10.0 1.7 7.1 13.4 1.3 2.7 11.3 Miscellaneous 5.1 5.7 6.6 3.7 7.5 6.8 4.4 6.6 6.7 Excluding Food and Fuel 4.1 5.5 6.7 4.0 5.6 5.4 4.0 5.5 6.0 Other Price Indices 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 1. Wholesale Price Index (2011-12=100) All Commodities 5.2 1.3 -3.7 1.7 2.9 4.3 1.7 1.3 13.0 Primary Articles 9.8 2.2 -0.4 3.4 1.4 2.7 6.8 1.7 10.2 of which : Food Articles 12.3 5.6 2.6 4.0 2.1 0.3 8.4 3.2 4.1 Fuel and Power 7.1 -6.1 -19.7 -0.3 8.2 11.5 -1.8 -8.0 32.8 Manufactured Products 3.0 2.6 -1.8 1.3 2.7 3.7 0.3 2.8 11.0 Non-Food Manufactured Products 2.7 2.7 -1.8 -0.1 3.0 4.2 -0.4 2.2 10.9 2. CPI- Industrial Workers (IW) (2001=100)* 9.7 6.3 5.6 4.1 3.1 5.4 7.5 5.0 5.1 of which : CPI- IW Food 12.3 6.5 6.1 4.4 1.5 0.6 7.4 5.8 4.7 3. CPI- Agricultural Labourers (1986-87=100) 11.6 6.6 4.4 4.2 2.2 2.1 8.0 5.5 4.0 4. CPI- Rural Labourers (1986-87=100) 11.5 6.9 4.6 4.2 2.3 2.2 7.7 5.5 4.2 Money and Credit 2013-14 2014-15 2015-16 2016-17^ 2017-18 2018-19 2019-20 2020-21 2021-22^^ Reserve Money (RM) 14.4 11.3 13.1 -12.9 27.3 14.5 9.4 18.8 12.3 Currency in Circulation 9.2 11.3 14.9 -19.7 37.0 16.8 14.5 16.6 9.7 Bankers’ Deposits with RBI 34.0 8.3 7.8 8.4 3.9 6.4 -9.6 28.5 25.3 Currency-GDP Ratio$ 11.6 11.6 12.1 8.7 10.7 11.3 12.2 14.4 13.7 Narrow Money (M1) 8.5 11.3 13.5 -3.9 21.8 13.6 11.2 16.2 10.5 Broad Money (M3) 13.4 10.9 10.1 6.9 9.2 10.5 8.9 12.2 8.7 Currency-Deposit Ratio 15.1 15.2 16.0 11.0 14.4 15.4 16.3 17.2 17.5 Money Multiplier (Ratio)$$ 5.5 5.5 5.3 6.7 5.8 5.6 5.5 5.2 5.2 GDP-M3 Ratio$ 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.1 1.1 Scheduled Commercial Banks Aggregate Deposits 14.1 10.7 9.3 11.3 6.2 10.0 7.9 11.4 8.9 Bank Credit 13.9 9.0 10.9 4.5 10.0 13.3 6.1 5.6 9.6 Non-food Credit 14.2 9.3 10.9 5.2 10.2 13.4 6.1 5.5 9.7 Credit-Deposit Ratio 77.8 76.6 77.7 72.9 75.5 77.7 76.4 72.4 72.2 Credit-GDP Ratio$ 53.4 52.4 52.6 50.9 50.5 51.7 51.7 55.3 52.1 # : Base for Consumer Price Index (All India) is 2012=100. … : CPI Rural for Housing is not compiled. * : Base for CPI-IW is 2001=100 till August 2020 and 2016=100 from September 2020 onwards. ^ : March 31, 2017, over April 1, 2016, barring RM and its components. ^^ : Data pertain to March 25, 2022, for column 10. $ : GDP fi gures used in this table are on 2011-12 base, which are the latest available estimates. GDP refers to GDP at Current Market Prices. $$ : Not expressed in per cent. Note: 1. Data refers to y-o-y change in per cent unless specifi ed otherwise. 2. Ratios not expressed in per cent. Source: RBI, NSO, Labour Bureau and Ministry of Commerce and Industry. 