**Executive Summary:**
The Ministry of Finance addresses questions regarding financial system stability, liquidity management, responsible lending, and systemic risk monitoring. The government highlights measures to enhance credit accessibility, promote financial inclusion, and improve deposit mobilization. The Reserve Bank of India (RBI) actively manages liquidity and has issued revised Liquidity Coverage Ratio (LCR) guidelines effective from April 1, 2026. Regulatory frameworks are in place to promote responsible lending and borrower protection.
**Key Points / Main Content:**
**Financial System Stability and Liquidity Management:**
* The government has undertaken measures to enhance credit accessibility and promote financial inclusion through initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) and digital banking infrastructure expansion.
* RBI manages liquidity through instruments like LAF, SDF, MSF, VRRR, and OMOs to align system liquidity with monetary policy.
**Liquidity Coverage Ratio (LCR) Norms:**
* RBI issued revised LCR guidelines on April 21, 2025, effective from April 1, 2026.
* The revised norms include higher runoff factors for deposits enabled with internet and mobile banking.
* Reclassification of runoff rates for certain wholesale funding categories is included.
* Application of haircuts on Government securities held as High-Quality Liquid Assets (HQLA) are aligned with the LAF and MSF frameworks.
**Responsible Lending and Borrower Protection:**
* RBI has established regulatory frameworks to promote responsible lending and borrower protection, particularly for small-ticket unsecured loans.
* These frameworks include the RBI Regulatory Framework for Microfinance Loans Directions, 2022, and the Master Direction Reserve Bank of India Non-Banking Financial Company - Scale Based Regulation Directions, 2023.
* Guidelines on fair practices code for lenders under the Master Circular on Loans and Advances Statutory and Other Restrictions dated July 1, 2015 are in place.
* These frameworks mandate fair pricing, provision of a standardized Key Facts Statement (KFS), and implementation of responsible recovery practices.
**Systemic Risk Monitoring:**
* Regulatory coordination is strengthened through the Financial Stability and Development Council (FSDC).
* RBI monitors emerging financial vulnerabilities through its macroprudential surveillance framework.
**Impact Analysis**
**Scheduled Commercial Banks (SCBs):**
* Impact: SCBs are affected by the revised LCR norms, which aim to enhance their resilience and preempt systemic liquidity shocks.
* Action Required: SCBs must comply with the revised LCR guidelines effective from April 1, 2026, including adjusting runoff factors for deposits and applying haircuts on HQLA.
**Non-Banking Financial Companies (NBFCs):**
* Impact: NBFCs are subject to regulatory frameworks promoting responsible lending and borrower protection, particularly concerning small-ticket unsecured loans.
* Action Required: NBFCs must adhere to fair pricing, provide a standardized KFS, and implement responsible recovery practices as mandated by RBI guidelines.
**Vulnerable Borrowers:**
* Impact: Regulatory frameworks aim to protect vulnerable borrowers accessing small-ticket unsecured loans through fair pricing and transparent lending practices.
* Action Required: Borrowers should be aware of their rights and protections under the RBI's regulatory frameworks, including the right to a Key Facts Statement (KFS).
**Reserve Bank of India (RBI):**
* Impact: The RBI is responsible for actively managing liquidity conditions and monitoring emerging financial vulnerabilities.
* Action Required: The RBI must continue to monitor and adjust liquidity management tools as needed and enforce regulatory frameworks for responsible lending and borrower protection.
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, responsible for monetary policy and regulating the financial system.
Ministry of Finance: A department of the Government of India responsible for the country's finances.
Financial Stability and Development Council (FSDC): An Indian government body that strengthens and institutionalises the mechanism for maintaining financial stability, enhancing interregulatory coordination, and promoting financial sector development.
Liquidity Coverage Ratio (LCR): A set of international rules mandating that banks hold a sufficient reserve of high-quality liquid assets to allow them to survive a period of significant liquidity stress lasting 30 calendar days
Pradhan Mantri Jan Dhan Yojana (PMJDY): A national mission for financial inclusion to ensure access to financial services, namely banking, remittance, credit, insurance and pension to the excluded sections.
Liquidity Adjustment Facility (LAF): A tool used by the Reserve Bank of India (RBI) to manage liquidity in the banking system through repo and reverse repo agreements.
