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Rupay forex cards to your fixed deposits: How today's RBI policy impacts us

New Delhi, June 8, 2023

In order to expand payment options for Indians travelling abroad, the Reserve Bank of India governor decided to allow issuance of RuPay Prepaid Forex cards by banks in India for use at ATMs

In a move aimed at internationalisation of the Rupay card, the Reserve Bank of India today decided to permit banks to issue Rupay prepaid foreign exchange (forex) cards for Indians travelling abroad.

RuPay is a payment network, whose cards are usable at ATMs, POS devices and e-commerce websites across the country. Currently, over 1,100 banks including from the public, private, regional and co-operative sectors issue RuPay cards.

Rupay prepaid forex cards for Indians travelling abroad

In order to expand payment options for Indians travelling abroad, the Reserve Bank of India governor decided to allow issuance of RuPay Prepaid Forex cards by banks in India for use at ATMs, PoS machines and online merchants overseas. Further, RuPay Debit, Credit, and Prepaid Cards will be enabled for issuance in foreign jurisdictions, which can be used internationally, including in India.

“These measures will expand the reach and acceptance of RuPay cards globally,” said Reserve Bank Governor Shaktikanta Das.

The decision comes in view of RuPay Debit and Credit cards issued by banks in India gaining international acceptance through bilateral arrangements with international partners and co-badging arrangements with international card schemes.

"The permission granted to banks for issuing RuPay pre-paid forex cards opens up new avenues for seamless and flexible cross-border transactions. This development brings forth enhanced convenience and efficiency for individuals and businesses engaged in international trade," said Rajsri Rengan, India Head of Development, Banking and Payments, at FIS.

1 million CBDC users by June end

The RBI also said there will be one million customers under the central bank digital currency (CBDC) by the end of June.

The central bank has been working on making the CBDC QR codes interoperable with the Unified Payments Interface (UPI). The first pilot for CBDC-Retail was announced on December 1, 2022. The Digital Rupee offers features of physical cash like trust, safety, and settlement finality in digital mode and can be held or used to carry out transactions, similar to how currency notes can be used in physical form.

e-RUPI vouchers can now be issued to you

RBI also allowed non-bank Prepaid Payment Instrument (PPI) issuers to issue e-RUPI vouchers. It also permitted the issuance of e-RUPI vouchers on behalf of individuals. Thus e-RUPI is a one time contactless, cashless voucher-based mode of payment that helps users redeem the voucher without a card, digital payments app, or internet banking access.

Users can get it on their phones in a form of an SMS or QR code. It can be redeemed at any centre that accepts it. For example, if the Government wants to cover a particular treatment of an employee in a specified hospital, it can issue an e-RUPI voucher for the determined amount through a partner bank. The employee will receive an SMS or a QR Code on his feature phone / smart phone. He/she can go to the specified hospital, avail of the services and pay through the e-RUPI voucher received on his phone.

"At present, purpose-specific vouchers are issued by banks on behalf of Central and State Governments and to a limited extent on behalf of corporates. Keeping in view the benefits for users and beneficiaries alike, it is proposed to expand the scope and reach of e-RUPI vouchers by (a) permitting non-bank Prepaid Payment Instrument (PPI) issuers to issue e-RUPI vouchers and (b) enabling issuance of e-RUPI vouchers on behalf of individuals. Other aspects like reloading of vouchers, authentication process, issuance limits, etc., will also be modified to facilitate use of e-RUPI vouchers. Separate instructions will be issued shortly," said the RBI.

e-RUPI does not require the beneficiary to have a bank account, a major distinguishing feature as compared to other digital payment forms. It ensures an easy, contactless two-step redemption process that does not require sharing of personal details either.

Another advantage is that e-RUPI is operable on basic phones also, and hence it can be used by persons who do not own smart-phones or in places that lack internet connection.

NPCI has partnered with 11 banks for e-RUPI transactions. They are Axis Bank, Bank of Baroda, Canara Bank, HDFC Bank, ICICI Bank, Indian Bank, IndusInd Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India and Union Bank of India.

