2024 & 2025 RBI and Govt Effort Analysis covering Banks, NBFC, EPFO towards Rebooting the Indian Economy - The Retail to Core Effect

Another 20 Years of Story with 20T of Direction 

Rebooting of Indian Economy - The Retail to Core Effect

What led to revising risk profile ? 

How Banks, NBFC & EPFO will change scenario ?

Concerns and Solutions ( Need to maintain Continuity and Momentum)

Major concerns raised by the RBI regarding the Indian economy

The Reserve Bank of India (RBI) has highlighted several key concerns in its recent reports, including the Monetary Policy Report and the Financial Stability Report. 

While the economic outlook remains resilient, these areas require continuous monitoring:

• Widening credit-deposit growth gap: Credit growth is consistently outpacing deposit mobilization. This trend leads to higher-cost funding for banks and increases the credit-deposit ratio, a metric the RBI watches closely for potential systemic risks.
• Rapid growth in unsecured lending: The RBI has flagged the aggressive growth in certain consumer credit segments, including credit cards and other unsecured personal loans, raising concerns over potential overleverage and higher default risks. Stricter risk-weight norms were imposed in late 2023 and early 2024 to curb this trend.
• Elevated deep-stage stress in fintech lending: While the growth in fintech lending has slowed following RBI interventions, the delinquency rates for severely overdue loans (over 180 days past due) remain elevated. This indicates potential risks, particularly for smaller-ticket loans.
• Irregularities in gold loans: The RBI has noted irregularities in loans against gold ornaments and jewelry, emphasizing the need for stricter monitoring and oversight by lenders.
• Financial stability risks from private credit: The rise of the private credit market and its interconnectedness with banks and NBFCs creates potential systemic risks. The RBI is emphasizing the need to monitor these links to prevent regulatory loopholes.
• Household financial assets shift: Data indicates that household financial assets as a percentage of GDP remain subdued, reflecting a shift away from traditional bank deposits toward capital market investments. This trend affects banks' funding base and is a long-term concern.
• Volatility in external sector: While India's external sector remains stable, global uncertainties, geopolitical tensions, and trade policy fluctuations continue to pose risks that can impact the Indian rupee and overall economic stability. 
• Interest Cost: The cost of finance, measured by interest expenses as a percentage of borrowings, rose to 9.2% as of September 2024, but remains manageable.
• Stagnant sales growth: of 6.2% year-on-year during H1 of 2024-25, consistent with H2 of 2023-24. Manufacturing companies recorded sales growth of 4.9%, while IT and non-IT services sectors saw higher growth rates of 5.7% and 9.6%, respectively. 
• Rising input and staff costs:  Moderated operating profit growth to 4.3% for manufacturing firms, leading to a slight decline in operating profit margins across sectors
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• RBI in 2024 tapered the Credit growth to meet the challenge of reduced Deposit growth. This led to reduced credit growth in 2025 H1 which in turn led to reduced GDP growth.
• Credit: Credit growth of 13% YoY in H1 FY25 ,  YoY Growth - Retail: 15%, Agri: 15%, MSME: 16%, Corporate: 9% CD ratio at 78%, indicating potential stress in funding availability going forward • Deposits: Grew 12% , YoY in H1 FY25  Industry CASA Ratio: 37%  YoY Growth – CASA: 7%, TD: 15% 

• Data as on December, 2024 and later report of 2025

• Data pertains to domestic operations of SCBs (excluding SFBs) 

