The central bank unveiled a series of reforms, including revised Basel III norms, changes to capital provisioning, and relaxed credit rules.
On Wednesday, the Reserve Bank of India (RBI) held the repo rate steady at 5.50% for the second time this year and revised its growth and inflation projections for FY26. In a big boost for the banking sector, it has announced reforms aimed at making Indian banks more competitive and supportive of economic growth.
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The Indian central bank looks to enhance credit flow via these measures. These include:
Stronger capital framework: The Expected Credit Loss (ECL) provisioning framework will apply to all commercial banks (excluding Small Finance Banks, Payment Banks, Regional Rural Banks and All India Financial Institutions) from April 2027, with a glide path till 2031 to ease transition.
Risk-based deposit insurance premium: A shift from flat rates to risk-based premiums will reward better-governed banks with lower insurance costs, while nudging weaker ones to strengthen risk management.
Revised Basel III norms: Effective April 2027, the new norms will include a Standardised Approach for Credit Risk, which lowers risk weights on segments such as MSMEs and housing loans, thereby reducing capital requirements and encouraging lending.
Liberalised credit rules: Banks can now finance corporate acquisitions, extend higher limits for share-backed lending (from ₹20 lakh to ₹1 crore), and raise IPO financing limits (from ₹10 lakh to ₹25 lakh). Regulatory ceilings on lending against listed debt securities are also being removed.
Encouraging infra funding: Risk weights for non-banking financial companies lending to high-quality infrastructure projects will be reduced, lowering financing costs.
Reviving cooperative banking: The RBI will release a discussion paper on licensing new Urban Co-operative Banks (UCBs) in a significant step towards financial inclusion and competition.
RBI Policy Decision
The Reserve Bank of India’s Monetary Policy Committee (MPC) has maintained the repo rate at 5.50% in its latest review. The monetary policy stance remains neutral. This marks a second consecutive pause from India’s central bank after three rate cuts earlier this year and comes amid the backdrop of GST reforms, H-1 B visa concerns, and uncertainty over US tariffs. The inflation projection for FY26 was revised downward to 2.6%, with the GDP growth forecast raised to 6.8%.
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