 "Sanjay Malhotra, RBI, RBI Governor")
Those who have seen Reserve Bank of India (RBI) Governor Sanjay Malhotra in his earlier avatars as the chairman and managing director of REC Ltd, secretary of financial services in the Ministry of Finance, and revenue secretary, are familiar with his hands-on approach.
At group meetings, he would take copious notes. If the group met again, even months later, everyone would be on high alert, for Malhotra might well refer to a point raised in the past meeting for a clarification or even a fresh round of discussion. Bankers and heads of other regulated entities are, probably, experiencing the same now.
On December 10, Malhotra will complete his first year as RBI governor. How has it gone?
Between February and December, there has been a 125-bps rate cut – the most aggressive easing since 2019.
In private, some industry watchers say he is playing a one-day match, hitting every ball for a six. They particularly refer to two monetary policies – the ones in June and October.
In the June policy, the RBI reduced the repo rate for the third successive time, which was widely expected. But the depth of the rate cut — half a per cent – was a surprise. The regulator didn’t stop there. The action-packed policy pared the cash reserve ratio — the portion of net demand and time liabilities (a loose proxy for deposits), which commercial banks keep with the RBI and on which they do not earn any interest — by 1 percentage point to 3 per cent.
Also, the stance of the policy was changed from “accommodative” to “neutral”. This was after changing the stance from “neutral” to “accommodative” in the previous policy, in April.
The no-action October policy unleashed a series of deregulations – 21 in all. Among other things, it proposed to revise the external commercial borrowing (ECB) norms, simplifying and easing existing regulations. Besides, banks were allowed to finance mergers and acquisitions of corporations — a longstanding demand of the industry.
The RBI also raised the limit for lending by banks against shares, units of real estate investment trusts and infrastructure investment trusts, and abolished the ceiling on loans against listed debt securities.
What’s more, the banking regulator removed the limit on a bank’s credit exposure to large corporations. From now on, it will look at the concentration risk in the banking system — and not individual banks.
Finally, the RBI announced that it would give enough time to the banking industry to transition to the expected credit loss framework, starting in April 2027 with a four-year glide path, to implement it till March 2031. This would smoothen the impact of the requirement of higher provisioning on banks’ balance sheets.
Coming back to the cricket analogy, Malhotra has read the pitch right. On a flat track, a batter’s paradise, why shouldn’t he hit sixers, particularly when the earlier batters have given the innings a solid foundation?
Yes, I am referring to his predecessor, Shaktikanta Das. Around April 2022, when the consumer price index (CPI)-based inflation had peaked at 7.79 per cent, up from 6.95 per cent in March, inflation was the elephant in the room. Two years on, by April 2024, the situation had improved, thanks to the RBI’s monetary policy measures. That had prompted Das to say: “The elephant has now gone out for a walk and appears to be returning to the forest.”
The elephant will not return from the forest. So, Malhotra is using this opportunity to the hilt – when inflation is at a record low, push for growth. Par for the course.
Das had seen a series of crises in the financial sector – collapse and near-collapse of a string of regulated entities. Among these were the Infrastructure Leasing & Financial Services Ltd, Dewan Housing Finance Corporation Ltd, Yes Bank Ltd, and Lakshmi Vilas Bank Ltd. The first two bid goodbye, but the private banks – one old, the other new – survived because of an alert and innovative central bank.
With the financial sector on a rock solid foundation, Malhotra is pushing for greater freedom for regulated entities on multiple fronts. He is not pulling something out of a hat. He is giving a momentum to deregulation, most of which has been in the works for years now.
The first regulatory review was in 2001 – an initiative of then deputy governor YV Reddy. Two decades later, in May 2021, Das formed the Regulations Review Authority 2.0. The objective was to review and rationalise the central bank's regulations and compliance procedures to make them more effective and reduce the compliance burden on regulated entities. A group of advisors assisted.
In the current regime, in October 2025, the RBI constituted a body to periodically review its regulations. A Regulatory Review Cell, consisting of six industry experts, will work alongside the advisory group to ensure regulations remain relevant, effective, and aligned with global standards.
Close to 9,000 circulars are being repealed, and regulations are being consolidated into 238 Master Directions across 11 categories of regulated entities. This is one of the most significant governance and compliance-easing reforms in recent decades.
The RBI is now assuming direct responsibility for timely and forward-looking regulatory interventions, signalling a clear shift towards anticipatory supervision rather than reactive rule-making.
Incidentally, the government has announced a high-level committee for general regulatory reforms in the Union Budget 2025-26, which would review non-financial sector regulations.
Ahead of that, the Economic Survey 2024-25 also emphasised the importance of deregulation in fostering economic growth and generating employment. It advocated simplifying regulations and reducing compliance burdens to bring down business costs, enhance investment efficiency, and improve global competitiveness, while acknowledging the need for strategic regulatory interventions.
Deregulation is the theme now. This is essential for ease of doing business. If India wants to become an advanced economy by 2047, there is no choice but to deregulate.
Also, under Malhotra’s leadership, the RBI has launched the Framework for Responsible and Ethical Enablement of Artificial Intelligence — a first-of-its-kind initiative among central banks. This positions the RBI at the forefront of ethical AI adoption in financial regulation and central banking operations.
Speaking at the State Bank of India’s banking and economics conclave recently, Malhotra said financial stability remains the North Star for the RBI, but, at the same time, economic interest warrants increased efficiency. Just as there are no free lunches, regulation to enhance stability is not without costs. There are trade-offs between stability and efficiency.
“We will keep this trade-off in mind while formulating regulations… It will be our attempt to strike the right balance, keeping in view the benefits and costs of each and every regulation. The recent regulatory proposals strive to maintain this balance – the balance between the drive to innovate and grow and the duty to protect,” he said.
He defines the RBI’s approach towards regulation as “responsive conservatism” – a model that prizes stability, yet remains open to reform.
Indian banks today are far more mature than what they were a decade ago. They are well-capitalised and have been making handsome profits even as the quality of assets has been pristine. They deserve freedom.
Similarly, the ease in the ECB framework has come against the backdrop of a strong external sector. Its recalibration is a natural step in India’s financial evolution – grounded in strong fundamentals, guided by prudence, and inspired by confidence in the economy’s capacity to engage with global finance on its own terms.
The key to deregulation is Malhotra’s trust in the regulated entities. He believes the sector has improved governance and banks have been making prudent decisions. Regulations are evolving, keeping in mind the realities of time and the performance of banks.
The buck stops with the banking industry now. It needs to prove that it deserves Malhotra’s trust.
The writer, a Consulting Editor of Business Standard, is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in X: @TamalBandyo
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
