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Calendar 2025 stands out as a watershed moment in the evolution of the country’s financial regulatory architecture. As Reserve Bank of India (RBI) Governor Sanjay Malhotra observed, “The journey ahead will demand continuous adaptation and agility, fresh thinking and innovation, collaboration and coordination, and an unwavering commitment to excellence and perfection.” The RBI’s actions throughout the year reflected this thought, marking a decisive shift towards principle-based regulation and systematic rationalisation of legacy instructions.
I set out below five reflections on the path the RBI travelled in 2025:
First, the year was defined by the RBI’s concerted effort to simplify and de-clutter regulatory instructions. Over time, the accumulation of circulars, master circulars, master directions (MDs), clarifications, and press releases had increased complexity, created interpretational challenges, and made compliance arduous.
For compliance professionals, the large-scale consolidation exercise undertaken by the RBI felt like a breath of fresh spring air. To appreciate its scale, nearly 9,445 circulars were repealed and consolidated into just 244 MDs.
Second, the RBI rationalised several core regulatory frameworks to better align them with evolving economic and developmental priorities. Priority sector lending norms were recalibrated to reflect changing credit needs while offering greater flexibility in compliance. Prudential norms for urban co-operative banks were strengthened with sharper focus on governance, capital adequacy, risk management, and supervisory oversight. The framework governing alternative investment funds was refined to address concerns around ever-greening, inter-connected exposures, and transparency — reinforcing market discipline without stifling genuine investment activity. A significant step was to allow banks to finance mergers and acquisitions (M&As). In parallel, the rationalisation of current account regulations simplified earlier prescriptions, reduced friction in banking relationships, and aligned operational requirements more closely with underlying risk assessments.
Third, customer protection and transparency remained central to the reform agenda. The regulator adopted a more outcome-oriented approach to customer service, placing emphasis on grievance redressal timelines, accountability at senior management levels, and supervisory monitoring. Measures to simplify periodic re-KYC requirements (particularly for low-risk customers) reduced compliance burdens without diluting safeguards. Clarifications were issued to facilitate timely settlement of claims in the accounts of the deceased, bringing much-needed sensitivity, fairness, and procedural clarity. A notable transparency initiative was the publication of the status of applications processed under the Citizens’ Charter, reinforcing trust in the RBI and its processes.
Fourth, the RBI’s consultative approach to policy making continued to be a hallmark of its regulatory style. Draft guidelines were issued, debated, and refined through extensive stakeholder engagement.
Fifth, the RBI decisively resolved several long-debated issues. The instructions clarifying which businesses banks may undertake directly and which must be conducted through subsidiaries provided much-needed certainty on permissible activities. This reduced scope for regulatory arbitrage, reinforced ring-fencing of core financial intermediation, and strengthened depositor protection. Revised provisioning norms represented a significant strengthening of the prudential framework. They marked a gradual but meaningful movement towards expected credit loss principles, bringing our regulation closer to global best practices. Recognising the growing reliance on external service providers, the RBI also issued a comprehensive outsourcing and third-party risk management framework, clarifying board-level responsibilities, oversight mechanisms, and exit strategies.
Permitting forward contracts in government securities strengthened market depth and expanded risk-hedging opportunities.
Meanwhile, discussions around the centralised credit monitoring mechanism year underscored the intent to enhance system-wide credit surveillance, even as the framework continues to evolve. Looking ahead to 2026, it is reasonable to ask whether the regulatory emphasis will shift decisively towards outcomes-based supervision. As institutions adapt to these simpler yet more exacting frameworks, it will test not only the robustness of rules, but also the quality of implementation, risk culture, and board-level engagement within regulated entities. That, ultimately, would mark the true culmination of Governor Malhotra’s vision.
The writer is founder & designated director, Duvvuru & Reddy LLP; and member, RBI’s advisory group on regulation
This column has been edited for space
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
