What has so far been your most difficult decision as the RBI governor?
As for the most difficult decision, it’s hard to pinpoint just one. Over the last seven months, we’ve taken several substantial decisions, especially in areas like monetary policy, such as reducing the repo rate by 100 basis points (bps), adjustments to the cash reserve ratio (CRR) to ease liquidity pressures and regulatory reforms across banking. We have dealt with liquidity coverage ratios, recalibrated priority sector lending norms, introduced flexibility in gold loans, and made major interventions in project finance.
But what defines our approach is not the difficulty of a single decision, it’s the rigour of the process. We have institutionalised a consultation-based framework for decision making ensuring that voices across sectors and within the RBI are heard. This model ensures that even the hardest choices are made with clarity, consensus, and confidence.
Could you elaborate on how that shapes RBI’s governance model?
While consultative decision making was always part of our ethos, we’ve now formalised it across domains – from monetary policy to regulation. For example, before every monetary policy committee (MPC) meeting, we host extensive stakeholder consultations, including economists, industry leaders, bankers, and academics. Internally, we have nurtured what I call a mindset of inquiry. We encourage constructive criticism, challenge assumptions, and evaluate policy alternatives based on data and global experience. Our efforts are grounded in evidence and tempered by judgement. The goal is not just to make decisions, but to make better ones. As I often say, if you illuminate the path, the walk becomes easier. Decision making, then, is about building knowledge and applying it courageously.
What are the daily challenges and systemic concerns that worry you most?
As the RBI governor, what worries me the most are not just the macroeconomic indicators, but daily frictions experienced by citizens. While we’ve made progress in curbing inflation and stabilising growth, we must ensure that this stability translates into dignity at the grassroots.
The Jan Dhan Yojana, though groundbreaking, still struggles with dormant accounts and underutilised transaction capabilities. This limits its potential to act as a true gateway for targeted welfare transfers, particularly under Panchayat-linked schemes. We need to make re-KYC processes more humane and inclusive. The current procedures are excessively rigid, disproportionately affecting the elderly, differently-abled, and those without digital access.
Additionally, the citizen charter framework must evolve: Grievance redressal should be more responsive, service providers more accountable, and timelines more realistic. Financial inclusion is not just about access, it’s about empowerment. We must shift from gate keeping to enabling, especially through Panchayats that can co-own financial well-being of local communities. It’s time we rethink not just the policy scaffolding, but also the ethos of service delivery.
How do you navigate the inflation landscape? You recently said the RBI has won the war against inflation, something not many of your predecessors could claim.
Let me clarify that. The term I used in Hindi during that speech was “jung jeet li,” which translates loosely to “battle won”, not “war won”. Inflation is a dynamic challenge, today’s success doesn’t assure tomorrow’s comfort. That said, yes, the headline CPI inflation significantly dropped from 7.8% in April 2022 to 3.1% in June 2025. It’s even below our target range. But, we remain vigilant. Price stability is our primary mandate, and history teaches us that high inflation, especially if volatile, undermines growth. So, while we’ve won a critical battle, the war against inflation is ongoing and continuous.
With inflation softening and policy space seemingly expanding, what guides RBI’s current rate philosophy?
Our stance is neutral, which offers flexibility. We can move up, down, or pause depending on incoming data. That is key. The MPC recently reduced the repo rate by 100 bps, giving the room to manoeuvre based on both inflation and growth dynamics.
But monetary policy is forward looking. Decisions are made in light of projections six to 12 months ahead, rather than just current readings. For example, while CPI inflation had declined to 3.1%, well below RBI’s target range, the outlook for Q4 and the following fiscal year still suggested readings above 4%. Thus, future rate adjustments will be guided not by short-term celebratory data, but by medium-term economic conditions and outlook revisions. We will revisit that as new data emerge. Data revisions, transmission efficacy, and inflation expectations, especially from volatile components like food, will shape MPC decisions going forward.
Despite cutting the repo rate and CRR, credit uptake and private investments remain sluggish. Amid global uncertainties and limited policy space, how low can interest rates go without risking financial stability, such as asset bubbles?
First, let’s talk about the credit growth. Last year, it was around 12%, and now it is at 9.5%. While this may seem low compared to 16%, we need to look at the longer horizon. Over the last decade, the average credit growth was around 10.3%. So, last year’s 12% was quite healthy.
As for interest rates, how low they can go depends on the MPC’s assessment of the data. I’m pleased to note that policy transmission is happening, which will support growth. For example, preliminary figures for June show that rates on new loans have dropped by at least 50 bps, reflecting full transmission of our earlier cuts.
I don’t see any signs of asset bubbles forming. Instead, these measures will help improve credit uptake and growth. For large industries, where growth rates are relatively lower, alternative sources of finance have increased, ensuring that overall flow of funds to the economy is rising. This should support economic growth.
How do you respond to commentary suggesting that the RBI or the MPC has shown all its cards too soon, as uncertainties over Trump tariff plans and other worries still remain?
Our decisions were based on the macroeconomic conditions at the time. Inflation was benign, and while growth was robust at 6.5%, it wasn’t meeting our aspirations. The MPC felt it had the space to act decisively, and we took a calibrated approach. The monetary policy, as you know, acts with a lag, so it must be forward looking. We aim to reduce uncertainty in policy making, and I believe decisiveness helps with monetary transmission. For example, our February rate cut translated into a 28-bps drop by May, and by June, we saw a 50-bps reduction. That’s rapid transmission, validating our strategy.
As for the CRR reduction from 4% to 3%, it wasn’t just for liquidity management, but also to lower intermediation costs, ensuring benefits reached both savers and borrowers. While this tool is sparingly used, we felt it was appropriate and still have sufficient resources and tools to chart the right monetary policy path.