290APPENDIX TABLES APPENDIX TABLE 5: CAPITAL MARKET - PRIMARY AND SECONDARY (Amount in ` crore) Item 2020-21 2021-22 (P) Number Amount Number Amount 1 2 3 4 5 I. PRIMARY MARKET A. Public and Rights Issues 1. Private Sector (a+b) 90 1,07,867.9 192 1,50,483.6 a) Financial 26 31,395.9 36 24,477.4 b) Non-Financial 64 76,472.0 156 1,26,006.3 2. Public Sector (a+b+c) 5 12,485.2 … … a) Public Sector Undertakings 2 1,262.9 … … b) Government Companies … … … … c) Banks/Financial Institutions 3 11,222.3 … … 3. Total (1+2, i+ii, a+b) 95 1,20,353.1 192 1,50,483.6 Instrument Type (i) Equity 78 1,10,118.3 164 1,38,894.2 (ii) Debt 17 10,234.8 28 11,589.4 Issuer Type (a) IPOs 55 31,029.7 120 1,12,552.5 (b) Listed 40 89,323.4 72 37,931.2 B. Euro Issues (ADRs and GDRs) … … … … C. Private Placement 1. Private Sector (a+b) 1,778 4,39,420.8 1,323 4,09,475.1 a) Financial 1,481 2,82,705.3 1,055 3,01,948.8 b) Non-Financial 297 1,56,715.5 268 1,07,526.3 2. Public Sector (a+b) 264 3,91,768.9 158 2,17,723.1 a) Financial 174 2,61,055.9 110 1,63,336.2 b) Non-Financial 90 1,30,713.0 48 54,386.9 3. Total (1+2, i+ii) 2,042 8,31,189.7 1,481 6,27,198.2 (i) Equity 30 74,738.4 29 31,438.5 (ii) Debt 2,012 7,56,451.2 1,452 5,95,759.8 D. Qualifi ed Institutional Placement 31 82,423.6 29 31,438.5 E. Mutual Funds Mobilisation (Net)# 2,14,743.0 2,46,729.6 1. Private Sector 1,42,377.9 1,48,286.9 2. Public Sector 72,365.1 98,442.7 II. SECONDARY MARKET BSE Sensex: End-Period 49,509.2 58,568.5 Period Average 40,826.4 55,774.6 Price Earnings Ratio@ 34.4 25.8 Market Capitalisation to GDP ratio (%) 103.2 111.7 Turnover Cash Segment 10,45,089.5 13,38,225.3 Turnover Equity Derivatives Segment 3,50,60,169.0 6,60,78,327.8 NSE Nifty 50: End-Period 14,690.7 17,464.8 Period Average 12,016.9 16,662.7 Price Earnings Ratio@ 33.2 22.9 Market Capitalisation to GDP ratio (%) 102.5 110.7 Turnover Cash Segment 1,53,97,908.2 1,65,66,257.4 Turnover Equity Derivatives Segment 64,36,18,108.1 1,69,52,33,134.5 …: Nil. P: Provisional (for 2021-22). #: Net of redemptions. @: As at end of the period. Note: Figures in the columns might not add up to the total due to rounding of numbers. Source: SEBI, NSE, BSE, various merchant bankers and RBI staff calculations. 291ANNUAL REPORT 2021-22 APPENDIX TABLE 6: KEY FISCAL INDICATORS (As per cent of GDP) Year Primary Defi cit Revenue Defi cit Primary Revenue Gross Fiscal Outstanding Outstanding Defi cit Defi cit Liabilities@ Liabilities$ 1 2 3 4 5 6 7 Centre 1990-91 4.0 3.2 -0.5 7.7 54.6 60.6 1995-96 0.8 2.5 -1.7 5.0 50.3 58.3 2000-01 0.9 4.0 -0.7 5.6 54.6 60.4 2009-10 3.2 5.3 2.0 6.6 55.4 57.3 2010-11 1.8 3.3 0.2 4.9 51.6 53.2 2011-12 2.8 4.5 1.4 5.9 51.7 53.5 2012-13 1.8 3.7 0.5 4.9 51.0 52.5 2013-14 1.1 3.2 -0.2 4.5 50.5 52.2 2014-15 0.9 2.9 -0.3 4.1 50.1 51.4 2015-16 0.7 2.5 -0.7 3.9 50.1 51.5 2016-17 0.4 2.1 -1.1 3.5 48.4 49.5 2017-18 0.4 2.6 -0.5 3.5 48.3 49.5 2018-19 0.4 2.4 -0.7 3.4 48.5 49.6 2019-20 1.6 3.3 0.3 4.7 51.6 52.8 2020-21 5.7 7.3 3.9 9.2 61.7 62.8 2021-22 (RE)# 3.3 4.6 1.2 6.7 58.1 58.9 2022-23 (BE) 2.8 3.8 0.2 6.4 59.5 60.2 States* 1990-91 1.8 0.9 -0.6 3.3 22.2 22.2 1995-96 0.8 0.7 -1.1 2.6 20.8 20.8 2000-01 1.8 2.5 0.1 4.2 28.1 28.1 