Reserve Bank of India Proposes Regulatory Changes to Strengthen Banking, Payments and Money Markets
The Reserve Bank of India (RBI) has outlined a series of proposed regulatory and developmental measures covering banking regulation, supervision, payment systems and financial markets. Detailed in a recent statement by the Reserve Bank of India, the proposals aim to streamline compliance requirements, strengthen governance within banks and expand market participation in key financial segments. The measures also seek to improve access to finance for micro, small and medium-sized enterprises (MSMEs) while supporting the continued development of India’s financial infrastructure.
Proposed changes to capital and investment reserve requirements
Among the regulatory proposals, the RBI plans to revise guidelines governing how commercial banks calculate their Capital to Risk-weighted Assets Ratio (CRAR). Current rules allow banks to include quarterly net profits in CRAR calculations only if provisions for non-performing assets (NPAs) across the previous financial year do not deviate by more than 25% from the average of the four quarters.
Following a review, the central bank has proposed removing this condition. Draft amendments to the directions will be released for public consultation before any changes are finalised.
The RBI has also proposed eliminating the Investment Fluctuation Reserve (IFR) requirement for commercial banks. IFR currently acts as an additional buffer against potential depreciation in investment portfolios. However, the central bank noted that commercial banks already maintain capital charges for market risk and comply with revised norms governing the classification, valuation and operation of investment portfolios.
Updated guidelines for other bank categories will also be issued to address operational challenges related to IFR thresholds and to harmonise regulatory instructions across the sector.
Review of board oversight and supervisory instructions
The RBI is also reviewing requirements governing matters presented to bank boards. While boards already determine their own agendas within seven broad themes set by the regulator, additional policies and reporting obligations are mandated by the central bank.
Through a comprehensive rationalisation exercise, the RBI aims to ensure boards can focus more effectively on strategic oversight and risk governance rather than procedural reporting. Draft directions outlining the revised framework will be published for public comment.
In parallel, the regulator has undertaken a consolidation of supervisory instructions. After previously merging more than 9,000 regulatory circulars into 238 function-based Master Directions in 2025, the RBI has now completed a similar consolidation of supervisory guidance.
Drafts of 64 new Master Directions covering up to nine functional supervisory areas have been released for consultation. The move is intended to improve regulatory clarity and reduce compliance complexity for regulated institutions.
Simplifying MSME participation in TReDS platforms
The RBI has also proposed changes to the onboarding process for MSMEs using the Trade Receivables Discounting System (TReDS), a platform designed to improve access to working capital through invoice financing.
Under the proposed revision, the requirement for due diligence of MSMEs during onboarding onto TReDS platforms would be removed. The central bank believes this step could make participation easier and encourage broader adoption among smaller businesses.
TReDS was first introduced in 2014 and updated in 2018. In 2023, the platform’s ecosystem was expanded to include insurance companies as a fourth category of participant. The latest review aims to further streamline operational procedures and support faster access to trade finance for smaller enterprises.
Such efforts align with wider initiatives to strengthen India’s financial innovation ecosystem, including international collaboration such as the India–New Zealand fintech and financial innovation partnership, which focuses on cross-border digital finance development.
Expanding participation in the term money market
The RBI has also announced steps to deepen India’s term money market. An active term money market can provide financial institutions with alternative funding channels while strengthening the transmission of monetary policy by linking overnight money market rates with longer-term interest rates.
Currently, participation in the term money market is limited to banks and standalone primary dealers. The RBI plans to broaden the participant base to include non-bank entities such as All India Financial Institutions (AIFIs), non-banking financial companies (NBFCs), housing finance companies and corporates.
The regulator will also increase borrowing limits for standalone primary dealers within the segment. The changes are intended to improve liquidity and market depth.
These developments form part of a broader policy effort to modernise financial governance and strengthen digital financial infrastructure across India, complementing wider public sector initiatives focused on improving digital resilience in government systems.
