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Informist, Monday, Aug. 25, 2025

 

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--RBI Malhotra:Regulation gives adequate friction in bk sector for stability
--CONTEXT: RBI Governor Sanjay Malhotra speaking at FIBAC 2025 in Mumbai

--RBI Governor Malhotra: Stringent regulation may impede econ growth
--RBI Malhotra: Have not hesitated to loosen rules if context changes
--RBI Malhotra: To continue strengthening fincl stability
--RBI Malhotra: Propose to issue credit risk, expected credit loss norms soon
--RBI Malhotra: Trying to rationalise macro policies
--RBI Malhotra: Regulated cos' boards may be overburdened by policymaking
--RBI Malhotra: Looking at ways to expand bank credit
--RBI Malhotra: Looking at ways to lower cost of mediation
--RBI Malhotra: Still scope for improving last mile banking
--RBI Malhotra: Banks need to strengthen business correspondent channel
--RBI Malhotra: Banks' business correspondents effective in fincl inclusion
--RBI Malhotra: Significant credit gap to MSMEs, need to push credit there
--RBI Malhotra: Urge all stakeholders to make use of central KYC registry
--RBI Malhotra: Need effective grievance redressal mechanism in fincl sector
--RBI Malhotra: We will further strengthen lending platform like ULI
--RBI Malhotra: Regulators, regulated cos have shared objectives, vision
--RBI Malhotra: There is no tussle between fincl stability, growth
--RBI Malhotra: Urge cos to invest boldly, with entrepreneurial spirit
--RBI Malhotra: With clean balance sheets, cos should drive animal spirits
--RBI Malhotra: Will continue to promote trade in local currencies
--RBI Malhotra:Local currency trade settlement cushions from global volatility
--RBI Malhotra: Continue to look at measures to provide NBFCs liquidity
--RBI Malhotra: No proposal to provide standing liquidity facility to NBFCs
--RBI Malhotra: No proposal for standing liquidity facility for NBFCs
--RBI Malhotra: Will continue to provide NBFCs liquidity in times of stress
--RBI Malhotra: Will take all steps to promote fintech, also have guardrails

 

MUMBAI – Reserve Bank of India Governor Sanjay Malhotra Monday urged India's corporate houses to invest boldly in the economy to stoke its "animal spirits". The need for entrepreneurial spirit is especially strong in light of recent corporate deleveraging and cleaner corporate balance sheets, the governor said.

 

The RBI governor said regulators and regulated companies share an objective and vision to drive economic growth, which should not clash with the objective of financial stability. The central bank aims to ensure adequate friction, but stringent regulatory friction may hamper economic growth, he said at the FIBAC 2025 event conducted by the Federation of Indian Chambers of Commerce & Industry and the Indian Banks' Association Monday.

 

"We have the same shared vision of a Viksit Bharat. There is no tussle between financial stability and growth," Malhotra said. "Financial stability and price stability do not inhibit growth."

 

The governor said the RBI had not hesitated to loosen regulations whenever the context of their imposition changed, including smoothing out banking regulations on liquidity coverage ratio and project finance substantially between the draft stage and the final guidelines in recent months. "Similarly, (for) credit and operational risk from 1 April 2027 for which credit risk and related draft guidelines are now proposed to be issued soon," Malhotra said.

 

He highlighted the central bank's recently constituted regulatory review cell, which aims to ensure norms are reviewed at least once in five years. The RBI is also aiming to consolidate its regulations in a bid to make them more accessible and understandable, the governor said.

 

Malhotra said the regulator is looking at ways to expand bank credit and lower the cost of mediation, especially with a focus on financial inclusion while strengthening financial stability. There is still scope to improve last-mile banking, the governor said, adding that business correspondents are effective in ensuring financial inclusion and encouraging banks to strengthen that channel.

 

While making a principle-based framework for regulation, the RBI got feedback from the boards of regulated entities that making individual policies had "perhaps" overburdened the boards, Malhotra said. So, the central bank was looking to rationalise macro regulations that could then be ratified by the boards while the directors dealt with operational matters.

 

The RBI governor also said there was a need to create an effective grievance redress framework in the financial sector to protect customers' interests. In addition, the central bank and the government's push for financial inclusion projects such as the Unified Lending Interface and the central Know Your Customer registry should see more use from all stakeholders, he said. The central bank is looking to strengthen the lending interface, he adde.

 

Answering a question on the regulatory approach to non-banking financial companies, Malhotra said the central bank was always looking to provide the sector greater support in several areas, including liquidity. However, there is currently no proposal or thought to introduce a standing liquidity facility for non-bank lenders, he said. Instead, the RBI would aim to provide liquidity support and extend other measures largely when needed during times of stress, the governor said. Banks currently have access to the RBI's liquidity adjustment facility to borrow from and lend to the central bank at the margin.

 

As for micro, small, and medium enterprises, Malhotra said there is a "significant credit gap" to the sector even as it contributes to economic growth. The central bank would encourage the use of financial technology in this endeavour, but would also institute guardrails on its use, he said.

 

Malhotra said India has signed agreements with many countries for the use of the rupee for cross-border transactions. He added, however, that popularising the Indian currency for such transactions may take decades. The central bank introduced trade settlement in India's local currency in July 2022 through special rupee vostro accounts, though the governor reiterated that this could take a long time to pick up. India has agreements with Russia, Mauritius, Indonesia, and the United Arab Emirates for rupee trade.

 

"It has certainly helped the industry, the economy as a whole, because it cushions us from the volatility of foreign exchange price movements. And we will continue to promote this," the RBI governor said.  End

 

Reported by Aaryan Khanna and Vaishali Tyagi

Edited by Rajeev Pai

 

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