• Source: RBI Financial Stability Report December 2024/2025 and later reports

Parameter	H1 2023 (Apr–Sept 2023)	H2 2023 (Oct 2023–Mar 2024)	H1 2024 (Apr–Sept 2024)	H2 2024 (Oct 2024–Mar 2025)	H1 2025 (Apr–Sept 2025)
GDP Growth (Real)	8.2% (Q1), 8.1% (Q2)	6.2% (Q3), 7.8% (Q4)	6.7% (Q1), 5.4% (Q2)	6.2% (Q3), 6.5% (Q4) - estimates	7.8% (Q1) - estimated
CPI Inflation	Peaked above 7%	Eased below 4.6%	Averaged 4.6%	Continued moderation	Easing further, down to 1.55% by July 2025
Core Inflation	Sticky, elevated	Eased	Remained subdued	Eased to 3.5% by March 2025	Remained low
Deposit Growth (Y-o-Y)	Around 11.2%	Slowed to 10.2%	Around 10.1%	Tapering, 9.5% by Sep. 2025 (Y-o-Y)	9.5% (fortnight ending Sep 19, 2025)
Credit Growth (Y-o-Y)	16.2%	Moderated to 15.7%	Moderated to 9.8%	Continued to outpace deposit growth	10.4% (fortnight ending Sep 19, 2025)
Credit-Deposit Ratio	78.8% (Dec 2023)	Above 80%	78.88% (CY 2024)	Remained high, around 80%	Stabilized around 79% by May 2025
LCR (System Average)	Above 100%	Remained strong, slightly down	Averaged 118.6% (FY25)	Maintained strong buffers, above 100% minimum	Adequate liquidity buffers maintained
PCR (System Average)	Healthy PCR maintained	Healthy PCR maintained	Maintained strong PCR	Strong PCR maintained	Strong PCR maintained
Agri Lending (Y-o-Y)	Strong growth	Institutional credit rose to ₹25.48 lakh crore (FY 2023-24)	Credit disbursement rose	Growth continued; revised PSL targets	Projected growth >₹31.5 lakh crore
PSL Lending	Robust growth	Targets met	Disbursal surged to ₹42.7 lakh cr by 2024	Revised targets (UCBs at 60%); differentiated weights applied	Revised targets applied; focus on underserved areas
Unsecured Lending (Y-o-Y)	Aggressive growth	Curbs implemented (Nov 2023) slowed growth	Growth moderated; credit card outstanding rose 23%, personal loans 17.1%	Slower growth	Slowed further; fintech deep-stage stress elevated (8.6% DPD > 180 days)
Retail Credit (Y-o-Y)	Strong growth, driven by personal loans	Moderated, but robust growth	Slowed to 11.8% (Jan 2024); 16.9% (Aug 2024)	Growth slowed further	Moderated to 11.8% (Aug 2025); credit card growth 4.4%

Solutions and Actions taken without Delay :

RBI lending changes (October 2025)
Change	Status	Why was it required?	Eventual impact (approximate value)
1. Flexibility on floating-rate loan resets	Effective October 1, 2025. Lenders can reduce interest-rate spread components sooner than the previous 3-year lock-in.	The 3-year reset rule for spread components on floating-rate loans hindered monetary policy transmission. A reduction in the RBI's repo rate would take longer to benefit borrowers.	A 0.25% spread reduction on a 20-year, ₹50 lakh home loan could save a borrower over ₹2.5 lakh in interest. The overall impact on borrowers is potentially in the thousands of crores as lending rates become more responsive to policy rates.
2. Expanded lending against gold and silver	Effective October 1, 2025. Working capital loans against gold and silver are now available to manufacturers and industrial users, not just jewelers. Tier 3 and 4 Urban Cooperative Banks are also now allowed to enter this segment.	Broadens credit access for Small and Medium Enterprises (SMEs) and promotes financial inclusivity by allowing smaller cooperative banks to participate. Previously, the lending was restricted to jewelers, limiting credit for other businesses.	Gold and silver are significant assets for many small businesses. The expansion could unlock thousands of crores in credit for manufacturers and SMEs across the country, especially in smaller towns.
3. Raised limits for loans against shares and IPO financing	Effective October 1, 2025. The limit on loans against shares was increased from ₹20 lakh to ₹1 crore. The limit for IPO financing per individual was raised from ₹10 lakh to ₹25 lakh.	The previous limits were outdated and did not reflect the growth of India's capital markets. This change encourages wider participation from retail investors in public issues.	In FY 2025-26, banks expect to see a ₹30,000 crore increase in capital market credit flows. Overall impact could lead to billions more in credit flowing into capital market activities.
4. Enabled acquisition financing by banks	Proposed (Draft guidelines issued). RBI will create an enabling framework for domestic banks to finance corporate acquisitions, particularly for non-financial companies.	Historically, banks were barred from financing stock acquisitions to prevent misuse of bank credit. Opening this up allows banks to compete with NBFCs and foreign lenders, potentially lowering financing costs for mergers and acquisitions (M&A).	With Indian M&A deals exceeding $120 billion in FY24, banks entering the sector could facilitate an estimated ₹1.2 trillion in additional annual credit.
5. Withdrew the 2016 framework for large borrowers	Effective April 1, 2026. The framework, which disincentivized banks from lending to ultra-large corporate borrowers with credit limits over ₹10,000 crore, has been withdrawn.	Since its introduction, lending patterns have evolved, and concentration risk is better managed through other existing frameworks like the Large Exposure Framework. This withdrawal improves credit flow to large, creditworthy corporates.	This move could unlock substantial credit flow to large corporates, encouraging higher capital expenditure and industrial growth. The exact value depends on corporate borrowing demand.
6. Revised External Commercial Borrowing (ECB) framework	Proposed (Draft guidelines issued). Borrowing limits are linked to a borrower's net worth or a $1 billion cap (whichever is higher), replacing the earlier fixed cap of $750 million. All-in-cost ceilings have been removed.	Replaces rigid caps with a more market-determined approach, aligning a borrower's fundraising capacity with their financial strength. Simplifies the framework to promote easier access to cheaper foreign funds.	Could unlock significant capital for Indian firms seeking foreign financing. ECB inflows were already $61 billion in FY25, and this liberalization could boost that further.
7. Faster credit information reporting	Proposed (Draft guidelines issued). Credit institutions may be required to submit data to Credit Information Companies (CICs) weekly instead of fortnightly.	Timely and accurate credit data is crucial for risk management and lending decisions. The change will allow lenders and regulators to better monitor real-time credit behavior.	While not a direct value, this improves the overall efficiency and risk assessment of the banking system. More accurate data leads to better underwriting, reducing Non-Performing Assets (NPAs) over time.
RBI Reduced Interest Rate by 0.25% and it is likely to happen again few times at least by 1-1.5% reduction
Govt Reduced GST rates to fuel the Purchases

