I am indeed very happy to be here among all of you as we enter the week which celebrates International MSME Day on 27th later in the week.

MSMEs have a special place in my heart. I got an opportunity to work in this very dynamic sector early in my career way back in 2000 when a dedicated Ministry had just been set up for this sector in the year 1999. It used to be known as the Ministry of SSI & ARI then.

The MSME sector is vital for the global economy. Globally, MSMEs make up 90 per cent of the businesses and contribute about 50 per cent of the total global employment. Even in India, their contribution is immense. The MSME entrepreneurs present here, may be individually small, but collectively contribute 31% of GDP, account for approximately 35% of manufacturing output, and represent close to half of India's merchandise exports¹, while sustaining livelihoods for over 32 crore people². These are not just numbers, but a testament to the ambition, dynamism, and industry of our MSMEs.

No city reflects the dynamic and vibrant spirit of MSMEs better than Kochi. This is a city whose business instincts run deep — for centuries, the spice trade that connected Kerala’s shores to the world passed through this port. That same spirit now expresses itself in tourism in God’s own country; ayurveda and wellness ventures that have turned a traditional strength into a modern industry; in IT and electronics enterprises; in marine and seafood processing units that feed export markets across the globe; and in start- ups and a new generation of entrepreneurs focusing on diverse areas from fintech to clean energy solutions. Kochi’s MSMEs carry forward a centuries-old instinct for trade and enterprise.

Thank you for providing me this opportunity to speak on a sector so critical for our economy in a city that so naturally embodies the spirit of this sector.

Policy Initiatives by the Reserve Bank

We in the RBI recognise that our aspiration of Viksit Bharat will be realised not only in our metros and large enterprises, but also in the workshops, factories, and service enterprises that MSMEs like you run in every district and state of this country. We believe that a financial system that does not serve its smallest, most numerous participants well, is not truly serving the economy well. We appreciate that if we have to go far, we have to take everyone along, especially the smallest ones. We acknowledge that this sector is the nursery of entrepreneurship - which is so vital for the economy.

We have been playing a supporting role in the development of this critical sector. Let me enlist some of the regulatory measures which have played a facilitative role in expanding access to finance for MSMEs in India.

• One, Priority Sector Lending classification covers all MSME loans, with a dedicated sub-target for micro enterprises, ensuring directed credit flow to the most underserved segment of the sector.

• Two, we have mandated banks to provide collateral-free loans for small amounts to MSEs. The limit of collateral-free loans for MSME was recently doubled from ₹10 lakh to ₹20 lakh. This can be extended to ₹25 lakh for businesses showing consistent financial track record.

• Three, through the Credit Guarantee Fund Trust for Micro and Small Enterprises, we have worked with the Government to expand guarantee cover for MSEs substantially. The guarantee reduces the risk perception that has historically made banks cautious about lending to smaller borrowers who are unable to provide collateral. Moreover, zero risk weight for capital charge on the CGTMSE-guaranteed portion of MSE loans creates meaningful capital incentives for banks to extend credit to enterprises that are creditworthy but collateral-deficient.

• Four, we enabled the Trade Receivables Discounting System. It allows MSMEs to convert their receivables into immediate liquidity by discounting invoices on a transparent, competitive electronic platform. We have steadily lowered the threshold at which large buyers are required to onboard onto TReDS. I would urge every enterprise in this room that has not yet done so, to register and to actively encourage your buyers to do the same.

• Five, we have provided simplified working capital norms for MSEs thereby facilitating ease of availing finance.

• Six, PSL recognition for NBFC on-lending and co-lending arrangements, has broadened the institutional channels through which MSMEs can access credit.

• Seven, we enabled the Account Aggregator framework. It has facilitated lending to the tune of ₹3.5 lakh crore in FY 2025-26 and has the potential to scale up manifold.

• Eight, recently, we prohibited commercial banks from levying pre-payment charges on floating-rate loans granted to individuals and MSEs, regardless of the source of repayment funds.

• There are many more.

Structured engagement with the sector

Moreover, as a regulator, and as a partner in our collective aspiration of nation-building, we also realise that constant engagement with all stakeholders is necessary. Some of our regulatory measures are actually the outcome of valuable insights and suggestions received from you. Therefore, we have established an institutional mechanism for structured engagements with the MSMEs. Our Regional Offices have been conducting MSME Town Hall Meetings, providing a dedicated platform for direct dialogue with entrepreneurs, lenders, and ecosystem stakeholders. I too meet the MSME associations from time to time.