2009-10 1.2 0.4 -1.4 3.0 26.4 26.4 2010-11 0.4 -0.2 -1.8 2.1 24.4 24.4 2011-12 0.4 -0.3 -1.9 2.0 23.2 23.2 2012-13 0.4 -0.3 -1.8 2.0 22.6 22.6 2013-14 0.7 0.0 -1.5 2.2 22.3 22.3 2014-15 1.1 0.3 -1.2 2.6 22.0 22.0 2015-16 1.5 0.0 -1.6 3.0 23.7 23.7 2016-17 1.8 0.2 -1.4 3.5 25.1 25.1 2017-18 0.7 0.1 -1.6 2.4 25.1 25.1 2018-19 0.8 0.1 -1.6 2.4 25.3 25.3 2019-20 0.9 0.6 -1.1 2.6 26.7 26.7 2020-21 (PA) 2.4 1.7 0.0 4.2 31.1 31.1 2021-22 (BE) 1.6 0.5 -1.4 3.5 29.4 29.4 2022-23 (BE) … … … … … … ... : Not Available. RE: Revised Estimates. BE: Budget Estimates. PA: Provisional Accounts. @ : Includes external liabilities of the centre calculated at historical exchange rates. $ : Includes external liabilities of the centre calculated at current exchange rates. # : Going by the principle of using latest GDP data for any year, GDP used for 2021-22 (RE) is the latest available Second Advance Estimates. In view of this, the fi scal indicators as per cent to GDP given in this table may at times marginally vary from those reported in the Union Budget documents. * : Data for 2020-21 are provisional account (PA) fi gures of 26 States available with Comptroller and Auditor General; and BE for the remaining 5 states/UTs. Primary revenue defi cit and outstanding liabilities of states in 2020-21 as per the revised estimates. Note: 1. Negative sign (-) indicates surplus in defi cit indicators. 2. GDP fi gures used in this table are on 2011-12 base, which are the latest available estimates. 3. Columns 6 and 7 are outstanding fi gures as at end-March of respective years. Source: Budget documents of central and state governments, Status paper on government debt and Quarterly report on public debt management. 292APPENDIX TABLES APPENDIX TABLE 7: COMBINED RECEIPTS AND DISBURSEMENTS OF THE CENTRAL AND STATE GOVERNMENTS (Amount in ` thousand crore) Item 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 RE BE 1 2 3 4 5 6 7 1 Total Disbursements 4,266 4,516 5,041 5,411 6,524 7,161 1.1 Developmental 2,538 2,635 2,883 3,074 3,906 4,254 1.1.1 Revenue 1,878 2,029 2,224 2,447 3,259 3,242 1.1.2 Capital 501 519 597 588 636 923 1.1.3 Loans 158 87 62 40 11 89 1.2 Non-Developmental 1,673 1,812 2,078 2,253 2,527 2,811 1.2.1 Revenue 1,555 1,741 1,966 2,110 2,335 2,602 1.2.1.1 Interest Payments 724 815 895 956 1,082 1,244 1.2.2 Capital 116 69 111 141 189 177 1.2.3 Loans 2 2 1 2 2 31 1.3 Others 55 68 80 83 91 96 2 Total Receipts 4,288 4,528 5,023 5,734 6,490 7,039 2.1 Revenue Receipts 3,132 3,376 3,798 3,852 3,834 4,682 2.1.1 Tax Receipts 2,622 2,978 3,279 3,232 3,176 3,830 2.1.1.1 Taxes on commodities and services 1,652 1,854 2,030 2,013 2,101 2,515 2.1.1.2 Taxes on Income and Property 966 1,121 1,246 1,216 1,072 1,311 2.1.1.3 Taxes of Union Territories 4 3 3 3 3 4 (Without Legislature) 2.1.2 Non-Tax Receipts 510 398 519 620 659 852 2.1.2.1 Interest Receipts 33 34 36 31 40 33 