Headline: RBI Holds Rates, Unveils Sweeping Reforms to Boost Growth and Capital Market Access

In a comprehensive monetary policy address, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced a raft of regulatory reforms aimed at enhancing financial sector flexibility, deepening capital markets, and supporting economic growth. The Monetary Policy Committee (MPC) unanimously voted to keep the repo rate unchanged at 5.50%, maintaining a ‘neutral’ stance amid global uncertainties and subdued inflation.

Key Highlights:

Interest Rates and Inflation Outlook: The RBI held the repo rate steady, citing a “sobering of inflation” that provides greater leeway for policy support. CPI inflation for FY26 was revised down to 2.6% from 3.1%, with core inflation expected to remain contained.

Growth Projections: India’s economy is projected to grow at 6.8% in FY26, up from the previous estimate of 6.5%. The RBI expects Q2 growth at 7% and Q3 at 6.4%, supported by rising capacity utilization, rural demand, and structural reforms including GST rationalisation.

Capital Market Lending Expansion: The RBI proposed to expand the scope of capital market lending by banks, including removing the regulatory ceiling on lending against listed securities and permitting financing of acquisitions by Indian corporates. This move lifted the Nifty Financial Services Index by 0.6% and the Nifty Bank Index by 0.5%.

Non-Resident Lending and FEMA Reforms: Banks will be allowed to lend in Indian rupees to non-residents from Nepal, Bhutan, and Sri Lanka. Key provisions under FEMA, including rules for establishing business presence and ECB regulations, will be rationalised to improve cross-border financial flows.

Banking Sector Reforms: The RBI will withdraw the 2016 framework that disincentivised lending to certain borrowers and introduce a discussion paper on licensing new urban cooperative banks. Restrictions on collection accounts will be lifted, and banks will gain more flexibility in opening and maintaining transaction accounts.

Deposit Insurance and Capital Adequacy: A risk-based deposit insurance premium framework is proposed to reduce costs for well-rated banks. The RBI also plans to strengthen the capital adequacy framework in line with revised Basel III norms.

Algo Trading Rules Deferred: India has extended the timeline for rolling out algorithmic trading regulations for retail investors, allowing more time for stakeholder consultations and infrastructure readiness.

Governor Malhotra concluded by reaffirming the RBI’s commitment to price stability while remaining vigilant of incoming data and supporting growth through calibrated policy actions.

Sources: LiveMint, CNBC-TV18, Economic Times.