Regulatory Overhaul on the Horizon
The Reserve Bank of India (RBI) and the Finance Ministry are set to implement significant regulatory refinements under the 'Viksit Bharat 2047' roadmap. A key development is the establishment of the Regulatory Review Cell (RRC) within the RBI's Department of Regulation, effective October 1, 2025. This cell will conduct systematic reviews of regulations every five to seven years, building on the success of the Regulatory Review Authority (RRA 2.0), which saw over 400 circulars withdrawn. Global best practices in consultation and feedback from regulated entities have informed these efforts.
Corporate Governance Scrutiny Intensifies
The push for robust corporate governance will see intensified scrutiny, particularly within the banking sector. The RBI has previously mandated private banks to have at least two whole-time directors, including the managing director and chief executive officer, to navigate increasing complexity and succession planning. Recent developments at certain banks underscore the need for closer attention to governance, ethics, and board oversight. Recommendations from the RBI's Internal Working Group (IWG) proposing that large corporate and industrial houses could become bank promoters, alongside large NBFCs, are still under examination. These proposals, which aim to potentially allow entities with asset sizes of ₹50,000 crore or more to convert into banks, are being weighed against concerns over connected lending and consolidated supervision.
Affordable Housing Finance Adjustments
Affordable housing is also slated for a review, potentially seeing policy adjustments from both the Union Budget and the RBI. A unit is typically defined as 'affordable' when priced at ₹45 lakh or less, with specific carpet area caps for metros (60 sqm) and non-metros (90 sqm). Data indicates a significant undersupply, with the supply-to-demand ratio for affordable housing in top eight cities plummeting to 0.36 in the first half of 2025, down from 1.05 in 2019. The RBI has revised Priority Sector Lending (PSL) norms, hiking loan limits for affordable housing in metros to ₹50 lakh from ₹35 lakh. However, housing finance companies (HFCs) are carrying a heavier load for lower-ticket loans, with risk weighting differences between banks (35%) and NBFCs (100%) influencing lending patterns. A re-evaluation of risk weighting and the possibility of banks financing land-bank purchases are anticipated.
Microfinance Sector Faces Policy Questions
Microfinance institutions (MFIs) are navigating a challenging period, with their portfolio declining consecutively for six quarters to ₹1.31 trillion as of September 2025. This contraction has pushed nearly half a million customers out of their ambit. While MFIs have adopted measures to curb over-leverage and improve lending practices, including capping loans at ₹2 lakh per client and limiting lenders, concerns remain. The industry is seeking a credit guarantee scheme of ₹20,000 crore in the upcoming Union Budget for FY27. Regulatory relief, such as the RBI's reduction of the qualifying assets threshold to 60%, has helped, but upcoming state elections and potential loan waivers pose a threat to credit discipline. Access for Section 8 companies (not-for-profit entities) to credit information companies is also a key demand.
Cross-Regulatory Collaboration Expected
With increased financial market interconnectedness, regulatory reviews may see participation from the Securities and Exchange Board of India (Sebi), the Insurance Regulatory and Development Authority (Irdai), and the Pension Fund Regulatory and Development Authority (PFRDA). The long-standing recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) report from 2013, which proposed a unified financial agency and appellate tribunal, might also be revisited.