 "IllustratIon: Binay Sinha")
There are no free lunches as there is a cost of regulation, Reserve Bank of India (RBI) Governor Sanjay Malhotra had said at his first monetary policy press conference. Action followed words, as the regulator pushed to doing business and reduce compliance costs, which was evident with the consolidation of over 9,000 regulatory circulars into just 244.
Here is a snapshot of some of the major initiatives taken by the RBI during calendar year 2025.
Liquidity Coverage Ratio (LCR) norms were revised, with a lower run-off factor of 2.5 per cent for digitally enabled deposits and reduced haircuts on government securities classified as high-quality liquid assets. Effective April 1, 2026, the changes are expected to improve banks’ LCR by around 6 per cent.
Provisioning norms for project finance were eased, with 1 per cent prescribed for under-construction projects and 1.25 per cent for commercial real estate, compared with the 5 per cent proposed in the draft.
Banks were allowed to finance acquisitions by Indian companies, with exposure capped at 10 per cent of Tier-I capital and a mandatory 70:30 bank-to-acquirer funding ratio. The framework focuses on listed, profitable firms and is expected to be implemented from April 1, 2026. Banks are expected to focus on smaller acquisitions by MSMEs, debt-free companies, and pharmaceutical players.
Draft norms on expected credit loss (ECL) provisioning proposed a four-year transition period to spread additional requirements. Transition is slated to start from April 1, 2027.
Risk weights on banks’ exposure to non-banking financial companies (NBFCs) were restored to 100 per cent from 125 per cent, effective April 1, 2025.
Loan-to-value ratios for gold and silver loans were raised to 85 per cent for loans up to ₹2.5 lakh and 80 per cent for loans between ₹2.5 lakh and ₹5 lakh. The revised norms, effective January 1, 2026, are aimed at improving access to small-ticket credit.
Review of qualifying assets for NBFC-microfinance institutions was reduced to 60 per cent of total assets (net of intangible assets) from 75 per cent, which will help MFIs diversify.
Priority sector lending obligations for small finance banks were lowered to 60 per cent from 75 per cent, effective FY26.
Continuous clearing of cheques under the Cheque Truncation System replaced batch processing and reduced settlement time and risks.
A new framework for the formulation of regulations was introduced to ensure a transparent and consultative approach. It mandates public consultation on draft regulations, along with statements of objectives, and provides for periodic reviews to assess relevance and redundancy.
New digital lending norms required loan service providers associated with multiple lenders to present unbiased loan offers, improving borrower choice and competition.
Revised liquidity management framework retained the weighted average call rate as the operating target while continuing to monitor other overnight money market rates.
Final norms on forms of business and investments by banks aimed to streamline group structures and ring-fence banks from risk-bearing activities. They are required to structure each line of business preferably housed in a single entity to improve governance.