We are also conducting a special capacity building program of NAMCABS³ through our Regional Offices. The objective of this program is to familiarize bankers with the entire gamut of credit related issues of the MSME sector and develop entrepreneurial sensitivity amongst them.

In the same vein, we have constituted Empowered Committees on MSMEs (EC-MSME) to periodically review the progress in MSME financing and resolution of stressed MSMEs. We have recently broadened the agenda items of this meeting to include various pertinent items such as monitoring of credit linkage and pendency of MSME credit applications. These measures, no matter how small they appear, can have transformational impact on the entire ecosystem.

Building a resilient future

Our regulatory and facilitative measures along with several Government schemes including MUDRA and CGTMSE have led to significant improvement in formal credit to MSMEs. Consequently, the credit outstanding by SCBs to the MSME sector stood at ₹ 36.79 lakh crore as on December 31, 2025, with a healthy CAGR of around 15% during the past five financial years. In the state of Kerala too, SCBs’ credit to MSMEs grew at a healthy CAGR of 13.5% during the past five financial years, with credit outstanding at ₹ 1 lakh crore as on December 31, 2025.

While considerable progress has been made in, I would not stand here and say that we have covered the credit gap. We have not. But I would certainly say that we have made considerable progress in meeting the financing needs of the MSME sector in the last few years. I would confidently claim that we have covered a lot of the gap. Moreover, we have covered the gap at a fast pace. Bank credit to MSMEs in the last five years grew at a CAGR of 15 per cent, while overall bank credit grew at a CAGR of 13.7 per cent during the same period.

Simultaneously, we are also trying to smoothen the credit flow by removing frictions. Development of Unified Lending Interface is one such example in that direction. If I may draw an analogy that will resonate with many of you: just as UPI transformed how this country moves money — instantly, digitally, and without friction — we believe that Unified Lending Interface has the potential to do the same for how this country accesses credit.

ULI allows lenders to assess an MSME borrower with the help of digital data — GST filings, bank statements, utility records, land records, and more — pulled together through a single interface based on borrower consent, rather than through weeks of paperwork and physical verification. For an enterprise with a thin credit history but a genuinely strong business, this is transformative: it allows you to be judged on the true, current state of your business, quickly and with far less friction.

We will continue to work with all stakeholders to ensure that the financing needs of the MSMEs are met fully. We are together with you in this journey. We shall continue to strive to create a conducive financial system for your growth and prosperity. In this regard, I expect our financial institutions to step up in a number of ways.

One, financial institutions – public and private - must invest in our enviable DPI stack including the Account Aggregator framework, ULI, TReDS, GST data trails, and Aadhaar-enabled authentication. This will help create conditions for a fundamentally more inclusive credit ecosystem.

Two, they must accelerate the implementation of various schemes like Priority Sector Lending, MUDRA, PM-SWANIDHI, PM Vishwakarma, Credit Guarantee Scheme for MSEs, etc.

Three, we look to banks and lending institutions to internalise a fundamental reorientation in their approach. MSMEs should not be considered as a regulatory obligation alone, but as long-term business partners whose sustained growth generates durable financial returns and broad social value. Relationship banking, deepened and informed by digital data, can be a powerful and humanising complement to technology-led credit delivery.

Similarly, I also expect the MSMEs to seize the opportunity. My ask from the MSMEs is simple and straightforward.

One, take ownership of your growth by investing in technology, R&D and innovation as consumer preferences and expectations evolve.

Two, engage actively with us through all our instruments — TReDS, ULI, the Account Aggregator framework, co-lending, etc — that have been built for you, through all our entities – banks and NBFCs - and continue to bring your concerns to forums like our townhalls. Benefits of Government schemes can be availed only for units registered under URC. I request all of you to register which is entirely online and free of charge relying on PAN and Aadhaar.

Three, I would also like to highlight that businesses are built on the foundation of trust. It is important to build and sustain relationships with your stakeholders – creditors, suppliers and customers. Just like quality and timely delivery are essential to build trust for long relationship with customers; just like honouring contracts are important for retaining the trust of reliable suppliers and service providers; similarly, formalisation, digital adoption and financial discipline are vital for securing and sustaining the trust of financiers.

As for the Reserve Bank, our commitment to you is equally simple: we will continue to build the rails, reduce the friction, and stay in the room with you as this sector grows.

Today, as we approach MSME Day, let this be our shared resolve — not merely to mark the contribution of this sector once a year, but to keep building, every single day, a financial system worthy of the enterprise and resilience you bring to it. To every entrepreneur in this hall, and to the millions like you across this country: I commend you for what you build, often quietly, often without commensurate reward or recognition, every single day.

