Consultative Strategy Adopted by New RBI Chief

The Reserve Bank of India (RBI), the nation's central banking institution responsible for managing government finances and ensuring stable inflation and growth prospects, has embarked on a new era under the leadership of its current Governor, Sanjay Malhotra.

In a significant shift towards a more progressive and pragmatic regulatory approach, Malhotra has been praised for his decisive actions, particularly in the gold loan sector. George Alexander Muthoot, MD of Muthoot Finance, applauded the new Governor's approach.

Malhotra's first major decision as Governor was to roll back the higher risk weight on bank loans to non-banking financial companies (NBFCs) in February 2023. This move provided much-needed relief to the NBFC sector, as banks had become extremely cautious in lending to NBFCs that were rated below 'A' category.

The RBI also eased project finance norms in June, mandating lenders to make 1% provision for standard under-construction loans, compared to the 5% proposed in the draft circular. This relaxation has been welcomed by the industry, as it aims to boost investment in infrastructure projects.

In the gold loan sector, the RBI eased the final norms in June, stipulating specific LTV ratios for consumption-related gold loans. This move is seen as a resilient and sustainable framework by Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds, in light of SEBI's new safeguards.

Malhotra's consultative approach in policymaking has been emphasised by both himself and his predecessor, R Gandhi, former Deputy Governor at RBI. According to Gandhi, the regulator has always maintained a consultative approach while finalising crucial regulations.

The new Governor has also relaxed norms on lenders' investments in alternative investment fund (AIF) schemes. Individual lending entities can now invest up to 10% of the corpus of an AIF scheme, and collectively, all lenders can invest up to 20% of the corpus.

The RBI also lowered risk weight requirements for loans extended by banks to microfinance firms. This move is appreciated by the industry for being growth-oriented while still safeguarding stability.

Malhotra has ensured the presence of ample liquidity in the banking system, providing relief to lenders facing liquidity crunch. His approach has been hailed by a majority of bankers as a positive step towards propelling GDP growth, amid benign inflation and stable fiscal deficit trends.

Despite the positive changes, there is still room for further monetary policy easing, according to a senior private banker. They suggested that there is scope to cut the repo rate more, but not immediately, and that stable oil prices and a strong rupee will aid further cuts.

Malhotra succeeded Shaktikanta Das as Governor of the Reserve Bank of India in an appointment that did not rely on pre-existing assumptions, according to Gandhi. Under Malhotra's leadership, the RBI continues to navigate the complexities of India's financial landscape with a focus on growth, stability, and consultation.