The Reserve Bank of India (RBI) is considering relaxing rules for lenders, the regulator said on Friday, observing that it has built up strong capital buffers from improved profitability and asset quality. “We will ensure that our financial system evolves responsibly,” RBI Governor Sanjay Malhotra said at SBI Banking & Economics Conclave 2025.
“No regulator can afford to situate the system at a point in time,” Malhotra said. Highlighting the strength of the country’s banking system and the growth over the last decade, the governor highlighted that “regulation cannot ignore this performance, these changed realities”.
In the 10 years since March 2015, credit and deposits have nearly trebled and capital adequacy ratios (CAR) have risen from 13.5% to 17.5%. Also, gross and net non-performing assets have reduced to 2.3% and 0.5%, respectively.
Malhotra said the central bank will support growth and innovation and ensure that the financial system evolves responsibly. At the same time, the RBI governor made it clear that it is not the regulator’s job to make decisions for bank boards and that each bank must decide what’s best for its customers and business.
“Moreover, no regulator can or should, as far as possible, substitute for boardroom judgment,” he said. The central bank’s approach would be to support long-term sectoral strength without compromising prudential safeguards. “The role of a regulator is like that of a gardener…The gardener keeps on monitoring the growth of the plant and prunes unwanted growth to shape a collective, orderly, beautiful garden,” he added.
RBI has rolled out a raft of measures aimed at making it easier for lenders to do business. Most recently, it has recalibrated capital market exposure norms, lifted lending limits set in 1999 and introducing a structured loan-to-value framework. It has opened up acquisition finance to the banking sector with guardrails like a 70% funding cap and debt-to-equity thresholds. It is also working to relax norms for overseas commercial borrowing by removing the all-in-cost ceilings and linking borrowing limits to net worth while maintaining restrictions on speculative activity. “This will encourage competitive pricing and prudent hedging behaviour,” Malhotra said.