Key RBI changes (September 2024–April 2025)
Change	Status	Why was it required?	Eventual impact (approximate value)
1. Change in monetary policy stance to 'Neutral'	Effective October 2024.	To provide flexibility for future rate adjustments in response to easing inflation and resilient domestic economic growth.	Boosted market sentiment and potentially lowered future borrowing costs. The exact monetary impact depends on the timing and size of eventual rate cuts.
2. Repo rate cut and updated economic projections	Effective April 2025.	To support economic growth as inflation trended downward.	A 25 basis point cut reduced the repo rate to 6.00%, lowering borrowing costs for banks and encouraging lending and investment.
3. Prohibiting prepayment penalties on floating-rate loans	Effective January 1, 2026, based on a July 2025 directive.	To enhance consumer protection and allow borrowers, including Micro and Small Enterprises (MSEs), more financial flexibility.	Allows borrowers to switch to lower-rate loans without penalty, potentially saving individual borrowers and MSEs thousands of crores.
4. Enhancements to UPI limits	Effective October 2024.	To encourage broader adoption of UPI for offline and low-value transactions.	Increased per-transaction limits for UPI123Pay (to ₹10,000) and UPI Lite (to ₹5,000), supporting higher volumes of digital payments.
5. Faster credit information reporting	Proposed in October 2024; implementation in 2025.	Timely credit data is vital for risk management and lending decisions.	Changed reporting frequency from monthly to fortnightly, leading to better risk assessment and potentially reducing future Non-Performing Assets (NPAs).
6. Revised framework for Default Loss Guarantee (DLG) in digital lending	Clarified in April 2024 based on earlier guidelines.	To manage risk and add clarity to the growing digital lending space.	Provided a proportional framework for DLG coverage, creating a more stable and predictable digital lending ecosystem.
7. Introduction of beneficiary account name look-up for RTGS/NEFT	Proposed October 2024; implementation in 2025.	To mitigate the risk of misdirected funds and fraud in high-value electronic transfers.	Facilitates name verification, reducing wrong credits and boosting customer confidence.
8. Revised PSL Targets for Urban Cooperative Banks (UCBs)	Effective April 1, 2025.	To ensure adequate credit flow to priority sectors and align with evolving financial market conditions.	The overall PSL target was revised to 60% of ANBC or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE), whichever is higher. This measure ensures a significant portion of UCB lending is directed toward priority sectors.
9. Differentiated PSL weights for Scheduled Commercial Banks	Effective for FY 2024-25.	To address regional credit disparities and incentivize banks to lend in underserved districts.	A higher weight (125%) was assigned to incremental PSL credit in districts with lower per capita credit flow, while a lower weight (90%) was applied in districts with higher credit flow. This mechanism re-allocates credit toward needy regions.
10. Enhanced loan limits for specific PSL categories	Effective April 1, 2025.	To increase credit access for specific sectors like housing and education.	Education loans were raised to ₹25 lakh (from ₹20 lakh), and housing loan limits were increased, varying by population size. This provides significant capital infusion into these sectors.
11. Expanded definition of 'Weaker Sections' in PSL	Effective April 1, 2025.	To promote financial inclusion and expand access to credit for underprivileged groups.	The list of eligible borrowers was expanded to include transgender individuals, and the cap on loans to individual women beneficiaries was removed for UCBs. This change increases credit availability for a broader base of vulnerable borrowers.
12. Expanded scope of Renewable Energy under PSL	Effective April 1, 2025.	To support India's transition to clean energy.	Increased loan limits for large renewable energy projects (to ₹35 crore) and clarified eligibility for individual household loans (₹10 lakh). This promotes green investments.