With these words, let me conclude and wish you all the best for your future endeavours.

¹ Economic Survey 2025-26

² Data on Udyam registration portal as on June 11, 2026

³ (National Mission for Capacity Building of Bankers for Financing MSME Sector)

Participants from the Reserve Bank of India:
Shri Sanjay Malhotra - Governor, Reserve Bank of India
Shri Swaminathan J - Deputy Governor, Reserve Bank of India
Dr. Poonam Gupta - Deputy Governor, Reserve Bank of India
Shri Shirish Chandra Murmu - Deputy Governor, Reserve Bank of India
Shri Rohit Jain - Deputy Governor, Reserve Bank of India
Dr. Ajit Ratnakar Joshi - Executive Director, Reserve Bank of India
Shri Sanjay Kumar Hansda - Executive Director, Reserve Bank of India
Shri Indranil Bhattacharyya - Executive Director, Reserve Bank of India

Moderator:
Shri Brij Raj - Chief General Manager, Reserve Bank of India

Brij Raj:
Good afternoon, everyone. Welcome to this Post Policy Press Conference, second for the Financial Year 2026-27. We have with us Governor, Reserve Bank of India - Shri Sanjay Malhotra; along with Deputy Governors - Shri Swaminathan J, Dr. Poonam Gupta, Shri Shirish Chandra Murmu, and for the first time, Shri Rohit Jain. We also have with us Executive Directors - Dr. Ajit Ratnakar Joshi, Shri Sanjay Kumar Hansda and Shri Indranil Bhattacharya. I also welcome my other colleagues from the Reserve Bank.

Before we begin, we have a few housekeeping announcements. Sir, there are 25 participants from the media. I request the media participants to please stick to one question. I am repeating, please stick to one question so that everyone gets a chance. In case time permits, we can take some more questions. I also request everyone to please switch on the mic while speaking so that those watching the live telecast are able to hear clearly. And once you have finished speaking, please switch off the mic. Sir, with your permission, I will now call out the names.

Sanjay Malhotra:
Yes.

Brij Raj:
Thank you, Sir. I will request Ms. Latha Venkatesh from CNBC-TV18 to please ask the first question. Latha, please.

Latha Venkatesh, CBNC TV18:
Thank you, Brij. Thank you, Governor. Well, a bazooka of a policy, Sir. The market is pouring its congratulations. I wanted to know if you can give us some more details on the ECB and FCNR scheme. Especially FCNR, last time it was excused from CRR and SLR. And banks were allowed to give loans and get their customers to raise FCNR. So, it was not just their money, even leverage was allowed.

Can you just elaborate, because that will give an idea of how much they can expect? And anyway, what is an idea of the flows - what kind of flows are you expecting with everything; ECB, FCNR, and the other steps that you all have announced, NRI, etc.? Thank you, Sir.

Sanjay Malhotra:
The details, we will come out shortly. We are still working out the details, but broadly the contours were already mentioned. In terms of CRR and SLR, that dispensation will certainly be given. Other than that, I don't think there is any change in the regulatory dispensation. So that - whatever is the existing dispensation / regulation, with regard to that, there is no special dispensation for that.

In terms of the quantum, we are hopeful of a reasonable and good amount - we are not targeting any particular amount, but we do expect healthy flows - both from ECBs and other various measures that have been announced today. So, as a result of all these measures, we expect healthy flows not only in this period of three to four months that we have given - short window for ECBs and FCNR (B) deposits, but there have been other measures for equity as well as government bonds. All put together, we are quite hopeful - and there were other measures, which were taken even earlier, whether it is in terms of the ECBs, liberalized ECB scheme that we brought in and the measures that I mentioned in the Monetary Policy statement with regard to government initiatives in terms of the trade agreements, etc. All those put together, we are quite confident of a very healthy, a much better BoP this year as compared to what it would have been otherwise.

Brij Raj:
Thank you, Sir. We will take some more questions from our left side before we come to the right side. I will now request Manojit Saha from Business Standard to ask his question. Manojit, please.

Manojit Saha, Business Standard:
Thank you, sir. Now, can we assume that for the time being, since you have not mentioned that when the RBI expects inflation to come back to 4%? Can we expect that RBI has now put the 4% target in abeyance for the time being and is more focused on the range like we did in COVID times? Because from your statement, I think it is evident that you are more concerned with growth rather than inflation. So, is the 4% target kept in abeyance for the time being?

