RBI unveils big bang banking reforms, hikes limit for loan against shares; maintains status quo on rates

Ritesh Taksali, Chief Investment Officer, Edelweiss Life Insurance, said that as the impact on GDP growth from tariff uncertainty is broadly offset by GST cuts, MPC has chosen to remain cautious with no rate cuts and maintaining a neutral stance. At the same time, the MPC has stated that GST cuts have reduced inflation expectations and opened up policy space for further cuts to support growth.

“We see MPC maintaining a cautious approach and keenly monitoring the macroeconomic indicators going forward. As the global macroeconomic landscape evolves, there is room for further rate cuts in the future to support India’s growth”, Taksali said

ICRA had projected a 300–400 basis point reduction in core capital ratio of banks, upon implementation of Ind-AS, primarily accounting for the expected credit loss (ECL) effect. “However, as against our earlier estimate of implementation from April 1, 2025, the proposed implementation from April 1, 2027 onwards will moderate the impact, given the consistent improvement in asset quality in recent years. Further, the phased rollout through FY2031, provides banks with greater flexibility to manage the associated provisioning requirements.” ICRA noted.

Harsha Vardhan Agarwal, President, FICCI, said that FICCI is encouraged by RBI’s upward revision of India’s growth outlook from 6.5% to 6.8% for FY 2025-26, reflecting the underlying resilience of the economy and the positive impact of recent policy initiatives, particularly the rationalisation of GST.

“As we look forward to accelerating the growth momentum, we remain confident that the RBI will continue to support growth with timely measures, including a potential cut in repo rate in the next policy statement”

Commenting on the MPC meet outcome, Nuvam says that the RBI should resume easing soon. Nuvama notes that volatility in capital flows may have weighed on its mind.

“In our view, the pace of cuts is equally important as the quantum. Additionally, the RBI should welcome INR depreciation as it is the best antidote for tariffs. We expect the RBI to resume easing soon, and forecast another 50–75bp of cuts in this cycle.” Nuvaman say

While addressing the media after the MPC decision announcement, RBI Governor Shaktikanta Das said that there are currently no proposals to levy charges on UPI transactions. The RBI Deputy Governor added that the limits on loans against shares were last revised in 1998, and hence, they need to be revised now.

BofA expects two more 25 bps cuts. “Today’s policy signals a major dovish pivot in our view, and the RBI has essentially prepared the ground for rate cuts, especially if the trade deal is not achieved by then and the GST-related increase in demand starts to reverse course. We see the RBI delivering a 25 bps rate cut in December, followed by another in the February MPC, as its long-term inflation projections still show inflation being just below the 4% target by March 2027, indicating ample policy space to undertake deeper rate cuts,” BofA said in its report.

“GST rationalisation will not fully offset the impact of US tariff,” says RBI Governor said while addressing the media after announcing the policy rates.

“Trade-related headwinds to weigh on growth in Q3, Q4,” he added.

“We are trying to counter external headwinds. Ours is primarily a domestic demand-driven economy, so the impact is limited compared to other countries. Negotiations are still going on, including with Oman and the EU. The government is looking at other means, opening up other markets. There is already a trade deal with the UK. We are hopeful that we will continue to maintain a very high growth trajectory while ensuring price stability,” RBI Governor said while addressing the media after announcing the policy rates.

Monetary policy transmission is still happening, and GST rationalisation and other government measures are still unfolding. That’s why the MPC felt the need for a pause,” RBI Governor said while addressing the media after announcing the policy rates.

“The regulator has revised its growth forecast upwards for Q2/FY26, with a marginal downward revision seen in the latter half of the year. The inflationary pressures are expected to continue to ease in the near term. The pause in the current meeting leaves room for the RBI to opt for a 25bps rate cut in the forthcoming meetings, with growth buoyancy continuing and expectations of softening inflationary pressures.” said Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS .

“For banks, Q2 is expected to be another soft quarter, with tepid growth, NIM pressures, weaker treasury performance sequentially and higher credit costs. Banks are yet to see a meaningful recovery in credit growth, which is expected from H2 onwards,” he noted

“The rationalisation of GST is likely to have a sobering impact on inflation while at the same time stimulating consumption and growth. Tariffs, on the other hand, will moderate exports. As for the global economy, it has been more resilient than anticipated with robust growth in the US and China. The outlook, however, remains clouded amidst elevated policy uncertainty,” RBI Governor said while announcing the policy decisions.

“Average inflation for FY26 was revised lower to 2.6% from an already low level of 3.1%. While full-year GDP has been revised up by 30 bps, the forward-looking projections for Q3 and beyond are expected to be slightly lower than projected earlier. This, according to the MPC, has opened up some space for monetary easing, as they await the impact of their past actions to play out,” said Churchil Bhatt, Executive Vice President – Investment, Kotak Mahindra Life Insurance Company.

“We expect this rhetoric to be perceived as relatively dovish compared to the MPC’s earlier messaging, thereby capping any rise in government bond yields. Markets will keenly track incoming economic data to evaluate the future trajectory of policy rates. We assign a high probability to one more rate cut in this easing cycle going forward,” he noted.

“The MPC delivered exactly a “dovish pause” which the market expected. But despite the policy being in tune with market expectations, the market has given a thumps up to the policy since the Central bank delivered some unexpected pro-market initiatives like allowing banks to fund acquisitions and also further liberalising loan against shares,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments.

“Raising the GDP FY26 forecast to 6.8% from 6.5% earlier and lowering the FY26 CPI inflation forecast to 2.6% from 3.1% earlier reflect the Central bank’s optimism about the resilient economic outlook” he added.