Recent RBI changes affecting NBFCs (2024–2025)

The table below summarizes recent and proposed changes by the Reserve Bank of India (RBI) affecting Non-Banking Financial Companies (NBFCs). These changes are part of a broader move towards the Scale-Based Regulatory (SBR) Framework, which was initiated in late 2021 to align regulation with the systemic risk posed by different NBFCs. 

Change/Norm	Details (2024–2025 Updates)	Impact
Scale-Based Regulation (SBR)	Implementation: Full implementation continues, with NBFCs categorized into four layers based on size, activity, and risk: Base, Middle, Upper, and Top. Upper Layer (NBFC-UL): The RBI published the updated list of NBFC-ULs in January 2025, subjecting them to enhanced scrutiny and higher capital and governance standards.	Regulatory intensity is now proportional to systemic risk. Larger NBFCs in the upper layers face stricter prudential norms and capital requirements, while smaller ones have lighter oversight.
Capital Adequacy (CRAR)	Unsecured Lending: In November 2023, risk weights on personal loans were increased from 100% to 125% for NBFCs. Risk weights on credit card receivables were increased from 100% to 125%. Consumer Microfinance: Risk weights were reduced from 125% to 100% in March 2025, exempting microfinance loans from the earlier hike. Infrastructure Lending: Risk weights were reduced in October 2025 for NBFC lending to operational high-quality infrastructure projects. NBFCs-MFI: The minimum CRAR for new NBFC-MFIs is 15%. NBFCs-ND-SI: The minimum CRAR continues to be 10%.	Higher capital is now required for unsecured loans, strengthening loss absorption buffers. The reduced risk weights on microfinance and infrastructure lending are expected to boost credit flow to these sectors.
Microfinance Lending	Qualifying Asset Limit: Reduced from 75% to 60% of total assets (excluding intangibles) in June 2025. Failure to maintain this limit for four consecutive quarters requires a remediation plan. Definition: Microfinance loans are collateral-free loans to households with annual incomes up to ₹3 lakh. Net Owned Fund (NOF): Existing MFIs must meet a uniform minimum NOF of ₹5 crore by March 31, 2025, with a target of ₹10 crore by March 31, 2027.	This provides NBFC-MFIs with greater operational flexibility to diversify their portfolio beyond microfinance while ensuring a minimum focus on the core sector. The NOF update provides relief for smaller MFIs struggling to raise capital.
Unsecured Lending	Risk Weights: Risk weights increased on consumer credit and credit card receivables (details in CRAR row). LTI Ratio: A 50% Loan-to-Income (LTI) ratio cap was introduced for unsecured personal loans in 2025, requiring lenders to verify a borrower's existing debt. Stricter Assessments: More thorough income and credit history verification is now required. Revolving Credit: The RBI signaled its intent to prohibit NBFCs from offering revolving credit facilities that mimic credit cards, by removing references to such products from draft directions.	The measures curb aggressive growth in unsecured lending, mitigating systemic risk and potential overleveraging. The LTI cap enhances financial discipline and protects borrowers.
Secured Lending	Gold Loans: The RBI highlighted irregularities in gold loans in September 2024, emphasizing stricter monitoring and oversight. Exposure Norms: Existing exposure norms continue to apply, with prudential limits on exposure to individuals and groups. Banks lending to gold loan NBFCs have specific intra-group exposure limits.	Increased scrutiny of gold loans aims to prevent misuse and protect customer interests. Revised risk weights on infrastructure lending (mentioned under CRAR) favor secured infrastructure financing.
Co-Lending & PSL	Co-Lending Norms (Proposed): Revised norms from January 1, 2026, allow originating entities to retain a minimum 10% share (down from 20%) and provide a Direct Lending Guarantee (DLG) of up to 5% across all lending types. PSL Lending: NBFCs contribute to PSL indirectly by borrowing from banks for onward lending, with risk weights on such bank lending subject to adjustments.	The new co-lending norms are expected to enhance risk-sharing and reduce funding constraints, particularly for smaller NBFCs.
Prudential Norms	Asset Classification: NPAs are now recognized at 90 days overdue for Middle and Upper Layer NBFCs, aligning with banks. Base Layer NBFCs have a glide path to reach the 90-day norm by March 2026. Digital Lending: Norms were revised to provide clarity on the Default Loss Guarantee (DLG) framework, particularly concerning its calculation for a portfolio of loans. Corporate Governance: Strengthened norms include board representation, risk management committees, and chief compliance officers for higher-layer NBFCs. KYC Norms: Amended KYC directions in November 2024 for simplified procedures and enhanced monitoring of high-risk accounts.	Standardizes asset quality recognition across the sector, aligning with bank norms and improving risk management. Provides regulatory certainty for digital lending and strengthens overall corporate governance.

