MUMBAI: In a policy review that kept borrowing costs unchanged but opened the door wider for credit expansion, the Reserve Bank of India (RBI) maintained the repo rate at 5.5 per cent while unveiling a raft of regulatory relaxations aimed at bolstering lending, easing compliance burdens, and fostering banking sector competitiveness.
This marks the second consecutive meeting where the Monetary Policy Committee (MPC) chose to hold rates steady after cutting them by a cumulative 100 basis points earlier this year. RBI Governor Sanjay Malhotra cited resilient domestic growth, easing inflation, and external uncertainties as reasons for pausing further rate action for now.
However, RBI Governor signalled room for a repo rate cut in the December meeting, stating that “falling inflation has created space.”
The central bank also upgraded its economic outlook, revising the FY26 GDP growth forecast to 6.8 per cent, up from 6.5 per cent earlier, citing robust consumption and the easing of indirect tax pressures following the latest round of GST rationalisation.
Inflation is now expected to average 2.6 per cent in FY26, compared with the previous estimate of 3.1 per cent.
But while interest rates stayed on pause, the RBI shifted gear on several other fronts – sending strong signals that it is willing to ease regulatory constraints to help banks and businesses navigate a changing credit landscape.
Regulatory cleanup
Among the most significant announcements was the removal of proposed restrictions on overlapping business structures between banks and their group entities, a move seen as a relief for major lenders like HDFC Bank, ICICI Bank, and Axis Bank, which operate in closely integrated ecosystems with their non-banking arms.
These norms, initially due to take effect in October 2024, had raised concerns over forced restructurings or divestments.
Lending flexibility was also extended to industries using gold and silver as raw material — notably jewellers and metal processors – allowing banks to extend working capital loans backed by precious metal inventory. This builds on earlier moves to formalise and scale lending in commodity-backed sectors, particularly in the MSME space.
A separate proposal will make the Expected Credit Loss (ECL) framework applicable to all scheduled commercial banks from April 2027, bringing India closer to global standards in risk recognition and provisioning.
While the repo rate held steady, analysts viewed the broader tone of the policy as a continuation of the RBI’s dovish pivot. “The measures reflect a clear intent to ease credit frictions and remove long-standing bottlenecks,” noted BofA Securities in a post-policy note. “This is especially important for MSMEs, NBFCs, and capital market access.”
The RBI also floated ideas to introduce risk-based insurance premiums and committed to finalising the adoption of revised Basel III norms by April 2027 — underlining its longer-term push to strengthen capital adequacy and systemic resilience.
Trade turbulence, global caution
While domestic indicators appear buoyant, the central bank flagged concerns around evolving trade dynamics and tariff-related uncertainties. “Tariff actions globally have altered the narrative for India’s external sector,” said Governor Malhotra. “Rationalisation of GST will help cool inflation and support demand, but tariffs may weigh on exports in the near term.”
That caution partly explains why the MPC chose to wait on further rate cuts, despite acknowledging that monetary transmission remains incomplete. The policy stance continues to be neutral.
What this means for borrowers
For borrowers, especially in capital-intensive and retail segments, the RBI’s announcements bring increased room for credit. For banks and NBFCs, the removal of overlapping business restrictions and higher exposure limits mean greater strategic freedom and possibly better asset growth.
For the economy, it’s a balancing act. The central bank is clearly aware that interest rates alone cannot carry the burden of growth, especially in an environment marked by global volatility and tightening elsewhere.
What stands out in this policy is the RBI’s willingness to loosen the reins not just with rates — but with regulation itself.
