The Reserve Bank of India (RBI) is undertaking a significant regulatory overhaul, set to scrap nearly 9,000 circulars in an effort to streamline and simplify the regulatory landscape. This initiative aims to reduce the compliance burden, enhance regulatory clarity, and improve the ease of doing business for regulated entities.

Why This Overhaul?

The RBI's decision stems from an assessment that years of regulatory layering have resulted in a fragmented framework, increasing operational costs and complicating supervision. Governor Sanjay Malhotra has clarified that the exercise is not about creating new rules, but rather rationalizing and combining existing ones. The goal is to consolidate regulations, circulars, and master directions into a streamlined, principle-based framework.

Key Objectives and Benefits

• Reduced Compliance Burden: By eliminating redundant and obsolete circulars, the RBI aims to ease the compliance burden on banks, Non-Banking Financial Companies (NBFCs), and other regulated entities.
• Enhanced Regulatory Clarity: Consolidating regulations into a unified set of documents will provide greater clarity and understanding for regulated entities.
• Improved Efficiency: Streamlining the regulatory framework will free up the time and resources of board members and management, allowing them to focus on strategic decisions.
• Promotion of Ease of Doing Business: The overhaul is expected to promote a more conducive environment for businesses by simplifying regulatory processes and reducing complexities.
• Alignment with Global Standards: The RBI's efforts to align domestic regulations with global standards, such as Basel III, will enhance the resilience and competitiveness of the Indian banking sector.
• Consumer Protection: The RBI is keen to ensure that the rationalization of regulations does not compromise consumer protection.

The Process and Key Measures

The RBI has already made substantial progress in this direction.

• Regulatory Review Cell (RRC): The RBI has established a dedicated Regulatory Review Cell (RRC) to institutionalize regulatory hygiene. This 30-member cell is responsible for assessing, updating, and consolidating the central bank's rules and circulars.
• Thematic Consolidation: In the first phase, the RBI has grouped regulations into 33 thematic categories, with the long-term objective of issuing unified documents for various types of regulated entities.
• Periodic Reassessment: The RRC will periodically reassess regulations every five to seven years to ensure their ongoing relevance and effectiveness.
• External Commercial Borrowings (ECB): The RBI has proposed a revamped ECB framework, easing access to foreign capital by allowing firms to raise up to $1 billion or 300% of net worth annually.
• Credit Risk Framework: The RBI has unveiled draft rules to overhaul the way banks measure and manage credit risk, aligning India's capital rules with global standards.
• Expected Credit Loss (ECL) Model: The RBI has proposed a shift to the Expected Credit Loss (ECL) model for provisioning of bad loans, requiring banks to estimate possible losses beforehand and set money aside upfront. This new system is proposed to kick in from April 1, 2027, with a five-year phase-in period.
• Ombudsman Framework: The Reserve Bank of India issued three announcements on October 7, 2025, indicating a complete overhaul and broadening of the customer grievance redress architecture for banks and other regulated entities.

Expected Outcomes

The RBI's regulatory overhaul is expected to have far-reaching positive impacts on the Indian financial system. By streamlining regulations, reducing compliance burdens, and enhancing regulatory clarity, the initiative is poised to foster a more efficient, resilient, and competitive financial sector. The move aligns Indian regulatory practices with international best standards and provides a longer glide path to ensure that banks adapt to higher provisioning and systemic stability requirements without sudden disruptions. This, in turn, is expected to attract global capital, lower borrowing costs for Indian corporates and boost economic growth.