 

Summary of key changes by layer

Parameter	Base Layer (NBFC-BL)	Middle Layer (NBFC-ML)	Upper Layer (NBFC-UL)
Asset Size	< ₹1,000 crore	> ₹1,000 crore (or deposit-taking)	Identified as systemically significant by RBI
CRAR	Standard norms	Standard norms	Higher capital requirements
NPA Recognition	Phased transition to 90 days by March 2026	90 days overdue	90 days overdue
Governance	Basic	Risk management committee, chief compliance officer	Enhanced governance, risk management, and disclosures
Listing	Not mandatory	Not mandatory	Mandatory listing within three years
Risk Weights	Standard norms, but impacted by unsecured lending changes	Standard norms, but impacted by unsecured lending changes	Higher risk weights (incl. banks lending to NBFC-ULs)

 

Summary of EPFO investment recommendations and information

Category	Details
RBI Actions and Suggestions
Separate fund management	Recommended separating the regulatory functions from fund management to avoid conflicts of interest.
Remove corporate bond floor	Suggested removing the minimum limit for corporate bond investments due to a mismatch between debt issuance and EPFO inflows.
Increase technical expertise	Emphasized the need for more specialized knowledge in accounting, portfolio management, and actuarial assessments within EPFO's investment committees.
Implement modern portfolio management	Suggested a more data-driven, strategic approach rather than a fixed equity investment method.
Redesign investment benchmarks	Advised matching benchmarks to the distinct asset-liability profiles of each fund managed by the EPFO.
Government Actions
Formed expert panel	Established a high-level committee including RBI, Finance Ministry, and Labour Ministry officials to review investment rules and governance.
Review existing rules	The committee will review asset allocation, accounting, and compliance.
Consider increasing equity exposure	The expert panel is also tasked with exploring a phased increase in equity investments.
EPFO Investment Status
Present norms of investment	Fresh accretions are invested with the following allocation: 45–65% in government securities, 20–45% in corporate debt, 5–15% in equities (via ETFs), and up to 5% in short-term debt instruments.
Average age of PF employees	As of recent payroll data, the 18–25 age group dominates new member additions, constituting over 57% of new subscribers.
Portfolio value	The EPFO manages retirement savings exceeding ₹25 trillion. The total corpus as of March 31, 2022, was ₹18.30 lakh crore.
Return of PF portfolio	The interest rate for FY 2024–25 was 8.25%. This was higher than the average yield of 10-year government securities, which was 6.86% in FY25.

 Happy Reading,

Dinesh Goel