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Informist, Wednesday, Oct. 1, 2025

 

MUMBAI - Following are the top 10 announcements by Reserve Bank of India Governor Sanjay Malhotra on Wednesday in his address at the conclusion of the Monetary Policy Committee's fourth bi-monthly meeting for 2025-26 (Apr-Mar):

 

INTEREST RATES

The Reserve Bank of India's Monetary Policy Committee Wednesday left the policy repo rate unchanged at 5.50% in a unanimous decision. Consequently, the standing deposit facility rate under the liquidity adjustment facility also remains unchanged at 5.25% and the marginal standing facility rate at 5.75%. 

 

POLICY STANCE

The MPC decided to continue with the 'neutral' stance. RBI Governor Sanjay Malhotra said the decision was a fallout of inflation outlook turning out to be more benign than previously projected. 

 

GROWTH

The central bank raised its GDP growth projection for FY26 to 6.8% from 6.5% projected earlier. The RBI also raised its GDP growth estimate for the September quarter to 7% from 6.7%. However, the central bank slashed its GDP growth projections for the remaining quarters of the current fiscal as well as for Apr-Jun of FY27. The central bank has cut its forecast for Oct-Dec to 6.4% from 6.6%, and to 6.2% from 6.3% for Jan-Mar. The RBI also cut its growth projection for the June quarter of FY27 to 6.4% from 6.6%.

 

INFLATION

The RBI lowered its inflation projection for FY26 by 50 bps to 2.6%. The quarterly break-up of the central bank's latest inflation forecasts is as follows: 1.8% for Jul-Sept, 1.8% for Oct-Dec, and 4% for Jan-Mar. The central bank has also revised inflation projection for Apr-Jun of FY27 to 4.5% from 4.9%. The central bank also lowered the inflation projection for the quarter ended September in FY27 by 30 bps to 1.8%. The risks are evenly balanced. 

 

LIQUIDITY AND FINANCIAL STABILITY

System liquidity, as measured by the net position under the Liquidity Adjustment Facility, stood at an average daily surplus of INR 2.1 trillion since the last MPC meeting in August. Going ahead, as the cash reserve ratio cut announced in the last policy comes into effect in a staggered manner beginning September, it would further support liquidity conditions. Going ahead, the drawdown of government cash balances and the remaining 75 bps cut in the cash reserve ratio during Oct-Nov will aid banking system liquidity in the near term. Through two-way operations, the central bank will actively manage liquidity to anchor short-term rates.

 

The system-level financial parameters related to capital adequacy, liquidity, asset quality, and profitability of the scheduled commercial banks continue to be healthy. Similarly, the system-level parameters of non-banking financial companies, too, are sound, with adequate capital and improved gross non-performing assets ratio. 

 

Bank credit growth, despite being lower than last year, continues to be healthy and supportive of real economic activity. As other sources of funding are gradually but steadily increasing their footprint, it is the overall flow of financial resources to the economy that is more pertinent for assessing the flow of funds to the productive sectors. The total flow of resources from non-bank sources to the commercial sector increased by INR 2.66 trillion in 2025-26 (Apr-Mar) so far, more than offsetting the decline in non-food bank credit by INR 480 billion.

 

BANKING SECTOR MEASURES

The expected credit loss framework of provisioning with prudential floors is proposed to be made applicable to all scheduled commercial banks (excluding small finance banks, payment banks, and regional rural banks) and All India Financial Institutions with effect from Apr. 1, 2027. Banks will be given a glide path (till Mar. 31, 2031) to smoothen the one-time impact of higher provisioning, if any, on their existing books.

 

Further, it is proposed to make the revised Basel III capital adequacy norms effective for commercial banks, excluding small finance banks, payment banks, and regional rural banks, from Apr. 1, 2027. In furtherance of this, a draft of the standardised approach for credit risk shall be issued shortly. Under the revised approach, the proposed lower risk weights on certain segments are expected to reduce the overall capital requirements, particularly for micro, small, and medium enterprises and residential real estate (including home loans).

