The Reserve Bank of India (RBI) used 2025 to reset its regulatory approach which involved simplifying guidelines, recalibrating earlier caution and placing greater reliance on governance. These decisions collectively eased the cost of doing business for banks without compromising the financial stability.
With Sanjay Malhotra taking charge as the RBI governor early in the year, the intent was clear: Accelerate the growth engine while reducing regulatory friction. This was reflected in a two-pronged strategy — monetary easing to support credit growth, alongside a concerted push to streamline financial sector regulation after years of tightening.
How did the clean-up begin?
The clean-up began with regulatory consolidation. Over decades, banks had accumulated compliance obligations spread across thousands of circulars, many amended repeatedly, creating interpretational risks and operational fatigue. Addressing the Financial Express BFSI Summit on July 25, Malhotra said the central bank would consolidate over 8,000 regulations — nearly 5,000 of them obsolete — into a streamlined framework. “Our attempt is to come out with one master circular for all banks, and a similar one for NBFCs,” he said. By November 28, instructions contained in roughly 3,500 directions, circulars and guidelines were consolidated into 238 Master Directions across 11 categories of regulated entities.
Sachin Sachdeva, vice president and sector head – financial sector ratings at ICRA, said the RBI’s emphasis on consolidation and clarity should help reduce interpretational ambiguities and overlapping norms, enabling smoother execution and faster decision-making for banks. However, he cautioned that the gains would depend on banks’ internal operational efficiencies and technology adoption, with improvements in efficiency ratios likely to be gradual rather than immediate.
RBI on macroprudential measures
As credit conditions evolved, the RBI also showed its willingness to recalibrate earlier macroprudential measures. In February, the central bank rolled back the higher risk weights imposed on bank lending to non-bank financial companies from 125% to 100%. it freed up bank capital, improved return metrics and restored confidence in lending to stronger NBFCs amid intense competition for deposits.
Other targeted easing followed as the RBI refined norms around merger and acquisition financing, offering a greater clarity on funding structures and risk assessment as deal activity picked up. Gold loan norms were also eased, expanding lending flexibility while retaining safeguards against excessive leverage — providing relief to banks and NBFCs with a strong presence in the segment.
The RBI made changes in the project finance norms that clarified income recognition, provisioning during the construction phase and the treatment of extensions in the date of commencement of commercial operations. The guidelines came into effect from October 1. While conservative, the revised framework addressed long-standing grey areas that had often led to inconsistent treatment across lenders, particularly in consortium financing. In October, the central bank released draft guidelines for risk weights on lending to infrastructure projects by NBFCs, which would be applicable from April 1.
In parallel, the RBI took steps to promote the use of the rupee in cross-border trade. Authorised dealer banks were allowed to extend rupee loans to non-residents from Bhutan, Nepal and Sri Lanka for trade transactions, while special rupee vostro account balances were made eligible for investment in corporate bonds and commercial papers. The central bank also proposed establishing transparent reference rates for currencies of major trading partners to facilitate INR-based transactions — measures aimed at deepening rupee internationalisation without adding operational complexity for banks.
Consumer-facing reforms added another layer to the 2025 playbook. The RBI pushed for faster credit bureau updates, clearer nomination rules and standardised grievance redressal timelines, positioning credit bureaus as central to responsible credit expansion. At the same time, differentiated risk weights for unsecured lending were retained, signalling that growth would be encouraged, but not at the cost of prudence.
Governance incentives were reinforced through structural changes as well. In December, the RBI approved a risk-based deposit insurance framework, replacing the long-standing flat premium of 12 paise per Rs 100 of assessable deposits. The move is expected to incentivise stronger risk management and balance-sheet discipline among banks, while aligning insurance costs more closely with underlying risk profiles.
Even where regulations tightened — particularly around liquidity assumptions — RBI’s communication remained phased and predictable. Banks were given adequate lead time to adjust funding profiles and balance sheets, allowing treasury and asset-liability management teams to plan rather than react.
The outlook for NBFCs is also optimistic. According to AM Karthik, senior vice president and co-group head – financial sector ratings at ICRA, retail-focused NBFCs are expected to maintain stable or improving performance as stress in unsecured lending eases and secured loan quality remains manageable. Lower funding costs should support earnings, while capitalisation across most players remains adequate for growth.
“Infrastructure NBFCs should report steady results with controlled loan quality and earnings. Microfinance institutions will see positive growth and earnings, though still below pre-2024 levels. Small finance banks with increased focused on secured loans will see relatively limited loan quality issues. However, managing margins and growing retail deposits will remain key differentiators among peers,” he said.