How RBI's policy is reshaping banking & finance

REFORMS BEYOND RATES

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THE MONETARY POLICY committee of the Reserve Bank of India (RBI) used the last few policy reviews to communicate several reforms, in addition to announcements with regard to rates, and provided an indication of growth rate, inflation forecast and management, and managing liquidity in the system.

The previous MPC meet in October introduced several reforms to strengthen the resilience and competitiveness of the banking sector, improving the flow of credit, promoting ease of doing business, simplifying foreign exchange management, enhancing consumer satisfaction, and internationalisation of the rupee.

The first set of measures aims at strengthening the resilience of banking system by revising the guidelines on expected loss determination for the purpose of provisioning. The draft guidelines issued by the RBI enhance credit risk management practices and promote better comparability of reported financials across institutions. The draft directions introduce a comprehensive shift from the current incurred-loss framework to an expected credit loss (ECL) regime from April 1, 2027.