 

It may be recalled that capital requirements for operational risk have already been finalised in 2023 whereas the capital requirements for market risk are under finalisation after receipt of comments from the public. These measures will help align the central bank's guidelines with international standards adapted to national conditions and priorities, and strengthen the capital adequacy framework for banks and All India Financial Institutions.

 

A draft circular on Forms of Business and Prudential Regulation for Investments was issued in October 2024, and it has been finalised after public consultations and will be issued shortly. The proposed regulatory restriction on overlap in the businesses undertaken by a bank and its group entity/entities is being removed from the final guidelines. The strategic allocation of business streams among group entities will be left to the wisdom of bank boards.

 

It is further proposed to introduce risk-based deposit insurance premium with the currently applicable flat rate of premium as the ceiling. This will incentivise sound risk management by banks and reduce premium to be paid by better-rated banks.

 

IMPROVING CREDIT FLOW

To expand the scope of capital market lending by banks, it is proposed to provide an enabling framework for Indian banks to finance acquisitions by Indian corporates.

 

It is proposed to remove the regulatory ceiling on lending against listed debt securities, and enhance limits for lending by banks against shares from INR 2 million to INR 10 million and for initial public offering financing from INR 1 million to INR 2.5 million per person.

 

It is also proposed to withdraw the framework introduced in 2016 that disincentivised lending by banks to specified borrowers (with credit limit from the banking system of INR 100 billion and above).

 

The Large Exposure Framework put in place for banks addresses credit concentration risk to a particular entity or group at an individual bank level, concentration risk at the banking system level, as and when considered necessary, will be managed through specific macroprudential tools.

 

To reduce the cost of infrastructure financing by NBFCs, it is proposed to reduce the risk weights applicable to lending by NBFCs to operational, high quality infrastructure projects. Since 2004, licensing for urban co-operative banks had been paused. Considering the positive developments in the sector during the last two decades and in response to the growing demand from the stakeholders, the central bank proposed to publish a discussion paper on licensing of new urban co-operative banks.

 

EASE OF DOING BUSINESS

Several circulars and directions, totalling about 9,000, have been consolidated across 11 types of regulated entities. Drafts of the same shall be issued shortly for public consultation. Second, it is proposed to provide greater flexibility to banks for opening and maintaining transaction accounts of borrowers. This will particularly help borrowers which are regulated by a financial sector regulator. 

 

EXPORT SECTOR, INTERNATIONALISING RUPEE

To further strengthen the export sector and enhance ease of doing business, the RBI shall extend the time period for repatriation from foreign currency accounts of Indian exporters in Indian Financial System Code from one month to three months. The central bank shall increase the period for forex outlay for merchanting trade transactions from four months to six months and simplify the process of reconciliation of outstanding entries related to exports and imports in the respective reporting portals, like Export Data Processing and Monitoring System or Import Data Processing and Monitoring System.

 

The central bank proposed key provisions relating to eligible borrowers, recognised lenders, limits on borrowing, cost of borrowing, end-use and reporting, etc. in external commercial borrowing regulations, issued under the Foreign Exchange Management Act, are proposed to be rationalised. It is proposed to rationalise FEMA regulations regarding non-residents establishing their business presence in India.

 

The RBI proposed to permit authorised dealer banks to lend in Indian rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross-border trade transactions. The central bank also proposed establishing transparent reference rates for currencies of India's major trading partners to facilitate rupee-based transactions and to permit wider use of special rupee vostro account balances by making them eligible for investment in corporate bonds and commercial papers.

 

ENHANCING CONSUMER SATISFACTION

The bouquet of services offered to basic savings bank deposit account holders without levy of minimum balance charges is proposed to be expanded to, inter alia, include digital banking (mobile/internet banking) services. The Internal Ombudsman mechanism is proposed to be strengthened to make grievance redressal by regulated entities more effective. The RBI Ombudsman Scheme is also being revised for improved grievance redressal, and rural cooperative banks are being included under the ambit of the Scheme.  End

 

Compiled by Vaishali Tyagi

Filed by Tanima Banerjee

 

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