RBI’s big rewrite: How 2025 became the year Indian banking regulation was reset

If there is one institution that decisively shaped India’s financial landscape in 2025, it was the Reserve Bank of India. Under Governor Sanjay Malhotra, the central bank undertook its most sweeping regulatory overhaul in over a decade—one that fundamentally rewired how Indian banks operate, lend, and grow.

Far from incremental tweaks, the RBI dismantled legacy frameworks and rebuilt them for a banking system it believes is stronger, better capitalised, and ready for the next investment cycle.

Over the course of the year, the regulator rolled out more than 80 regulatory changes, all aimed at a single objective: freeing up bank balance sheets, reviving credit growth, and aligning regulation with India’s evolving economic ambitions.

At the core of this shift was a clear change in regulatory philosophy. Governor Malhotra repeatedly emphasised that Indian banks today are far more resilient than they were during the stressed-credit era of the last decade—better governed, better capitalised, and capable of absorbing shocks without jeopardising systemic stability.

“We have taken measures that are very balanced, calibrated, thought out, and considered,” Malhotra said, adding that the RBI’s approach would remain focused on maintaining stability while improving competitiveness and supporting economic growth.

Opening the Door to Consolidation

One of the most consequential changes of 2025 came in merger and acquisition financing. For years, banks had faced tight curbs on funding acquisitions and promoter buyouts—a hangover from the excesses of the previous credit cycle. This year, the RBI recalibrated those limits, effectively reopening acquisition financing by banks.

The signal was unambiguous: consolidation, capital reallocation, and market-driven transactions are no longer viewed as risks to be avoided, but as instruments of economic efficiency.

KV Kamath, Chairman of Jio Financial Services, welcomed the move, noting that earlier restrictions were rooted in a very different context. “Everything today is market-driven and goes through the marketplace. In that context, the Reserve Bank has done the right thing to open it up,” he said, calling acquisition financing an important business avenue for banks.

This easing was accompanied by broader relaxations in loans against shares, IPO financing, and structured credit—areas that bankers had long argued were overregulated relative to the risks involved.

SBI Chairman CS Setty described the package as “Banking Reforms 3.0,” calling them long-standing industry demands that are “absolutely credit accretive.”

Also Read | Indian economy grows at fastest pace in six quarters; inflation below tolerance, RBI Bulletin shows

Sequencing Over Shock Therapy

Crucially, the RBI avoided regulatory shock therapy. The much-debated expected credit loss (ECL) framework was deferred, giving banks a four-year runway to upgrade systems and plan capital. Project finance norms were withdrawn and merged into a single, unified credit framework, reducing complexity and compliance burden.

Malhotra underlined the need for adaptability. “Circumstances change, times change, requirements change—and nothing should be frozen in time,” he said, reiterating the RBI’s commitment to continuous review and improvement of regulations.

Cleaning Up the Rulebook

Perhaps the most underappreciated reform of 2025 was the RBI’s massive clean-up of its own regulatory architecture. The central bank consolidated 3,809 circulars into updated master directions and scrapped another 5,673 obsolete circulars, significantly easing compliance for banks and financial institutions.

Liquidity coverage ratio norms were relaxed, while external commercial borrowing rules were liberalised, giving companies greater access to offshore capital—without diluting safeguards on cost, maturity, currency risk, or end use.

The overarching push was towards principle-based regulation rather than exhaustive rulebooks. Malhotra warned that overly prescriptive norms often lead to “tick-box compliance” that defeats the intended outcome.

Beyond Big Banks

The reform agenda extended well beyond large lenders. Risk weights on lending to NBFCs and microfinance institutions were restored, co-lending norms expanded, and priority sector rules eased for small finance banks—moves aimed at improving credit flow to underserved segments.

At the same time, the RBI tackled the cost of credit. In 2025, it delivered four rate cuts, bringing the repo rate down from 6.5% to 5.25%. Loan reset norms were reviewed to ensure faster transmission of lower rates to borrowers.

By the end of the year, Malhotra struck an optimistic tone, pointing to a rare “Goldilocks” phase—benign inflation at 2.2% alongside 8% growth in the first half of the year.

A Return to Bank Licensing—and Foreign Capital

Confidence in the system was perhaps most visible in bank licensing. After a long hiatus, the RBI granted a full banking licence to AU Small Finance Bank and approved Fino Payments Bank’s transition into a small finance bank.

Equally significant was the regulator’s openness to foreign capital. The RBI paved the way for Japan’s SMBC to invest in Yes Bank and Emirates NBD to acquire a stake in RBL Bank—signalling a pragmatic approach to global capital and strategic ownership.

From Crisis to Growth

Taken together, the RBI’s actions in 2025 mark a decisive shift from crisis-era regulation to growth-era regulation. This is not deregulation without discipline, but a recalibration rooted in confidence—confidence in bank balance sheets, in regulatory oversight, and in India’s medium-term growth story.

As the year draws to a close, one thing is clear: the RBI is no longer regulating for the last crisis. It is regulating for the next investment cycle—and 2025 will likely be remembered as the year that transition truly began.

Also Read | Gold loans see triple-digit growth since February 2025, says RBI Bulletin