Sanjay Malhotra:
No, the target is not in abeyance at all. It's a target which is sacrosanct for us. It's a target which the government has given to us. It was reviewed. It remains 4% and that is what our endeavour is. But keep in mind that this target is to be met over a period. It's a medium-term kind of a target. And it is not advisable to take action for each and every small or large, especially small deviations from the target because that can have consequences which can be disproportionate for growth. So, our target remains the same. It is 4%. It is to be met over a period of time. And as mentioned, we will be data dependent.

We have to watch and see as to whether the effect of this supply shock is going to persist or whether it is going to wane away. So, we are watching for that. And I think the details are already there in the Monetary Policy statement. We will be very watchful if inflation is getting generalized, building into expectations, and, accordingly, take action.

Manojit Saha:
The concern is the real rate is now very, very small or even negative.

Sanjay Malhotra:
See, as I mentioned to you, we have to look at it over a little longer period. It's not possible nor is it desirable. It's neither possible nor is it advisable to have it pegged in a very small range. And that's why we have this range. The range of 2% to 6% is primarily for this purpose. While the endeavour, the focus, the target is 4%, but there can be fluctuations around that. And we do not, if there are really fluctuations and then inflation is coming down on its own, then we don't apply monetary policy tools which will have other adverse consequences.

Manojit Saha:
Thank you, Sir.

Sanjay Malhotra:
In the interest of everyone's time, let's restrict ourselves to one question at a time and then if there is time and the question has not been asked by anyone else, then we come back. Okay?

Brij Raj:
Thank you, Sir. I will now request Anup Roy from Bloomberg to ask his question. Anup, please.

Anup Roy, Bloomberg:
Thank you, Sir. Sir, in a recent interview, you have said that Rupee is undervalued. So, what is, as per your estimate, the fair value?

Sanjay Malhotra:
Which interview are you talking about?

Anup Roy:
In Mint interview, you have said Rupee is perhaps undervalued.

Sanjay Malhotra:
I have never said that Rupee is undervalued. I think what you are referring to is the fact that I mentioned that, you know, it may be - I think if I recall correctly, I said something to the effect that it is reasonable to think that it may not be overvalued. And some people, of course, do say that it is when they look at REER, etc., then they do say that it is undervalued. So, this is what I said. I never said that it (INR) is undervalued, but by some accounts, yes, it is undervalued.

Anup Roy:
So, what could be the fair value if you have done any analysis?

Sanjay Malhotra:
See, you know, our policy has been consistent. This question keeps coming up again and again and we keep giving out the same answer. I do not have anything more to add than what I said in the Monetary Policy statement.

Anup Roy:
Thank you.

Brij Raj:
Thank you, Sir. I will now request Hamsini Karthik from Moneycontrol to ask her question. Hamsini, please.

Hamsini Karthik, Moneycontrol:
Thank you, Brij. Thank you. Good afternoon to everyone. My question is on deposit and lending rates. Earlier in your policies, you have said that at RBI, you would endeavour to maintain rates at a certain level which would be slightly low. You are not in a rush to increase rates. Would you continue to maintain that stance even today, given where geopolitical situations are and what other economies are doing with the monetary policy tools? And as an allied, I would also want to draw your attention to deposit rate. In your speech, you mentioned that there is a certain amount of hardening of lending and deposit rates as well. We recently had a very large private sector bank say that they had to resort to a very competitive structuring of deposit to ensure that they are able to combat this excessive competition for deposits.

Is that a practice at RBI that you would allow, that you are okay with? And given that deposit rates have continued to be very elevated, I mean, it has been a pressure to mobilize deposits. I think we are in the third year of that. Where do you see some sort of a relief coming for banks?

Sanjay Malhotra:
See, as far as deposit rates are concerned, there is no regulation on that. So, I am not understanding as to the intent of your question.

Hamsini Karthik:
I primarily like to understand, Sir, is there a room based on the macro environment today, do you foresee low interest rates continuing to prevail in the country for a while and what would be the allied impact of that on deposits?

Sanjay Malhotra:
So, see, that is futuristic. We will be data dependent, and we will see how the growth-inflation dynamics plays out as I have already mentioned. I think on rates - policy rates going forward, I will not be able to give you more guidance than what was given in the statement and what I mentioned when I answered one of the previous questions.

Hamsini Karthik:
Regarding competition for deposits, any view that you have?

Sanjay Malhotra:
If there is competition, it is healthy. Competition is good as long as it is transparent, as long as it is fair, and that should continue.