“Despite an external environment that has deteriorated since the August policy, the Indian economy remains poised to register high growth. The sobering of inflation has given greater leeway for monetary policy to support growth without compromising on the primary mandate of price stability. However, the MPC decided to wait for the cumulative impact of recent actions to play out before charting the next course of action,” RBI Governor said while announcing the policy decisions.

As the RBI Policy Meeting 2025 is underway, Indian markets are trading in green. The Sensex is at 80,555.87, up 0.36%, while the Nifty stands at 24,683.85, higher by 0.28% at this hour. The Nifty Bank index is trading at 54,960.25, up 0.60%.

Repo rate: Unchanged at 5.50%

Policy stance: Neutral

Headline inflation: Revised downward to 2.6% from earlier estimate of 3.1%

GDP forecast for FY26: Revised upward to 6.8% from the earlier estimate of 6.5%

Cash Reserve Ratio (CRR): 3%

The Reserve Bank of India has revised its consumer price index (CPI) inflation forecast for FY26 down to 2.6%, from the earlier estimate of 3.1%. “Inflation outcome is likely to be softer than what was projected in August, primarily on account of GST rate cuts and benign food prices,” said RBI Governor.

Inflation projection for 2025-26:

Full year: 2.6%

Q2: 1.8% from 2.1% earlier

Q3: 1.8% from 3.1% earlier

Q4: 4% from 4.4% earlier

Q1 FY27: 4.5% from 4.9% earlier

Since the August monetary policy, the balance between growth and inflation in the economy has changed. According to RBI Governor Sanjay Malhotra, the recent adjustments in GST rates are likely to ease price pressures, which could help moderate overall inflation in the coming months.

Forex reserve stood at $700.2 billion. Net FPI recorded outflow of $3.9 billion so far this year.

Average headline inflation for this year has been revised lower to 2.6%, down from 3.1% in August. “The MPC observed that the overall inflation outlook has turned even more benign due to a sharp decline in food prices and the rationalisation of GST rates,” said RBI Governor while announcing the policy decisions.

Core Inflation for the year is expected to remain contained.

Real GDP growth for the year has been revised upward to 6.8% from the earlier estimate of 6.5%. While announcing the policy decision, RBI Governor Sanjay Malhotra said, “Global uncertainties will affect growth this year.”

Q2: 7% from 6.7% earlier

Q3: 6.4% from 6.6% earlier

Q4: 6.2% from 6.3% earlier

Q1FY27: 6.4%

MSF rate unchanged at 5.75%

SDF rate at 5.25%

The RBI MPC unanimously decided to keep the repo rate unchanged at 5.50 per cent. Maintained policy stance at ‘neutral’

The three-day MPC meeting concluded today, with RBI Governor Sanjay Malhotra has begin his policy address. He is set to announce the much-awaited decision on the key interest rate. Economists believes it’s a close call between rate cut and pause. Markets are also watching closely for updates on inflation, GDP growth projections, and other key economic indicators.

Nomura in its report said it sees a 70 per cent probability of a 25 basis point cut in October, and a 30 per cent chance that the RBI holds rates. In its report, it expects the RBI’s MPC to resume policy easing on October 1. “We expect the MPC to cut the repo rate by 25 bps in October, as benign inflation provides space to boost domestic demand and offset external risks,” it noted.

Nomura highlighted five supportive factors: 1) the negative shock from tariffs will more than offset the GST boost; 2) below 4% inflation provides the space; 3) current policy rates are restrictive; 4) a coordinated monetary-fiscal response is essential for boosting domestic demand; and 5) policy transmission works with long lags.

Read more: https://www.financialexpress.com/business/industry-will-rbi-announce-a-rate-cut-on-october-1-nomura-says-70-chance-of-25-bps-cut-3990084/

IDFC First Bank believes the October RBI policy will be a close call between a rate cut and a pause. However, it expects the RBI to stay on hold in October. “RBI is likely to stay on pause in October and cut in December if downside risks to growth materialize. By the December policy, there will be clarity on the impact of GST on consumption demand with the festival season complete and hopefully some clarity on tariffs,” IDFC First Bank noted.

Read more: https://www.financialexpress.com/policy/economy-day-2-of-rbi-mpc-meetingnbspidfc-first-bank-says-pause-emkay-predicts-cut-whats-next-3994484/

Before the decision to pause in the August meeting, the RBI had cut rates three times, amounting to a total reduction of 100 basis points since February. In its June 2025 meeting, the RBI delivered a “jumbo” cut of 50 basis points, bringing the repo rate down to 5.50 per cent. In the April 2025 MPC meeting, the RBI cut the repo rate by 25 basis points, and in the February 2025 policy meeting, it also reduced the repo rate by 25 basis points.

The RBI MPC met on August 4-6 before this. In that meeting, the RBI kept the repo rate unchanged at 5.50% and maintained a neutral stance. For FY26, the RBI lowered its full-year CPI inflation forecast to 3.1% from 3.7%, while retaining its GDP forecast at 6.5%. The Standing Deposit Facility (SDF) rate was kept at 5.25%, and the Marginal Standing Facility (MSF) and the Bank Rate were maintained at 5.75%.

The announcement will be broadcast live on the RBI’s official YouTube channel. For real-time updates and expert insights, audiences can tune in to leading financial news platforms such as FinancialExpress.com and follow coverage across social media.

In March, the central bank had released its meeting schedule for FY26. The six scheduled MPC meetings for FY26 are as follows:

April 7-9, 2025
June 4-6, 2025
August 5-7, 2025

September 29-October 1, 2025

December 3-5, 2025
February 4-6, 2026