Reserve Bank of India (RBI) Governor Sanjay Malhotra (file photo) | Photo credit: PTI/SHASHNK PARADE
“This evolution implies that prudential rules too need to evolve in a calibrated manner as banks are now stronger and supervision more alert, even as alternative risk-bearing pillars have deepened and market-based risk transfer has become more effective,” Malhotra said at SBI’s 12th Annual Banking and Economic Conclave.
“The recent regulatory measures must be seen against the backdrop of these developments that have shaped the banking sector and the financial system over the past decade,” he added.
The recent regulatory measures the Governor referred to include the draft guidelines on capital market exposure, acquisition financing, the withdrawal of a specific borrower framework (which limits lending to large borrowers above a certain system-wide threshold) from April 1, 2026.
“(Scheduled Commercial Banks) loans and deposits have almost tripled. Capital buffers have also been strengthened. The CRAR (capital to risk-weighted assets ratio) has improved by about 4 percent between 2015 and 2025.
“..Asset quality has improved. GNPAs and NPAs have declined. Profitability has improved. Return on assets, return on equity have all increased… So regulations cannot ignore these developments, these achievements and these changed realities,” Malhotra said.
He emphasized that banks’ capital buffers are stronger, asset quality better and profitability much improved. Regulations must therefore evolve, taking into account the realities of the times and the performance of the banks.
“These (regulatory) measures reflect a new way of thinking, but they are incremental and do not introduce major changes. Moreover, as I said before, no regulatory measure can be understood in isolation. Each measure must be seen in the continuum of regulatory evolution and not in isolation,” the governor said.
Malhotra underlined that the recent RBI regulations together create a multi-layered defense to keep systemic risks under control. If you analyze just one regulation without understanding the entire regulatory landscape, you risk missing the forest for the trees, he added.
He emphasized that the higher responsibilities imposed on banks are based on their past performance. This is due to improved governance and prudent decision-making by banks over the past decade.
Moreover, no supervisor can or should replace the judgment of the board of directors as much as possible. Especially in a diverse country like ours, every case, every loan, every deposit, every transaction is different, with different risks, different opportunities.
“We need to enable regulated entities to make decisions based on the merits of each case, rather than prescribing a one-size-fit-all rule. This will enable regulated entities to experiment and innovate, learn and improve.
“At the same time, where we have heretofore allowed prohibited activities or reduced restrictions, or proposed to reduce them, as mentioned, we have provided sufficient guardrails to ensure safety and caution,” the governor said.
Malhotra noted that the role of a regulator does not end with merely providing the regulations.
“His role is like that of a gardener whose job does not end with providing the enabling framework. The gardener continues to monitor the growth of the plant and prunes unwanted growth to shape a collective, orderly, beautiful garden. RBI has sufficient tools, risk weights, provisioning standards and counter-cyclical buffers to contain emerging risks,” he said.
The Governor emphasized that most of these regulations, measures introduced by the RBI, are draft regulations even though they have been issued after much deliberation, thought and a prior consultation process.
“And while they reflect the broad direction of the regulations, they are not yet final. We will take input from all stakeholders and we will finalize them,” he said.
Published on November 7, 2025
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