RBI won't be found wanting if 50% US tariff hurts growth: Governor

Says Basel-III norms for credit and market risks likely from April 2027

The Reserve Bank of India (RBI) could step in with policy measures if the 50 per cent US tariff — due to take effect from Wednesday — affects domestic economic growth, Governor Sanjay Malhotra signalled on Monday.

 

He also said the RBI intends to implement Basel-III norms for commercial banks’ market, credit, and operational risks from April 2027. Draft guidelines on credit risk and expected credit loss will be issued shortly, he added.

 

Malhotra, responding to a question regarding the impact of US tariffs, at the Ficci-IBA annual banking conclave, said: “We have provided ample liquidity to the banking sector and whatever else is required to support the growth of the economy, including those sectors which are impacted more. If it so happens, we will not be found wanting in our job.” 

 

In his speech, Malhotra stressed that the RBI had not “lost sight of growth” while anchoring inflation amid uncertainties, citing past examples: During the Covid period, when growth slowed, and more recently when inflation was benign, the monetary policy committee responded by cutting interest rates.

 

“We will continue to conduct monetary policy with the primary objective of price stability, keeping in view the objective of growth,” he said.

 

The six-member rate-setting panel reduced the policy repo rate by 100 basis points between February and June. The rate was left unchanged at 5.5 per cent in the August policy review.

 

The RBI governor noted that the central bank had lowered its GDP growth projection for FY26 to 6.5 per cent in April, when the US first proposed a 26 per cent reciprocal tariff. Earlier this month, the US imposed a 25 per cent reciprocal tariff on goods imported from India on top of existing World Trade Organization-compatible duties, and then announced another 25 per cent levy on Indian goods as penalty for New Delhi’s purchases of Russian crude.

 

While saying the overall impact of tariffs would be minimal, Malhotra warned that certain sectors -- such as gems and jewellery, textiles, apparel, MSMEs, and shrimps -- could face pressure.

 

“The government is also looking at free-trade agreements, some of which have already been in the works for some time. And we, for our part at the Reserve Bank, have been on an easing cycle. We reduced the repo rate by 100 basis points,” he said.

 

Malhotra emphasised the need to push growth in the face of tariff-related uncertainties. “We are at a critical juncture as we navigate the choppy global economic environment characterised by heightened trade uncertainty and persisting geopolitical tensions. We need to push the frontiers of growth,” he said.

 

At the time when the balance sheets of banks and large corporations are at their best, Malhotra said, “they should come together and drive the animal spirits to create an investment cycle, which is so important at this juncture.”

 

The RBI governor stressed that India, backed by strong macroeconomic fundamentals, is on course to become the world’s third-largest economy in the coming years.

 

On the financial sector, Malhotra said that despite the growth of other credit sources, banks, NBFCs, housing finance companies, and all-India financial institutions -- all regulated by the RBI -- still provide about 73 per cent of the real economy’s credit needs, with banks alone accounting for 53 per cent.

 

“Banks are well capitalised, with sufficient liquidity buffers, robust asset quality and reasonable profitability,” he said.

 

The RBI, he added, would continue to strengthen financial stability while also seeking to improve the ease of doing business. In this context, he acknowledged concerns raised by banks about overburdened boards at a directors’ conference last November.

 

“We are trying to rationalise the macro-policies that need to be approved by the boards of regulated entities, and leave the procedural and routine matters with management so that the board gets quality time to deliberate on strategic and important matters,” Malhotra said.

 

He said RBI is examining measures to expand bank credit towards productive sectors and reduce cost of intermediation.