India’s monetary landscape is shifting. With the Reserve Bank of India (RBI) trimming the repo rate by a cumulative 50 basis points since February, the dominoes are beginning to fall—and banks may be next in line. A recent report from SBI suggests that this monetary easing could soon translate into reduced interest rates for borrowers, nudging the economy toward a more accommodative credit environment.
But there’s more at play than just interest rates. The RBI, through a series of regulatory and developmental policy moves, seems to be laying the groundwork for a more flexible, resilient financial system. Let’s break down what this means for the broader economy and for borrowers, banks, and investors.
A Softening Interest Rate Environment
Following the initial 25 basis point repo rate cut in February, changes on the ground were gradual. Public sector banks trimmed deposit rates by 6 basis points, while foreign banks made deeper cuts of around 15 basis points. Interestingly, private banks bucked the trend with a minor increase in rates—up by 2 basis points.
Still, the trend line points downward. The SBI report notes that the weighted average lending rate (WALR) for public sector and scheduled commercial banks has closely mirrored the policy rate movement, signalling effective monetary transmission in progress. If this momentum holds, borrowers may soon find loans becoming more affordable.
A New Architecture for Stressed Assets
In parallel with the rate action, the RBI is widening the toolkit to deal with stressed assets. The regulator is preparing to introduce a new market-based framework for securitisation—adding a fresh layer of flexibility to the existing ARC route under the SARFAESI Act, 2002.
This initiative could be pivotal. By diversifying the mechanisms through which distressed assets are handled, banks may find it easier to clean up their balance sheets without being locked into a single recovery route. For an economy where Non-Performing Assets (NPAs) have long been a sticking point, this shift is both timely and tactical.
Reimagining Co-Lending and Gold Loan Norms
Co-lending arrangements, until now limited to banks and NBFCs operating in the priority sector, may soon be expanded to include all regulated entities. While this proposition is still under examination, its potential to democratise credit access and deepen lending partnerships is significant.
Gold loans, too, are coming under sharper regulatory focus. With a spike in gold prices and portfolio volumes, the RBI is expected to revisit norms governing loan-to-value (LTV) ratios, distribution channels, and interest structures. The aim is to harmonise guidelines across all lender categories—regulated or otherwise—and to issue comprehensive conduct-based and prudential regulations.
A Boost for Infrastructure Financing
Perhaps one of the most strategic reforms is the proposed review of norms surrounding non-fund-based facilities—especially partial credit enhancements (PCE). At present, capital requirements for PCEs are disproportionately high, limiting their effectiveness in supporting infrastructure bonds. The RBI’s move to possibly recalibrate these norms could unlock fresh capital flows for infrastructure development and deepen the corporate bond market.
This intent aligns closely with provisions highlighted in the Union Budget, underscoring a coordinated fiscal-monetary strategy to bolster long-term capital formation.
UPI Limits Revised for Merchant Payments
In a nod to the evolving digital ecosystem, the RBI has also greenlit the upward revision of transaction limits for person-to-merchant (P2M) UPI payments. Peer-to-peer transfers will remain capped at ₹1 lakh. But this recalibration is expected to boost high-value merchant payments, including government and tax-related transactions—a move that reflects growing trust in the UPI framework as a scalable payments backbone.
Policy Agility Amid Global Flux
What ties all these developments together is the RBI’s ability to remain agile in the face of an uncertain global environment. While some policy moves may seem routine, they are subtly calibrated to ensure macroeconomic stability and market confidence.
With FY26 on the horizon and fresh economic headwinds potentially brewing, today’s policy approach sends a clear message: the central bank is keeping its powder dry while staying ready to respond decisively.
6.2% revenue growth in Q3 FY25
FY25 GDP growth revised down to 6.4% (from 6.6%)
Credit Growth Slowdown: Banks have witnessed a cautious lending approach, particularly in unsecured segments, either due to asset quality concerns or softening demand.