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RBI Monetary Policy October 2025 – Key Changes and Their Significance
The Reserve Bank of India (RBI) kept the Repo Rate unchanged at 5.50% in its October 2025 policy review but announced a series of significant banking reforms, termed as “big bang” measures. Here’s a clear breakdown:
1. ECL Framework for All Scheduled Commercial Banks (from April 1, 2027)
What it means: The Expected Credit Loss (ECL) model will replace the current system, which recognises bad loans only after default.
Significance: Banks will now provision for potential losses earlier, increasing resilience to financial stress. This aligns Indian banking practices with global standards and strengthens overall financial stability.
2. Revised Basel III Norms (from April 1, 2027)
What it means: Comprehensive implementation of global capital adequacy and risk management standards.
Significance: Banks will maintain stronger capital buffers, reducing the likelihood of collapse during crises and boosting investor confidence globally.
3. Removal of Regulatory Restrictions on Bank–Group Entity Overlaps
What it means: Earlier restrictions on overlaps between banks and their group entities will be lifted.
Significance: This provides operational flexibility, allowing banks and associated entities to coordinate businesses efficiently. However, careful monitoring will be required to prevent conflicts of interest.
4. Risk-Based Insurance Premium
What it means: Deposit insurance premiums will now depend on a bank’s risk profile.
Significance: Safer banks pay less, riskier banks pay more, encouraging prudent risk management across the sector.
5. Expanded Capital Market Lending by Banks
What it means: Banks can now finance a broader range of capital market-linked activities.
Significance: This deepens financial markets, increases liquidity, and benefits investors and corporates alike.
6. Removal of Ceiling on Lending Against Listed Debt Securities
What it means: Banks can now offer loans without an upper limit when securities like listed bonds are pledged.
Significance: Improves credit availability for investors and corporates, enhancing bond market depth.
7. Higher Limit on Loans Against Shares (Raised to ₹1 Crore from ₹20 Lakh)
What it means: Individuals can borrow up to ₹1 crore by pledging shares.
Significance: Provides additional liquidity for investors and may boost stock market activity, although it carries higher risk in volatile markets.
8. Higher Limit for IPO Funding (Raised to ₹25 Lakh from ₹10 Lakh)
What it means: Banks can lend more to investors participating in IPOs.
Significance: Encourages wider participation in IPOs, supporting corporate capital raising efforts.
9. Status Quo on Rates
Repo Rate: Maintained at 5.50%
Growth Projection FY26: Revised upward to 6.8% (from 6.5%)
Inflation Projection FY26: Lowered to 2.6% (from 3.1%)
Significance: Stable rates signal RBI’s confidence in economic growth and inflation management, despite global trade uncertainties.
Synopsis
In October 2025, the RBI kept the repo rate at 5.50% while announcing sweeping banking reforms. From 2027, banks will adopt the ECL provisioning system and revised Basel III norms, enhancing resilience. Lending norms were liberalised—higher limits for loans against shares and IPOs, removal of ceilings on debt-backed lending, and broader capital market access. Risk-based deposit insurance was introduced. Economic growth for FY26 is projected at 6.8%, while inflation is forecast at 2.6%.