Hamsini Karthik:
Okay.

Brij Raj:
Thank you, Sir. I will now request Ekta Suri from Zee Business to ask her question. Ekta, please.

Ekta Suri, Zee Business:
Good afternoon, Sir. I would like to ask if the RBI has any target regarding NRI deposits? And here, because we are talking about maintaining our forex reserves, Modiji also appealed that people should buy less gold. Is the RBI thinking about making the Gold Monetization Scheme more lucrative? And just if time allows, one more question?

Sanjay Malhotra:
You have asked two questions. The third, if there is time, you can ask. So, firstly I said that we have not set any target for this, but we hope that quite a healthy and large amount of flows will come in through the various measures we have announced today. Secondly, regarding the Gold Monetization Scheme, there is no such proposal under consideration right now.

Ekta Suri:
Thank you, Sir.

Brij Raj:
Thank you, Sir. I will now request Anurag Shah from ET Now Swadesh to ask his question. Anurag, please.

Anurag Shah, ET Now Swadesh:
Thank you, sir. Thank you, Sir. Sir, I would like to understand a question related to common people, Sir, because people have trust in the RBI, and you can assess it correctly.

Sir, how does the RBI view the current economic situation, how challenging is it? And for the RBI, what will be the concern going forward, will it be growth, or will it be inflation? Because in the assessment of growth, you said today that the burden sharing, going forward will also be very important, it will determine growth. So, Sir, how do you see that?

And Sir, nowadays there is a lot of discussion in India regarding the level of the Rupee compared to the dollar - intellectuals, economists, everyone is giving their opinion. So, Sir, how is the RBI looking at it? Is this just part of a process, or if in the near future, it becomes a three-digit figure, is it just a number, nothing more?

Sanjay Malhotra:
Look, our economic situation, as we have said in our statement as well, it is quite strong and healthy. This global shock, India is not alone in it. All countries are impacted by it. So, as far as India is concerned, we are not only, as compared to other countries, in a much better position today in terms of the current shock but also with respect to the earlier shocks that have been faced by us. As regards our economic growth, which is more than 6.5%, very few countries have it, and it is not there in any of the major economies.

And as far as inflation is concerned, inflation will definitely increase because if the oil prices have increased, then they are increasing everywhere. But we can only hope that it does not stay for a long time, there is a lot of uncertainty, we will know later. But our economic condition is very good, and growth is healthy. Our banks are sound and resilient. Corporate balance sheets are also healthy. The external situation, you talked about the currency, our forex reserves are sufficient to cover imports for about 11 months. Overall, we are in a very good position, and we are very confident that we will not only deal with this situation well, but will make ourselves more capable and better by considering this situation as an opportunity before us so that we can deal with such crises and shocks in a much better way.

Brij Raj:
Thank you, Sir. Sir, we will now take a few questions from the right. I will now request Sangita Mehta from Economic Times to ask her question. Sangita, please.

Sangita Mehta, Economic Times:
Sir, given that influx of inflows that might happen because of the measures announced, what kind of system-level liquidity you think would be appropriate in the current scenario? And do you expect banks to pass on the benefits of hedging costs to the customers respectively?

Sanjay Malhotra:
Yes, I do expect them to pass on some of the benefits of hedging and that will result in good flows. Liquidity, as I have mentioned, we will provide the appropriate amount of liquidity so that credit in the system, not only bank credit, but other bonds, etc. also can be provided to meet the needs of the economy. There is no level that we generally target. You have seen we gave about ₹2.6 lakh crore of liquidity in the last 2 months since we have met, and we will continue to provide appropriate liquidity as needed.

Brij Raj:
Thank you, Sir. I will now request Jaspreet Kalra from Thomson Reuters to ask his question. Jaspreet, please.

Jaspreet Kalra, Thomson Reuters:
Thank you, Sir. Sir, you have announced measures aimed at guarding capital inflows today via FCNR, ECB, etc. Are you also considering measures to slow down outflows, perhaps through restrictions on liberalized remittance schemes, overseas debt investments? Is that something under consideration and because some of my peers took the liberty, I hope you will allow me.

You speak a lot about inflation expectations. In the recent data that we have seen in RBI surveys, they started to drift up. How do you sort of closely track that? Are there supplementary tools that you are looking at, may be measure inflation expectations in more real time, to be able to stay ahead of the curve? Thank you.