On regulation, there’s a buzz about an overarching framework or umbrella system for RBI’s regulated entities. Can you shed light?
What we are doing is consolidating, and not introducing a new framework per se. Currently, the RBI has about 8,000 regulations, circulars, master directions and notifications. Of these, around 5,000 are obsolete or redundant. That leaves us with approximately 3,000 active regulations.
Our aim is to simplify. In the first phase, we have identified 33 core subjects where we will unify directives: One set for banks, One for NBFCs and so on. This will reduce compliance complexity and enhance transparency.
We are setting up a regulatory review cell tasked with assessing regulations every 5–7 years. This cell will evaluate relevance, cost-benefit impact, consumer centricity, and possible regulatory gaps. It’s about evolving intelligently, rather than accumulating complexity.
Does this mean a rate cut isn’t ruled out in the near future?
That decision lies with the MPC. However, I can say that we are in a neutral phase, which gives us flexibility to move up, down, or pause. While the bar for further easing is higher now, rate cuts will depend on the outlook for both growth and inflation rather than current numbers.
With the US passing the Genius Act last week, will RBI reconsider its stance on cryptocurrencies?
A government-appointed committee is studying this issue, with the RBI being part of it. We have already raised concerns about monetary policy transmission, capital flow disruptions, and systemic vulnerabilities. Let us wait for the discussion paper. The Genius Act will undoubtedly be considered, but any change in stance must be weighed carefully.
The RBI’s proposal to charge UPI transactions has been met with government pushback. Will there be a renewed regulatory push?
The UPI is a powerful, an inclusive one. At present, it’s offered free to users, but no service can be sustainably free forever. Someone must bear the cost, be it the government, service providers, or eventually users. Our commitment is to ensure payment systems remain efficient, secure, accessible and viable. How costs are distributed over time will be a matter of policy alignment.
That said, UPI has grown phenomenally – from 300 million daily transactions two years ago to over 600 million now. It’s a success story worth building on.
Do you think that large bank-like NBFCs should be allowed to do mainstream banking?
NBFCs can apply to become banks, either small finance banks or universal banks, if they meet eligibility criteria. But our concerns with large corporate houses remain. Combining financial activities and real economy operations under one umbrella creates inherent conflicts of interest, especially with public money involved. Thus, while equity stakes of up to 10% without control are permissible, there’s currently no proposal to grant banking licences to corporates, even indirectly through NBFCs.
Does the 26% cap on promoter shareholding in private banks need revisiting?
Not at this point. The cap stems from the Banking Regulation Act, and it ensures no individual exercises undue control over depositor funds. Diversified ownership brings checks and balances, essential for safeguarding systemic trust. Foreign banks, of course, have separate provisions and may hold even 100%. But within Indian private banking, we prioritise safety through ownership dispersion.
One senior banker compared RBI’s posture to stopping all cars after one accident. Does RBI risk over-regulating?
That’s a clever analogy and a fair concern. We don’t intend to inhibit economic activity. Banks and other actors must be allowed to innovate and take calculated risks. Failures will occur, and we must learn from them. Our role is to set appropriate guardrails and not to fence off the entire road. We strive to strike the right balance between flexibility and discipline, enabling innovation with responsibility.
How do you evaluate the success of the inflation targeting framework, especially in the context of food price volatility? What approach has been taken towards its periodic review?
The flexible inflation targeting (FIT) framework has generally been successful in lowering inflation since its introduction in 2016. Inflation has mostly stayed within the target band, apart from a few exceptions. Given the high standard deviation in food inflation (around 3%) compared to core inflation (around 1%), the framework allows for a band, rather than a fixed point target to accommodate volatility. The RBI reviews the framework every five years through a consultative process, inviting stakeholder input and providing recommendations to the government.
What is your stance on the board’s responsibility in regulated entities, especially in light of recent episodes involving senior leadership?
I see the board as the ultimate guardian of trust in any regulated entity. Yes, not every glitch or operational lapse warrants a finger pointed at the board, but when stakes involve public deposits, especially those of small savers, the burden of vigilance lies squarely with it.
What’s your view on de-dollarisation? Is BRICS currency gaining traction?
The dollar, given its universal acceptability, isn’t going away anytime soon. The dollar continues to serve a critical role in global trade and finance as a universally accepted currency, and I believe it will remain dominant for a long time. While we are seeing increasing efforts from countries to diversify their currency exposure – there is a trend towards de-dollarisation, it’s a gradual process. There’s been a modest reduction in the reliance on the dollar, and nations are exploring alternatives.
However, when it comes to the BRICS currency, there isn’t much concrete progress as of now. I would say there is no significant work currently happening around a joint BRICS currency. That said, like many other countries, we in India are actively trying to popularise our own currency for cross-border trade settlements. For instance, we already have successful agreements in place with the UAE, and we have signed MoUs with countries like the Maldives. Discussions with other nations are underway.
Ultimately, while the journey towards a greater use of local currencies is promising, it will take time. The process of displacing a global anchor like the US dollar requires years of institutional development, trust-building, and economic realignment.
What’s your first reaction to the UK-India free trade agreement (FTA)?
I am hopeful that it will help us. This is the way forward, especially since multilateralism seems to have taken a backseat. Having an FTA in place is a positive step. It should benefit various sectors, both in manufacturing and services.
We already have one FTA operational, and I believe we need to pursue more of them. For instance, discussions with the US are in advanced stages, and there are others in the pipeline. These agreements can play a significant role in supporting our economy.