The Reserve Bank of India (RBI), under Governor Sh. Sanjay Malhotra, announced its monetary policy on October 1, 2025, maintaining a neutral stance while projecting stronger economic fundamentals. The Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 5.50%. Consequently, the standing deposit facility (SDF) rate remains at 5.25%, and the marginal standing facility (MSF) rate and Bank Rate are stable at 5.75%. The RBI revised its projections, increasing the real GDP growth estimate for 2025-26 to 6.8% (up from 6.5%) and significantly lowering the CPI inflation projection to 2.6% (down from 3.1%) for the same period.
Beyond rate decisions, the RBI introduced several developmental and regulatory measures. Key regulatory proposals include moving to an Expected Credit Loss (ECL) framework for provisioning, issuing revised Basel III guidelines for credit risk, and finalizing guidelines on banks’ forms of business and investments. The RBI also intends to implement a Risk Based Premium Framework for deposit insurance through the DICGC and is rationalizing guidelines for banks’ Capital Market Exposures (CME), including enabling financing of acquisitions and enhancing lending limits against shares. Other measures involve withdrawing the guidelines on Enhancing Credit Supply for Large Borrowers, introducing a principle-based framework for risk weights on NBFC infrastructure lending, and reviewing restrictions on bank transaction accounts. On the foreign exchange front, the RBI extended the time for repatriation of export proceeds from foreign currency accounts in IFSCs and increased the foreign exchange outlay period for Merchanting Trade Transactions (MTT) from four to six months.
A. Resolution of Monetary Policy Committee
The various decisions taken in the meeting of Monetary Policy Committee are as follows.
(Link: RBI Monetary Policy- Resolution, Governor Statement Dated 01/10/2025)
- To maintain the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent.
- To continue with the neutral stance.
- The real GDP growth projected for 2025-26 at 6.8%. (previous estimate 6.5%)
- The CPI Inflation projected for 2025-26 at 2.6%. (previous estimate 3.1%)
- The updated policy rates are Repo- 5.50%, SDF- 5.25%, MSF and Bank Rate- 5.75%, CRR– 0%, SLR- 18.0%, Fixed Reverse Repo- 3.35%.
B. Statement on Development and Regulatory Policies
The various measures set out are as follows.
(Link: RBI Monetary Policy- Development & Regulatory Policies Dated 01/10/2025)
I. Regulations
Expected Credit Loss (ECL) framework for provisioning: It is proposed to issue the draft Reserve Bank (Asset Classification, Provisioning and Income Recognition) Directions, 2025 for Scheduled Commercial Banks (excluding Small Finance Banks, Payments Banks and Regional Rural Banks) and All India Financial Institutions. The draft directions propose to replace the extant framework based on incurred loss with an Expected Credit Loss (ECL) approach, subject to a prudential floor, while retaining the existing asset classification norms.
Basel III Guidelines on Capital Charge for Credit Risk, Standardised Approach: It is proposed to issue the draft guidelines on implementation of the revised Basel framework on Standardised Approach for Credit Risk for Scheduled Commercial Banks (excluding Small Finance Banks, Payments Banks, and Regional Rural Banks).It aims to improve the robustness, granularity and risk sensitivity of the standardized approach for calculating the capital charge for credit risk.
Forms of Business and Prudential Regulation for Investments: The draft guidelines on forms of business and investment for banks has been finalised and shall be issued shortly. It envisages to streamline the activities being undertaken by banks and their group entities while providing more operational freedom to the banks and NOFHCs for equity investments and setting up group entities respectively.
Introduction of Risk Based Premium Framework for Deposit Insurance in India: Deposit Insurance and Credit Guarantee Corporation (DICGC) has been operating the deposit insurance scheme since 1962 on a flat rate premium basis. At present, the banks are charged a premium of 12 paise per Rs 100 of assessable deposits. While the existing system is simple to understand and administer, it does not differentiate between banks based on their soundness. It is, therefore, proposed to introduce a Risk Based Premium model which will help banks that are more sound to save significantly on the premium paid.