Sanjay Malhotra:
See as and when, first of all, there is no such measure right now under consideration to restrict any kind of capital outflows. On your second question, which is related to inflation expectations, we do our household surveys. So, that is the primary source through which we get the data. And other than inflation expectations, the prices when they are passed on, that can also have some element of expectations built into it, apart from the surveys that we do. We monitor those very closely and we will continue to do that.

Brij Raj:
Thank you, Sir. I will now request Piyush Shukla from NDTV Profit to ask his question. Piyush, please.

Piyush Shukla, NDTV Profit:
Good afternoon, Governor, DGs. Thanks, Brij sir. We understand the updated list of NBFCs is yet to come out. You have issued a categorization draft circular. There are views floating around on one CIC which has applied for deregistration as well. When can we expect the next upper layer list to come out? And if you could allow me to ask, because this is the largest private bank of the country, we have seen a lot of developments happening with regard to how its governance is being played out. Is the regulator concerned in any manner on this aspect? Thank you.

Sanjay Malhotra:
See, you are aware, we don't answer any entity or bank-specific questions. We are looking at system level things. So, that is on your second part of the question. Your first part is?

Piyush Shukla:
Updated layer of (NBFCs).

Sanjay Malhotra:
See, the list is already there. So, it continues till the time we have a new list.

Piyush Shukla:
When will we have it? I suppose it gets updated on a yearly basis. That is why I am asking?

Sanjay Malhotra:
We will do it shortly.

Brij Raj:
Thank you, Sir. I will now request Ankur Mishra from ET Now to ask his question. Ankur, please.

Ankur Mishra, ET Now:
Thank you, Brij sir for the opportunity. Good afternoon, Governor. You mentioned during the Monetary Policy statement that the crude oil prices have been more than the assumptions which were there in the last Monetary Policy. I want to understand what is the assumption, now?

Apart from that, you also mentioned about the exchange rate policy where you are saying about speculative pressures and how Reserve Bank of India responds to that. In the past, you have taken few measures regarding the same. Are there more measures which are expected from Reserve Bank of India?

Sanjay Malhotra:
No, there are no specific measures, but as I have mentioned, in case they are required, especially to curb speculative kind of a behaviour, then we will take them in case they are required. Assumption for crude is USD95 to a barrel. So, it is changed, you know, from our previous ones, and previous assumption - and that is one of the reasons, you know, why inflation is higher - projected inflation is higher.

Brij Raj:
Thank you, Sir. I will now request Shayan Ghosh from Mint to ask his question. Shayan, please.

Shayan Ghosh, Mint:
Governor, on the issue of deposits. Generally, I mean, what has happened with the banks, they also justified it as an industry practice. My question is, as an industry practice - the practice of giving differential interest rates and masking it probably…

Sanjay Malhotra:
No, our policy - I mean, we do allow differential interest rates. So sorry, let please complete your question…

Shayan Ghosh:
On the systemic level, I was asking because they justified it saying that it is an industry practice. Is RBI okay with an industry practice like that, where you give differential interest rate but routed through something else?

Sanjay Malhotra:
I think you are referring to some individual specific instance / bank, which we do not comment on. However, as I have mentioned, I think perhaps now I - the earlier question I think they are too connected - they are connected. So, we have a very consistent and a very clear policy for deposits as to when they can have differential rates.

I think for certain categories of people like, senior citizens, depending on and then, depending on tenor and things like that, you can have differential rates. I'll ask one of my colleagues to tell you on what basis you can have differential rates, but they have to be transparent at the same time. You have to display them to everyone clearly and any differential rate beyond that if someone is giving, is certainly not acceptable.

Brij Raj:
Thank you, Sir. I will now request K. Ram Kumar from The Hindu Business Line to ask his question. Ram Kumar, please.

K. Ram Kumar, The Hindu Business Line:
Why is this concessional swap facility for raising ECBs restricted only to public sector undertakings? Why not extend it to even the private sector actually?

Sanjay Malhotra:
See, the Public Sector Entities are a special category, and they are more, in areas where we feel the needs of - where the needs of the economy are more. And the benefits are also, passed on to the general public because they are catering more, to public utilities, infrastructure. So, the benefits go to a much larger section of society when we restrict - when we give it to the public sector undertakings. If we give it to private entities, then the benefits are not as widely dispersed as they are when we give such kind of a benefit to the PSUs.

Brij Raj:
Thank you, Sir. I will now request Mayur Shetty from The Times of India to ask his question. Mayur, please.

Mayur Shetty, The Times of India:
Thank you, sir. Governor, you announced a whole lot of measures to attract fixed income inflows. Do you see a role for interest rates here? In the past, whenever such measures were taken, there were higher rates offered to attract capital or do you expect banks to offer better returns under these schemes?