You can lock in your Fixed Deposits as RBI has left repo rate unchanged

The era of high FD rates may be nearing its end now as RBI on Thursday left the repo rate unchaged at 6.5 percent. The frequency at which FD rates increase or decrease depends on the repo rate by the RBI. The repo rate, in turn, is affected by the economic situation. Simply put, the FD rates usually see a change whenever there is a change in repo rate.

Now that the RBI has kept the repo rate unchanged since April 2023, it is likely that interest rates will head lower once RBI starts cutting interest rates by the second half of this year. If you have surplus funds to invest in FDs or your old FD is about to mature then it is the best time to reinvest and lock in your investment in FDs.

"From retail investors’ standpoint, this is an excellent time to lock in fixed deposits because interest rates may be close to their peak. Bond markets, on the other hand, have already discounted rate cuts and 10-year G-Sec yields have already fallen by more than 50 bps since September, " said Anshul Gupta, Co-founder and Chief Investment Officer, Wint Wealth.

"Most banks provide rates of 7% or more on select deposit tenors. Smaller banks are at 7.5% and many small finance banks are above 8%. Senior citizens are being offered a premium of 25 to 75 basis points. Some government banks are offering super senior citizens (those above 80) additional premium. So people should consider reinvesting their FDs now for higher returns," said Adhil Shetty, CEO of BankBazaar.

For people who have deposits on FDs, the strategy remains that the highest interest rate is to be captured for the longest period available. "In case, some of your older FDs are at lower interest rates, it is advisable to make premature withdrawal of these, and put into higher interest rate FDs which are currently available," said Chaitali Dutta of zuke Personal Finance Advisory.

Funds with one-year maturity should benefit

The RBI appears to signal that interest rates are now stabilising . India 10 year bond yields have also witnessed a minor spike after the RBI announcement.

Rate cuts are positive for debt funds, especially long term debt funds and gilt funds because of the inverse relationship between bond yields and prices. When bond yields go down, the prices go up. That pushes up net asset value of debt funds. "Interest rates are likely to head lower once RBI starts cutting interest rates. This will have a positive impact on the bond prices which are inversely related to the interest rates. Long term Gilt funds can benefit from such a scenario," said Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities.

Broadly across debt fund categories, returns should improve in the short term. With long-duration funds, the expectation is that they will outperform when interest rates start to fall.

"Global environment for yields is turning negative. Growth is far stronger than expected. Central banks will have to act soon if they want to prevent high employment/wages growth to seep into inflation expectations. Markets are building in rate cut expectations. Over a period of time, we see possibility in rise in longer term yields for a while. The shorter end of the curve is expected to remain more benign. Funds with maturities up to 1 year should be able to deliver reasonable returns. Not really sure of the returns from longer maturity funds. Unless economic data weakens considerably, it will be difficult for the 10 year bond to perform. The bond bullishness should be put on hold for the next few weeks," said Sandeep Bagla,CEO, Trust Mutual Fund.

Home loan borrowers can take a breather

Since the RBI did not hike rates for a second time in a row, it appears we are closer to the end of the current interest rate hike cycle and may see rate cuts a few quarters down the line. "Thus, home loan borrowers should stick to their existing floating rate loans for now, even if the fixed rate home loans are available in the market at some discount.

They should lock in lower fixed interest once rates start coming down. For example, if your current home loan rate floating interest rate is 9.5% per annum, you could get offers for 9.25% per annum fixed rate. But if you wait, even if rates fall by just 100 bps, your home loan rate would become 8.5%. Thus, converting to fixed-rate loans doesn’t make sense right now," said Gupta.

The lowest rates being offered in the home loan market today are in the 8.40 to 8.50 per cent range for eligible borrowers.

"If you’re paying a significantly higher rate, consider a refinance. If you’re able to shave off 50 basis points or more off your rate, it could lead to significant savings over the long term. When you think about your home loan rate, also think of it in terms of the premium you pay over the repo. For example, at 8.50%, the premium over the repo is 2%. Prime borrowers with good credit histories and strong income credentials can borrow at the lowest premium while others will have to pay higher," said Shetty.

[The Business Standard]

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