Review of Capital Market Exposures Guidelines for banks: Capital market exposures (CME) of the regulated entities (REs) which include, inter alia, lending against securities to individuals and lending to capital market intermediaries, have been subject to prudential regulations relating to sectoral exposure limits, single borrower limits, margin requirements, etc. Further, bank finance for acquisition of shares has been generally disallowed. With the objective of rationalising the extant guidelines and broadening the scope for capital market lending by banks and other regulated entities, it is proposed to provide an enabling framework for banks to finance acquisitions by Indian corporates; enhance the limit for lending by banks against shares, units of REITs, units of InvITs while removing the regulatory ceiling altogether on lending against listed debt securities; and put in place a more principle-based framework for lending to capital market intermediaries.
Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism: The Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism were introduced with an objective to address the concentration risk arising from the aggregate credit exposure of the banking system to a single large corporate and encourage such large corporates to diversify their sources of funding. It is proposed to withdraw the guidelines. The concentration of risk at the banking system level, will be managed through specific macroprudential tools.
Risk Weights on infrastructure lending by NBFCs: Infrastructure projects that have commenced operations typically exhibit lower risk compared to those under construction. Recognizing this risk differential, the existing capital adequacy norms permit NBFCs to assign a lower risk weight to operational projects under Public-Private Partnerships (PPPs). It has been decided to introduce a principle-based framework. The framework aims to align risk weights with the actual risk characteristics of operational infrastructure projects, promoting better risk assessment and capital allocation.
Discussion Paper on Licensing Framework for new Urban Co-operative Banks (UCBs): Since 2004, issuance of fresh license for UCBs had been paused following weak financial health of the UCB Sector. Considering that more than two decades have passed since then and the positive developments in the sector, a discussion paper on licensing of new Urban Co-operative Banks (UCBs) will be issued shortly.
Consolidation of Regulatory Instructions: RBI has undertaken an exercise of consolidating the regulatory instructions administered by the Department of Regulation into a set of Master Directions on an ‘as is’ basis. The drafts of about 250 Master Directions consolidating extant instructions shall be placed on the website shortly for comments on their completeness and accuracy.
Review of Restrictions on Transaction Accounts: With the objective of enforcing credit discipline among borrowers as well as to facilitate better monitoring by lenders, certain restrictions were placed on the operation of Current Accounts (CA), Cash Credit Accounts (CC) and Overdraft Accounts (OD) (“Transaction Accounts”) offered by banks vide various circulars issued from time to time. It is proposed to ease some of the stipulations and provide greater flexibility to the banks in this regard, particularly in case of borrowers being entities regulated by a financial sector regulator.
II. Foreign Exchange Management
Foreign Currency accounts by Indian exporters, extension of time period for repatriation from accounts held in IFSC in India: In January 2025, RBI had permitted Indian exporters to open foreign currency accounts with a bank outside India for realisation of export proceeds. Funds in these accounts can be used for making import payment or have to be repatriated by the end of next month from the date of receipt of the funds. It has now been decided to extend the time period for repatriation, from one month to three months, in case of such foreign currency accounts maintained in IFSC in India.
Merchanting Trade Transactions (MTT): Global uncertainties in trade are resulting in supply chain disruptions, making it challenging for Indian merchants to meet their contractual obligations in time. In terms of extant guidelines on MTT, outlay of foreign exchange is allowed up to four months. It has now been decided to increase the period for the forex outlay from four months to six months, in case of MTT.
Relaxation in compliance requirements for Small Value Exporters/ Importers: It has been decided to simplify the process of reconciliation in Export Data Processing and Monitoring System (EDPMS) and Import Data Processing and Monitoring System (IDPMS). As per the revised guidelines, bills can be reconciled and closed by an AD bank in EDPMS or IDPMS, based on a declaration by the concerned exporter or importer, as the case may be, that the amount has been realised, for a shipping bill, or paid against a Bill of Entry, for entries (including outstanding entries) in EDPMS/IDPMS of value equivalent to INR 10 lakh per bill, or less.
Review of External Commercial Borrowing Framework: RBI has undertaken a review of the existing provisions under the Foreign Exchange Management (Borrowing and Lending) Regulations. A revised framework that provides for expansion of eligible borrower and recognized lender base, rationalization of borrowing limits, rationalization of restrictions on average maturity period, removal of restrictions on the cost of borrowing for ECBs, review of end-use restrictions and simplification of reporting requirements, is proposed to be introduced.