Sanjay Malhotra:
Yes, obviously. Because I think one of you asked, this will enable banks to increase the deposit rates for the non-resident and the OCI depositors.

Mayur Shetty:
This is despite the reduced interest rate differential between India and…

Sanjay Malhotra:
Yes.

Brij Raj:
Thank you, Sir. We will now take the remaining questions from the left side. I will request Falaknaaz Syed from Deccan Chronicle to ask her question. Falaknaaz, please.

Falaknaaz Syed, Deccan Chronicle:
Good afternoon, Governor. Thank you for the opportunity. Sir, there is a 50 basis points upward revision in baseline CPI inflation forecast with upside risk. So, this strengthens a case for a rate hike in the next meeting. And also, if you look at the bond market, they are factoring three rate hikes. The yields are now around 7% -10-year G-sec benchmark yield.

Sanjay Malhotra:
So, what's your question?

Falaknaaz Syed:
The question is that it is strengthening - the 50 basis revision in - with upside risk in CPI, it's strengthening a case for a rate hike in the next meeting?

Sanjay Malhotra:
In the next meeting or later, whether it strengthens the case or not, I don't know. But obviously, I mean, it's more adverse, than it was previously, certainly. Yes, whether it strengthens the case will depend on many other things as already mentioned. We will have to see whether it is actually getting generalized. It is not as I mentioned, again and again, it is not, just one - if it is a one-time increase, then you look through. But if it is getting generalized, it is getting persistent, it is getting into expectations, then is the time to act. So, for that, you know, we have to wait, and we have to watch.

Brij Raj:
Thank you, Sir. I will now request Krishn Kaushik from Financial Times to ask his question. Krishn, please.

Krishn Kaushik, Financial Times:
Hi. Good afternoon, Sir. So, I want to understand - you mentioned that there is a good environment for private capital investments to grow. But have you seen private capital expenditure growing? Because there has been a bit of a frustration on the government side on that as well that private entities are not investing enough. Along with that, why do FPI inflows remain negative? You mentioned that in the first 3 months or the first 2 months, till now basically, it has been about USD14 billion that has outflowed. So why are these two things? Can you just comment on that, Sir?

Sanjay Malhotra:
See, investments are healthy. If you look at data, rather the data for the second advance estimates for last year and if even if you look at some of the high-frequency indicators in terms of capital goods imports, production, H1 numbers of fixed asset growth. H1 was very good, it was in two digits. H2 has moderated, but it is still in a high single digit. So, if you look at all these indicators, it is decent. Of course, there is always scope for more.

Inflows have also been there. FDI, I think, we gave you the numbers. Gross FDI is continuing to rise. Madam [DG (PG)], would you like to add on the remittances and on the inflows as to how, the situation looks like?

Poonam Gupta:
So, I can add to the overall situation of capital flows as well as capital investment in the country as Sir said. Private capital formation numbers actually have been very healthy. Investment to GDP ratio has been turning upwards. So those numbers remain healthy, more can certainly happen.

If we look at the BoP side, gross FDI flows were USD95 billion in 2025-26, can be much more this year for all we know. Certainly, top USD100 billion, can go up to, you know, USD110, USD120 if not more. And it is a secular increase, which means it is not a story that we can pin down to only one year. You know, there are years coming which will see even healthier inflows of gross FDI. And with the measures that have been announced, we are looking at and projecting a very healthy BoP, going forward.

Krishn Kaushik:
Net still remains negative, right? FDI.

Poonam Gupta:
So, we do not have projections for this year and that remains to be seen on how things pan out. Net FDI is also a combination of, globally how things are and those are things that get settled over a period of time. But one can talk more confidently today about the gross FDI numbers which are looking very healthy.

Sanjay Malhotra:
Net FDI was also positive. It was not negative, USD 6.7 or so last year. And April numbers, gross FDI is USD 15 billion, and net is also about USD 7 or 8 billion, if I remember correctly. That's also positive. So, USD 15 billion in one month is a very high number. We don't have the monthly figures, but a lot of it was to do with the financial sector. So, we are confident as DG (PG) also mentioned.

Brij Raj:
Thank you, Sir, and thank you, Madam. I will now request Lalatendu Mishra from The Hindu to ask his question. Lalatendu, please.

Lalatendu Mishra, The Hindu:
Good afternoon, Governor. Last month, the Prime Minister has urged the people of India to do a lot of things, you know, like not to go for foreign travel, postpone buying gold, do work from home, do carpooling and reduce fuel consumption.

