The Reserve Bank of India-led (RBI) Monetary Policy Committee (MPC) announced its decision today on February 7, 2024, wherein the policy repo rate was slashed by 25 basis point to 6.25% and the stance was kept “neutral”. In addition to this, the MPC also announced some developmental and regulatory policy measures pertaining to financial markets, cybersecurity and payment systems.
The first measure by the Reserve Bank of India (RBI) proposes the introduction of forward contracts for government securities to facilitate market growth. These contracts will allow long-term investors in government securities to manage their interest rate risks across interest rate cycles and support efficient pricing of derivatives that have bonds as the underlying asset.
Through the second measure, the central bank will provide access to the Negotiated Dealing System – Order Matching (NDS-OM) to non-bank brokers that are registered with SEBI. Negotiated Dealing System – Order Matching (NDS-OM) is the electronic trading platform for secondary market transactions of government securities and is currently only available to regulated entities and to the client of banks and standalone primary dealers.
The third measure initiates an extensive review of the trading and settlement timings across the various market segments that are regulated by the central bank. This will allow better price discovery and optimisation of the liquidity requirements. A working group that represents various stakeholders will submit its review by April 30, 2025.
Through the fourth measure, the central bank, in an effort to combat the rising fraudulent activity in digital payments, will introduce an exclusive internet domain for Indian banks, viz. ‘bank.in’. This is expected to help in the prevention of cyber security threats and malicious activities like phishing. It will add a layer of security to financial transactions and services. The exclusive registrar for this internet domain will be the Institute for Development and Research in Banking’ Technology (IDRBT) and registrations will start in April 2025. Similarly, the central bank also has plans to have such an exclusive domain for other non-bank entities in the financial sector viz. ‘fin.in’.
The introduction of Additional Factor of Authentication (AFA) for digital payments has improved transaction security, boosting customer confidence in adopting digital payments. Currently mandatory for domestic transactions, it is now proposed to extend AFA to online international transactions using Indian-issued cards. This will add an extra layer of security, provided the overseas merchant supports AFA.
These developmental and regulatory policy measures by the MPC pertaining to financial markets, cybersecurity, and payment systems aim to improve the functioning and management of the Indian economy. The guidelines for the same will be issued shortly.
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