Taxmann's Analysis | Key Highlights of the RBI's Initiatives
Introduction
The Reserve Bank of India (RBI), via Press Release No. 2024-2025/852, dated August 8, 2024, has announced a series of innovative measures designed to enhance the digital and financial ecosystem. These initiatives aim to increase convenience, improve security, and promote inclusivity in digital transactions. Key proposals include:
(a) Raising the transaction limit for tax payments via UPI from Rs 1 lakh to Rs 5 lakh,
(b) Introducing a ‘Delegated Payments’ facility via UPI,
(c) Establishing a public repository for digital lending apps to curb unauthorised players, and
(d) Accelerating cheque clearance to just a few hours.
The key highlights of these proposals are discussed in detail below.
1. Increase in Transaction Limit for Tax Payments via UPI to Rs 5 Lakh
UPI, known for its seamless features, has emerged as the preferred payment mode. Presently, the UPI transaction limit is capped at Rs 1 lakh. Considering various use cases, the RBI has periodically reviewed and enhanced the limits for certain categories like capital markets, IPO subscriptions, loan collections, insurance, medical, and educational services. Recognising the regular and high-value nature of direct and indirect tax payments, the RBI has decided to raise the limit for tax payments via UPI to Rs 5 lakh per transaction.
Comments
This adjustment will significantly boost convenience for taxpayers, enabling more effective high-value payments. It aims to streamline the tax payment process, lessen dependence on traditional banking methods, and encourage digital payment adoption. It is also likely to increase overall digital transaction volumes, fostering a more inclusive financial ecosystem.
2. ‘Delegated Payments’ Facility in UPI to Set Transaction Limits
With a vast user base of 424 million individuals, the potential for UPI’s expansion remains significant. The RBI plans to introduce a ‘Delegated Payments’ feature, allowing a primary user to set a UPI transaction limit for another individual (secondary user) linked to the primary user’s bank account. This feature is anticipated to extend the reach and usage of digital payments nationwide.
Comments
This enhancement is poised to significantly broaden UPI’s user base by facilitating more individuals to conveniently partake in digital transactions. It promotes financial inclusion by making digital payments accessible to those who may not have direct control over a bank account.
3. Public Repository for Digital Lending Apps to Combat Unauthorised Players
On September 2, 2022, the Reserve Bank of India (RBI) issued guidelines addressing various concerns in digital lending, including protecting customers’ interests, data privacy, issues related to interest rates, recovery practices, and the prevalence of misselling. Despite these guidelines, media reports have indicated that unauthorised digital lending players continue to operate, falsely claiming affiliations with RBIregulated entities (REs).
To assist customers in verifying the authenticity of Digital Lending Apps’ (DLAs) claims of association with REs, the RBI plans to establish a public repository of DLAs officially deployed by REs. This repository will be accessible on the RBI’s official website.
Additionally, the repository will compile data submitted directly by the REs without any intervention from the RBI. It will be regularly updated based on reports from the REs, including adding new DLAs or removing existing ones.
Comments
This initiative is designed to increase transparency and protect customers from fraudulent digital lending apps by enabling them to verify the legitimacy of these apps directly. It also aims to restrict the activities of unauthorised players who falsely claim connections with RBI-regulated entities. Ultimately, this will ensure customers have reliable and current information regarding authorised digital lending apps.
4. Proposal to Increase Frequency of Reporting Credit Information to CICs
Currently, credit institutions (CIs) are obligated to report the credit information of their borrowers to credit information companies (CICs) every month or at shorter intervals, as agreed upon mutually by the CI and CIC. To provide a more current snapshot of a borrower’s financial obligations, the RBI has resolved to enhance the frequency of this reporting, shifting from monthly to fortnightly intervals or even more frequently, depending on agreements between the CI and CIC.
Adopting a fortnightly reporting rhythm will ensure that credit reports generated by CICs offer more updated data, which will benefit both borrowers and lenders (CIs).
Comments
This measure signifies a major advancement in increasing the accuracy and timeliness of credit information, which will improve risk assessment and decision-making for lenders. It also ensures that borrowers’ credit histories are refreshed more frequently, facilitating fairer access to credit.
5. RBI Proposes to Expedite Cheque Clearance to a Few Hours
The current Cheque Truncation System (CTS) completes cheque processing within a cycle of up to 2 working days. To boost the efficiency of cheque clearing, minimise participant settlement risks, and enhance customer experience, the RBI has proposed a shift from the existing batch processing approach to a continuous clearing model with ‘on-realisationsettlement’. Under this proposed system, cheques would be scanned, presented, and cleared within a few hours and continuously during business hours. This would reduce the clearing cycle from the current T+1 days to a few hours.
Comments
This proposal aims to enhance the efficiency of the cheque-clearing process by reducing the time from T+1 day to a matter of hours, thereby improving the overall customer experience. It also seeks to mitigate settlement risks for participants and ensure faster, more secure transactions. Additionally, continuous clearing with ‘on-realisation settlement’ will streamline banking operations and provide quicker access to funds for account holders.
