READY TO LISTEN: Sanjay Malhotra, Governor, Reserve Bank of India | Photo Credit: Dhiraj Singh

“We need to be conscious that we do not have the monopoly of all knowledge,” Reserve Bank of India (RBI) Governor Sanjay Malhotra said in his first public statement after taking over the institution entrusted with handling government finances while ensuring stable inflation and growth prospects.

While the RBI has done a commendable job under its previous leadership, the consultative stance must continue, Malhotra stressed. “Consultation is another key pillar of our policymaking... this is one thing that I will continue to do,” he said.

Almost nine months into his role, consultation is the precise theme that the new Governor has adopted vigorously while finalising new regulations or fine-tuning existing ones, bankers say.

Major moves

Malhotra’s first major decision came in February — rolling back the higher risk weight that had been imposed on bank loans to non-banking financial companies (NBFCs) in 2023. The central bank also lowered risk weight requirements for loans extended by banks to microfinance firms.

The move to hike risk weight on bank loans to NBFCs had dried up the latter’s primary funding channel.

Banks became extremely cautious in lending to NBFCs that were rated below ‘A’ category, as reflected in sectoral credit deployment data.

“Whenever there is a policy tightening, it has an immediate impact on monetary policy and the ease of doing business. Last two years, banks’ hands were tied because of higher risk weight on unsecured loans and NBFCs. It went to an extreme, and he has brought it back to a reasonable state,” a senior private banker said.

The new Governor also ensured the presence of ample liquidity in the banking system, in a major relief to lenders facing liquidity crunch amid a falling share of low-cost deposits, he added.

In April, the RBI cut the run-off rates assigned to retail deposits and deposits from ‘non-financial corporates’ for computation of liquidity coverage ratio (LCR).

Under the final guidelines, which will come into effect from April 1, 2026, a bank will have to assign an additional 2.5 per cent run-off factor (against the prescribed 5 per cent in the draft circular issued in July 2024) for retail deposits that are enabled through internet and mobile banking facilities.

Pragmatic regulation

In June, the RBI eased the final norms regulating the gold loan business, stipulating that lenders must maintain 85 per cent loan-to-value (LTV) ratio for consumption-related gold loans below ₹2.5 lakh, as against 75 per cent proposed earlier. For consumption loans backed by gold collateral, the LTV ratio is fixed at 80 per cent for ₹2.5-5 lakh ticket sizes, and 75 per cent for loans above ₹5 lakh.

George Alexander Muthoot, MD of Muthoot Finance, said the new Governor represents a decisive shift towards a more progressive and pragmatic regulatory approach, especially for the gold loan sector. “They acknowledge the important role that gold loans play in providing reliable, quick and inclusive credit to households and small businesses,” Muthoot said.

“By ensuring that regulations are growth-oriented while still safeguarding stability, the RBI is helping strike the right balance between prudence and progress,” he added.

In June, the RBI eased project finance norms, mandating lenders to make 1 per cent provision for standard under-construction loans versus the 5 per cent proposed in the draft circular. Importantly, in a major relief to lenders, the regulator clarified that the new provisioning requirements would apply prospectively.

AIF schemes

In July, the regulator relaxed norms on lenders’ investments in alternative investment fund (AIF) schemes, allowing an individual lending entity to invest up to 10 per cent of the corpus of an AIF scheme, and collectively allowing all lenders to invest up to 20 per cent of the corpus.

According to Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds, while the regulator was right to earlier introduce stricter norms for lenders’ investments in AIF schemes — citing evergreening of loans — the new Governor has appreciated the industry perspective, especially in light of SEBI’s new safeguards, and brought in a resilient and sustainable framework.

Pro-growth focus

A majority of the bankers businessline spoke with for this story said Malhotra had adopted a consultative approach with industry to propel GDP growth, amid benign inflation and stable fiscal deficit trends.

“He has done what he had to do and he has done it faster than anybody thought. Monetary policy acts with a lag in both tightening and easing cycles. There is scope to cut repo rate more, but not immediately. Stable oil price and rupee will aid further cuts. Now the fiscal has to make policies which promote ease of doing business and continue capex to propel job growth,” said the senior private banker quoted earlier.

R Gandhi, former Deputy Governor at RBI, said the regulator had always maintained a consultative approach while finalising crucial regulations.

“It is not the case where the regulator won’t pay heed to industry feedback. They factor in realities. Obviously, when a new governor is appointed, they view feedback with a fresh mind and do not rely on pre-existing assumptions,” he said.

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Published on September 1, 2025