Copyright © HT Digital Streams Limit all rights reserved. RBI Credit Reforms: The Central Bank of India looks concerned about the state of India’s economy. The central bank no longer knocks over the forest; The concern about the economy is visible and center. (PTI) Summary RBI has not reduced its policy rate in its October monetary policy review, but the other credit capacity measures indicate the performance of the economy of India. The irony is that the real challenge lies in generating growth in employment and real wages. It all starts with some signals, which are largely achieved through the adjustment of the liquidity and the recalibration of benchmarks as well as yield curves. Then come nuanced communication, and ask economic drugs to read between the rules, hoping that it will help the market expectations. In the last phase, there is active perception building with pointed communications orally and printed-to-to-put economic activity on a chosen track. This is how many central banks usually try to move strategy, hoping to act borrowers and lenders in a certain way. The Reserve Bank of India (RBI) has now added controlled but explicit gestures to the variety of communication instruments at its disposal. The announcement of monetary policy of October 1 can be seen as a continuation of Governor Sanjay MalhoTra’s unique way of transferring economic distress and introducing policy measures that will (he hopes) lead to higher lending and borrowing, thereby causing stronger economic growth. The central bank no longer knocks around the forest; The concern about the economy is visible and center. There was a broad expectation of an interest rate cut on the street, seen as the ideal healing for a slowing economy. But members of the Monetary Policy Committee (MPC) felt different, as the earlier rate cuts did not yet have to go through the economy. In addition, the prevailing uncertainty about how the fiscal stimulus and the US tariff outburst would play on consumption and production remained the MPC’s hand. But then RBI’s tool kit had other instruments that could cast it on the problem. It has started a large number of reform measures through a series of regulatory relaxation that he hopes to have a new lending by banks and financial enterprises (NBFCs), thereby providing a financial weakening to the growth of the growths. The relief of past strictness on lending capital market operations – runs against equities or borrowing to finance mergers and acquisitions – contains a new threshold. Many of these restrictive rules have existed for many years, which disregard the logic and carry the stench of an older economic era. The reversal of the August 2016 policy restriction concentration risk is also significant as it provides impetus for large corporate loans. Part of the design also aims to return lending companies, which migrated to the private credit market, to scheduled banks and NBFCs. The message that emerges from Mint Street: Yes, Houston, there is indeed a problem, but we are trying to sort it out with some reform measures, rather than just completing interest rate cuts. Governor Malhotra’s tenure so far, so far, only a year, has been characterized by an extraordinary driving force in the review of the central bank’s policy frameworks in the past, and that also includes the reversal of some earlier decisions. For example, his policy announcement in April 2025 was a distinctive strategy pivot. It has in many ways a formal shift in the monetary policy of the RBI of strict inflation control ushered in-which began post-pandemic consumption and was reinforced after the onset of the Russia-Cewraine War-to make a demonstrable framework for the promotion of growth. The motivation probably comes from the internal economic assessment of the central bank, after which the April policy statement lowered its gross domestic product (GDP) for 2025-26 to 6.5%. While the full year forecast has now risen to 6.8% (mainly due to the 7.8% print in April -June), RBI’s leadership shows the growth in the remaining quarters. There is another point to note: the central bank’s six-month monetary policy report, issued with the October policy, predicted a lower GDP growth at 2026-27. This is not to say that the MPC is encountered for interest rate action: It lowered by 100 basis points between February and June 2025, with the last loss on 50 basis points. However, RBI data shows that interest rates on both outstanding loans as well as new ones did not fall to the full extent, and thus asked the MPC to postpone a rate decisions. Another source of anxiety can be traced to the Central Bank’s survey on capacity utilization in the manufacturing sector: 74.1% during April-June, which is dangerously close to the long-term trend line from 73.9% (from the first quarter of 2008-09 to that quarter of 2025-26, excluding the 2020-21). This indicates some industrial stagnation, which explains the subdued demand for fresh capital expenditure of the private sector. Ironically, although slow credit growth has attracted everyone’s attention, a slowdown of GDP growth does not make the credit-to-GDP ratio look so bleak. Data from the Bank for International settlements show India’s credit-to-GDP ratio at 93.3% from March 2025. It is better than many of its peers in emerging and advanced economies: Greece, Mexico, Brazil, Turkey, South Africa, Poland and Indonesia. Interestingly, the data also shows India’s credit-to-GDP gap-the difference between the current credit-to-GDP ratio and the long-term trend-just minus 2.7%, suggesting that credit growth is only slightly below the trend line. This raises the question of whether a credit stimulus is really needed to encourage GDP growth when efforts should actually be focused on the real economy, especially on employment trends and real wage growth. The author is a senior journalist and author of ‘Slip, Stitch and Stumble: The Untold Story of India’s Financial Sector Reforms’ @rajrishisinghal Capture all the business news, market news, news reports and latest news updates on live Mint. Download the Mint News app to get daily market updates. More Topics #rbi #Monetary Policy #rbi -Roersnoing Read Next Story
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