How RBI Governor Fared In The First Year
Rediff·2025-12-29 09:10

Core Viewpoint - Sanjay Malhotra, the Governor of the Reserve Bank of India, has implemented structural changes in banking regulation aimed at reducing costs and enhancing efficiency while initiating a benign interest rate environment, although challenges remain ahead [1][4]. Regulatory Changes - Malhotra's tenure has seen a reduction in the policy repo rate by 125 basis points over a year, with the latest cut of 25 basis points occurring in December [7]. - The cash reserve ratio requirement for banks was lowered by 100 basis points in four tranches, facilitating the transmission of lower rates to the economy [8]. - The RBI has revised regulatory norms, including easing liquidity coverage ratio and project finance norms, which are expected to boost loan growth and relieve banks from stringent provisioning requirements [12][13][14]. Banking Sector Resilience - The banking sector is currently in a strong position, with healthy asset quality and capital buffers, allowing for the implementation of new regulations without significant strain [15]. - Malhotra's approach has been characterized as market-friendly and pragmatic, focusing on financial stability while easing compliance costs for banks [16]. Foreign Exchange and Bond Market - The Indian rupee has depreciated approximately 4.75% this year, crossing the psychological barrier of 90 to the dollar, with the RBI maintaining that it does not target a specific exchange rate [18][19]. - The bond market has shown a lack of effective transmission of policy rate cuts, with sovereign bond yields hardening despite lower rates in the credit market [21][22]. Customer Service Initiatives - Malhotra has emphasized customer-centricity in banking operations, launching initiatives to improve customer service and address grievances effectively [26][27]. Future Challenges - The upcoming challenge for the RBI will be managing the economic environment if the current favorable conditions of low inflation and high growth change, which could impact financial stability [28][30].