2.2 Non-debt Capital Receipts 69 142 140 110 55 201 2.2.1 Recovery of Loans & Advances 21 42 45 60 21 20 2.2.2 Disinvestment proceeds 48 100 96 51 34 182 3 Gross Fiscal Defi cit [ 1 - ( 2.1 + 2.2 ) ] 1,065 997 1,103 1,449 2,635 2,278 3A Sources of Financing: Institution-wise 3A.1 Domestic Financing 1,047 989 1,097 1,441 2,580 2,276 3A.1.1 Net Bank Credit to Government 617 145 387 572 890 … 3A.1.1.1 Net RBI Credit to Government 196 -145 326 190 107 … 3A.1.2 Non-Bank Credit to Government 430 844 710 869 1,690 … 3A.2 External Financing 18 8 6 9 55 2 3B Sources of Financing: Instrument-wise 3B.1 Domestic Financing 1,047 989 1,097 1,441 2,580 2,276 3B.1.1 Market Borrowings (net) 690 795 796 971 1,778 1,621 3B.1.2 Small Savings (net) 35 71 89 209 456 368 3B.1.3 State Provident Funds (net) 46 42 51 38 47 46 3B.1.4 Reserve Funds -6 18 -18 10 -3 5 3B.1.5 Deposits and Advances 18 25 66 -14 29 29 3B.1.6 Cash Balances -22 -12 17 -323 34 122 3B.1.7 Others 287 50 96 549 240 86 3B.2 External Financing 18 8 6 9 55 2 4 Total Disbursements as per cent of GDP 27.7 26.4 26.7 27.0 32.9 32.1 5 Total Receipts as per cent of GDP 27.9 26.5 26.6 28.6 32.8 31.6 6 Revenue Receipts as per cent of GDP 20.3 19.8 20.1 19.2 19.4 21.0 7 Tax Receipts as per cent of GDP 17.0 17.4 17.3 16.1 16.0 17.2 8 Gross Fiscal Defi cit as per cent of GDP 6.9 5.8 5.8 7.2 13.3 10.2 …: Not Available. RE: Revised Estimates. BE: Budget Estimates. Note : 1. GDP data is based on 2011-12 base. 2. The revision of general government fi scal data will be undertaken in the month of October after all states present their fi nal budget and they are tabulated, consolidated and disseminated by the RBI through its annual publication - 'State Finances: A Study of Budgets'. Source : Budget Documents of the central and state governments. 293ANNUAL REPORT 2021-22 APPENDIX TABLE 8: INDIA’S OVERALL BALANCE OF PAYMENTS (US$ million) 2017-18 2018-19 2019-20 2020-21 2021-22 (P) 1 2 3 4 5 6 A. CURRENT ACCOUNT 1 Exports, f.o.b. 3,08,970 3,37,237 3,20,431 2,96,300 3,11,191 2 Imports, c.i.f. 4,69,006 5,17,519 4,77,937 3,98,452 4,46,835 3 Trade Balance -1,60,036 -1,80,283 -1,57,506 -1,02,152 -1,35,644 4 Invisibles, Net 1,11,319 1,23,026 1,32,850 1,26,065 1,09,077 a) ‘Non-Factor’ Services of which : 77,562 81,941 84,922 88,565 79,203 Software Services 72,186 77,654 84,643 89,741 80,274 b) Income -28,681 -28,861 -27,281 -35,960 -29,441 c) Private Transfers 62,949 70,601 76,217 74,439 59,880 5 Current Account Balance -48,717 -57,256 -24,656 23,912 -26,567 B. CAPITAL ACCOUNT 1 Foreign Investment, Net (a+b) 52,401 30,094 44,417 80,092 24,947 a) Direct Investment 30,286 30,712 43,013 43,955 26,509 b) Portfolio Investment 22,115 -618 1,403 36,137 -1,562 2 External Assistance, Net 2,944 3,413 3,751 11,167 2,709 3 Commercial Borrowings, Net -183 10,416 22,960 -134 4,863 4 Short Term Credit, Net 13,900 2,021 -1,026 -4,130 