Rationalisation of regulations for Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business: The extant regulations for ‘Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business’ have been comprehensively reviewed. The revised regulations are principle driven and enable delegation of more powers to AD banks and reduction of compliance burden.
II. Consumer protection
Review of instructions on Basic Savings Bank Deposit (BSBD) Account: BSBD Account is a savings bank account which was introduced with the objective of promoting financial inclusion. The extant instructions on BSBD account require banks to provide certain minimum facilities free of charge, without the requirement of minimum balance, to the holders of such accounts. It has been decided to review the extant instructions on BSBD account.
Measures for strengthening the Internal Ombudsman mechanism in REs: RBI has institutionalized the Internal Ombudsman (IO) mechanism in select Regulated Entities (REs) which enables an independent apex level review of complaints that are being rejected by the RE. It is proposed that the IOs be equipped with compensation powers and be allowed access to the complainant, aligning the role of IOs more closely with that of the RBI Ombudsman. Additionally, a two-tiered structure may be introduced within REs for grievance redress prior to escalation to the IO. These measures aim to provide meaningful and timely resolution of customer grievances within the REs.
Review of the Reserve Bank, Integrated Ombudsman Scheme: The Reserve Bank- Integrated Ombudsman Scheme (RB-IOS) 2021, provides customers of Regulated Entities (REs) a speedy, cost-effective and expeditious alternate grievance redress mechanism. To enable the customers of the rural co-operative banks to access the mechanism of RBI Ombudsman, it has been decided to bring State Co-operative Banks and District Central Cooperative Banks, hitherto with NABARD, within the scope of the RBI Ombudsman Scheme.
II. Financial Markets
Lending in Indian Rupees (INR) by Authorised Dealer (AD) banks to Persons Resident Outside India: It has been decided that AD banks in India and their overseas branches may be permitted to lend in INR to persons resident in Bhutan, Nepal, and Sri Lanka, including a bank in these jurisdictions, to facilitate cross border trade transactions.
Additional Reference Rates to be published by Financial Benchmarks India Limited: At present, Financial Benchmarks India Limited (FBIL) publishes reference rates for USD, EUR, GBP and JPY against INR. These rates are widely used for settlement of forex transactions including derivatives. It is now proposed to include select currencies of India’s major trading partners in the list of reference rates published by FBIL. This is expected to further deepen the onshore forex market and encourage banks to quote directly in a larger set of currency pairs.
Expanding the bouquet of investments for Special Rupee Vostro Accounts (SRVA) holders: RBI had permitted Special Rupee Vostro Accounts (SRVA) in July 2022 to facilitate invoicing, payment, and settlement of exports / imports in INR. The arrangement permitted, Rupee surplus balances in SRVA to be invested in government securities including treasury bills. To expand investment opportunities in India for SRVA holders, it has now been decided to permit balances of these accounts to be invested in corporate bonds and commercial papers.
C. Related Notifications issued by RBI
Merchanting Trade Transactions (MTT)– Review of time period for outlay of foreign exchange: As per the extant provisions, the entire MTT shall be completed within an overall period of nine months and there shall not be any outlay of foreign exchange beyond four months. On a review and in order to facilitate merchanting traders to manage their MTT efficiently, it has been decided to increase the time period for outlay of foreign exchange from four to six months.
(RBI Notification 88/2025 dated 01/10/2025)
Export Data Processing and Monitoring System (EDPMS) & Import Data Processing and Monitoring System (IDPMS)- reconciliation of export /import entries: To facilitate timely closure of entries in EDPMS & IDPMS, and to reduce compliance burden on small exporters and importers, it has been decided that entries in EDPMS & IDPMS of value equivalent to Rs 10 lakh per entry/bill or less, shall be reconciled and closed based on a declaration provided by the concerned exporter that the amount has been realised or by the importer that the amount has been paid.
(RBI Notification 89/2025 dated 01/10/2025)
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Disclaimer: The contents of this article are for informational purposes only. The user may refer to the relevant notification/ circular/ decisions issued by the respective authorities for specific interpretation and compliances related to a particular subject matter)
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