On October 9, 2025, the Reserve Bank of India (RBI) unveiled a significant regulatory overhaul aimed at enhancing the resilience and competitiveness of India’s banking sector.
This initiative encompasses a wide range of reforms, including the consolidation of existing regulations, the introduction of new credit risk frameworks, and the expansion of grievance redressal mechanisms.
Consolidation of Regulatory Framework
The RBI has undertaken a major consolidation of its regulatory instructions, aiming to streamline and simplify the existing framework.
Approximately 9,000 circulars, including Master Circulars, will be repealed and absorbed into 238 Master Directions applicable across 11 types of regulated entities. This move is expected to improve clarity and compliance for regulated institutions, reducing the complexity of the regulatory environment.
Overhaul of Credit Risk Regulations
In an effort to align domestic practices with international standards, the RBI has proposed significant changes to credit risk regulations.
Key proposals include adjusting risk weightage for corporate, MSME, and real estate loans, which could reduce the capital banks are required to hold against these exposures. Additionally, the RBI is introducing an Expected Credit Loss (ECL) framework to improve provisioning for bad loans.
This model classifies loans into stages based on credit risk and is expected to increase initial provisions but have minimal overall capital impact, thanks to a five-year transition period. The new ECL rules will be implemented from April 1, 2027.
Expansion of Grievance Redressal Mechanisms
The RBI has extended the Banking Ombudsman scheme to cover state cooperative banks and district central cooperative banks, offering these banks’ customers the same grievance redressal mechanism previously available only to customers of nationalised and scheduled banks.
Under the expanded scheme, customers can lodge complaints against financial fraud or losses directly with the RBI ombudsman if not resolved by the bank within 30 days.
The ombudsman is required to deliver a resolution within 45 days, with options for appeal to the Deputy Governor of RBI. This move aims to enhance accountability, transparency, and public trust in cooperative banking institutions, particularly benefiting rural account holders.
Restructuring of Leadership and Oversight
In a parallel move, the RBI has implemented a significant reshuffle involving its four deputy governors, resulting in a redistribution of oversight across the central bank’s 32 departments.
This realignment of portfolios is part of the RBI’s administrative strategy to enhance operational efficiency and optimize leadership roles within the institution. The reshuffle aims to support the central bank’s evolving objectives and manage the diverse and critical functions under its purview.
Implications for the Banking Sector
These comprehensive reforms are expected to bring about a more streamlined and efficient regulatory environment, fostering greater stability and resilience within the banking sector.
By aligning domestic practices with international standards, the RBI aims to enhance the competitiveness of Indian banks and improve their ability to manage credit risk effectively. The expansion of grievance redressal mechanisms is also anticipated to bolster customer confidence and trust in the banking system.
Overall, the RBI’s regulatory overhaul represents a proactive approach to modernising the financial sector, addressing emerging challenges, and positioning Indian banks for sustainable growth in an increasingly complex global financial landscape.
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