13,284 5 Banking Capital of which : 16,190 7,433 -5,315 -21,067 12,631 NRI Deposits, Net 9,676 10,387 8,627 7,364 3,075 6 Rupee Debt Service -75 -31 -69 -64 -59 7 Other Capital, Net& 6,213 1,057 18,462 -2,143 30,935 8 Total Capital Account 91,390 54,403 83,180 63,721 89,309 C. Errors & Omissions 902 -486 974 -347 782 D. Overall Balance [A(5)+B(8)+C] 43,574 -3,339 59,498 87,286 63,524 E. Monetary Movements (F+G) -43,574 3,339 -59,498 -87,286 -63,524 F. IMF, Net 0 0 0 0 0 G. Reserves and Monetary Gold (Increase -, Decrease +) -43,574 3,339 -59,498 -87,286 -63,524 of which: SDR allocation 0 0 0 0 -17,862 Memo: As a ratio to GDP 1 Trade Balance -6.0 -6.7 -5.6 -3.8 -5.9 2 Net Services 2.9 3.0 3.0 3.3 3.4 3 Net Income -1.1 -1.1 -1.0 -1.3 -1.3 4 Current Account Balance -1.8 -2.1 -0.9 0.9 -1.2 5 Capital Account, Net 3.4 2.0 2.9 2.4 3.9 6 Foreign Investment, Net 2.0 1.1 1.6 3.0 1.1 P: Data are provisional and pertain to April-December 2021. & : Includes delayed export receipts, advance payments against imports, net funds held abroad and advances received pending issue of shares under FDI. Note: 1. Gold and silver brought by returning Indians have been included under imports, with a contra entry in private transfer receipts. 2. Data on exports and imports differ from those given by DGCI&S on account of differences in coverage, valuation and timing. Source: RBI. 294APPENDIX TABLES APPENDIX TABLE 9: FOREIGN DIRECT INVESTMENT FLOWS TO INDIA: COUNTRY-WISE AND INDUSTRY-WISE (US$ billion) Source/Industry 2017-18 2018-19 2019-20 2020-21 2021-22 (P) 1 2 3 4 5 6 Total FDI 44.9 44.4 50.0 59.6 58.8 Country-wise Infl ows Singapore 12.2 16.2 14.7 17.4 15.9 US 2.1 3.1 4.1 13.8 10.5 Mauritius 15.9 8.1 8.2 5.6 9.4 Netherlands 2.8 3.9 6.5 2.8 4.6 Switzerland 0.5 0.3 0.2 0.2 4.3 Cayman Islands 1.2 1.0 3.7 2.8 3.8 UK 0.8 1.4 1.3 2.0 1.6 Japan 1.6 3.0 3.2 1.9 1.5 UAE 1.0 0.9 0.3 4.2 1.0 Germany 1.1 0.9 0.5 0.7 0.7 Canada 0.3 0.6 0.2 0.0 0.5 Luxembourg 0.3 0.3 0.3 0.3 0.5 Thailand 0.1 0.1 0.0 0.1 0.5 France 0.5 0.4 1.9 1.3 0.3 Denmark 0.0 0.1 0.0 0.1 0.3 Others 4.2 4.2 4.7 6.3 3.1 Sector-wise Infl ows Manufacturing 9.0 9.6 9.6 9.3 16.3 Computer Services 3.4 3.7 5.1 23.8 9.0 Communication Services 9.1 6.5 7.8 2.9 6.4 Retail & Wholesale Trade 4.6 4.9 5.1 3.9 5.1 Financial Services 4.6 7.2 5.7 3.5 4.7 Education, Research & Development 0.4 0.9 0.8 1.3 3.6 Transport 2.5 1.2 2.4 7.9 3.3 Construction 2.8 2.3 2.0 1.8 3.2 Business services 3.3 2.8 3.8 1.8 2.5 Electricity and other energy Generation, Distribution & Transmission 2.8 2.6 2.8 1.3 2.2 Miscellaneous Services 0.9 1.4 1.1 0.9 1.0 Restaurants and Hotels 0.5 0.8 2.7 0.3 0.7 Mining 0.1 0.3 0.3 0.2 0.4 Real Estate Activities 0.5 0.2 0.6 0.4 0.1 Trading 0.0 0.0 0.0 0.0 0.0 Others 0.3 0.1 0.2 0.2 0.4 P: Provisional. Note: Includes FDI through approval, automatic and acquisition of existing shares routes. Source: RBI. 295