RBI Regulatory Framework for Microfinance Loans Directions, 2022: A regulatory framework by the Reserve Bank of India (RBI) regarding microfinance loans.
National Level Framework for Responsible Lending and Fair Pricing: A framework being considered by the Government of India for responsible lending and fair pricing in smallticket loans, especially for vulnerable borrowers.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO. 2491
ANSWERED ON MONDAY, AUGUST 4, 2025/SRAVANA 13, 1947 (SAKA)
NATIONAL LEVEL FRAMEWORK FOR RESPONSIBLE LENDING AND FAIR
PRICING
2491. THIRU DAYANIDHI MARAN:
Will the Minister of Finance be pleased to state:
(a) whether the Government has any plans to incentivize household savings into bank deposits
to ensure long-term financial system stability in light of the persistent divergence between loan
and deposit growth;
(b) whether regulatory tweaks being considered to balance liquidity without distorting credit
availability;
(c) whether the Government's view on introducing complementary fiscal buffers or coordinated
liquidity tools to pre-empt systemic liquidity shocks in view of the RBI's intent to recalibrate
the Liquidity Coverage Ratio (LCR) norms;
(d) whether the Government is contemplating a national-level framework for responsible lending
and fair pricing in small-ticket loans, especially for vulnerable borrowers considering the
growing stress in unsecured retail credit and microfinance segments; and
(e) whether the Government foresee the need for a disclosure-based oversight mechanism to
monitor systemic interconnectedness and potential contagion risks as private credit markets
grow rapidly outside the traditional regulatory net?
ANSWER
THE MINISTER OF STATE FOR FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) to (e) The Government has undertaken comprehensive measures in recent years to enhance
credit accessibility and promote financial inclusion. These include, inter alia, universal access to
banking facilities through the Pradhan Mantri Jan Dhan Yojana (PMJDY), expansion of digital
banking infrastructure, and enhancement of financial awareness across segments. As a result,
deposit mobilisation has been strengthened and the overall health of the financial system has
improved. As per provisional data of the Reserve Bank of India (RBI), as on March 2025, the year-on-year growth in deposits and credit of Scheduled Commercial Banks (SCBs) showed a
divergence of merely one basis point, indicating macro-level alignment and a positive outlook for
the financial sector.
The Reserve Bank of India (RBI), as the monetary authority, actively manages liquidity conditions
through instruments such as the Liquidity Adjustment Facility (LAF), Standing Deposit Facility
(SDF), Marginal Standing Facility (MSF), Variable Rate Reverse Repo (VRRR), and Open Market
Operations (OMOs). These operations aim to inject or absorb liquidity, as warranted, to align
system liquidity with the monetary policy stance, support efficient credit allocation, and preserve
financial stability.
With regard to liquidity standards, the RBI has informed that it has issued revised guidelines on
the Liquidity Coverage Ratio (LCR) vide circular dated 21.04.2025. The revised norms, effective
from 01.04.2026, aim to enhance the resilience of banks and pre-empt systemic liquidity shocks.
These include, inter-alia, higher run-off factors for deposits enabled with internet and mobile
banking, reclassification of run-off rates for certain wholesale funding categories, and application
of haircuts on Government securities held as High-Quality Liquid Assets (HQLA), in alignment
with the LAF and MSF frameworks.
Various regulatory frameworks put in place by the RBI from time to time aim to promote
responsible lending and borrower protection, including in respect of small-ticket unsecured loans
accessed by vulnerable segments. These include the RBI (Regulatory Framework for Microfinance
Loans) Directions, 2022; the Master Direction – Reserve Bank of India (Non-Banking Financial
Company – Scale Based Regulation) Directions, 2023 dated 19.10.2023; and the guidelines on fair
practices code for lenders under the Master Circular on Loans and Advances – Statutory and
Other Restrictions dated 01.07.2015. These frameworks, inter-alia, collectively mandate fair pricing,
provision of a standardised Key Facts Statement (KFS), and implementation of responsible
recovery practices.
With a view to strengthening and institutionalising the mechanism for maintaining financial
stability, enhancing inter-regulatory coordination, and promoting financial sector development,
regulatory coordination is strengthened through institutional mechanisms such as the Financial
Stability and Development Council (FSDC). Further, RBI monitors emerging financial
vulnerabilities through its macroprudential surveillance framework.
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