And now you told in response to Anurag's question, that things are better. Have things changed since then and what could be the reason for him to tell all these things? Thank you.

Sanjay Malhotra:
You have to ask him, and you have to ask yourself as to what the reason therefore is. I think it's important for all of us, to be prudent, to be judicious, to not be wasteful. That's the message I think he gave, and it should be taken in that spirit.

Brij Raj:
Thank you, Sir. I will now request Nachiket Kelkar from Business Today to ask his question. Nachiket, please.

Nachiket Kelkar, Business Today:
Thank you, Governor. Seemingly, there is enough cash in circulation, but we also keep hearing that ATMs are running short of cash, they are running dry. Is RBI looking at it? What are the issues there? Are you worried about it? Or something needs to be done there?

Sanjay Malhotra:
See, we have a plan. Every year we build a plan of what the requirement of currency is and that is provided to the banks as and when it is required. The ATM part I have not looked into, but certainly, we will - if there is a shortage, we will certainly ensure that the shortage is met with. We have sufficient currency to provide and fill and refill the ATMs and the bank branches.

Brij Raj:
Thank you, Sir. I will now request Manish Suvarna from PTI to ask his question. Manish, please.

Manish M. Suvarna, PTI:
Thank you, Brij sir. Good afternoon, Sir. Sir, you mentioned that you are expecting good amount of flows because of the measures you have announced today. So how much incremental flows can we expect? And secondly, Sir, I just want to understand, you explicitly flagged implication for the rural demand from projected monsoon deficiency. So, do you see a risk of weaker rural consumption spilling over to the private consumption growth?

Sanjay Malhotra:
Number I already mentioned, we don't have a specific number, but obviously, it's all put together, it will be very healthy. Answer to your second question, rural demand, well, yes, private consumption, well, yes, some impact will be there.

Brij Raj:
Thank you, Sir. I will now request Akash Mandal from Indian Express to ask his question. Akash, please.

Akash Mandal, Indian Express:
Good afternoon, Governor, Deputy Governors. The RBI has intervened heavily in the forward market in the past year or so, with the RBI also bearing the full hedging cost of the new three-to-five-year FCNR (B) deposits in addition to the concessional forex swap window for the ECBs of PSUs. Does the RBI expect some forex pressure going ahead and how does the central bank expect to mitigate or manage this risk going forward?

Sanjay Malhotra:
No, we don't expect, but we are always prepared. As mentioned, we have sufficient reserves, and we have the buffers. And we will do whatever is required in order to ensure that we have good flows, and we are able to maintain an orderly movement of the Rupee. These are the primary areas that we will focus on.

Brij Raj:
Thank you, Sir. We will now take the remaining questions from the right side. I will request Shyama Mishra from Doordarshan to ask her question. Shyama, please.

Shyama Mishra, Doordarshan:
Namaskar Sir. Sir, in your statement, there was one word which was continuously coming, that is uncertainty. Which is that one risk that you are watching very closely right now? And one more thing, gold reserves or gold holdings is constant. So, is it a policy to not trade in gold?

Sanjay Malhotra:
No, we don't - there was some news, you know, that we have sold gold or something, so there is no such sale. There is only a marginal increase in our gold holdings. Uncertainties on various accounts. It's on account of the conflict, the duration of the conflict, the time it will take for restoration of supplies. There is uncertainty about the Monsoon, the El Nino. So, there are various uncertainties which have implications for both inflation and for growth. So, we will be watching, all these uncertainties as to how they fold out and what impact they have.

Shyama Mishra:
Sir, any one risk that you are really worried about it?

Sanjay Malhotra:
No, the major risk today or concern or uncertainty is how long, these supply disruptions continue and what impact they have on prices. Availability as of now is not so much of a concern. It's more, as of now, the price. So that is what we are looking for as to how long that remains. That I think is number one, after that, will be the monsoons and the El Nino and other things.

Latha Venkatesh, CNBC TV18:
Sir, may I interrupt? This confusion over gold came because weekly bulletins show a reduction - yes, and I think you all mark-to-market…

Sanjay Malhotra:
In tonnes? Okay.

Latha Venkatesh:
No. that is in dollars…

Sanjay Malhotra:
That is in dollars, right.

Latha Venkatesh:
So, it must be a price revaluation.

Sanjay Malhotra:
Right.

Latha Venkatesh:
Maybe you all can clarify. Is it done every month, is it done alternate Fridays, or I don't know what? Then this confusion...

Sanjay Malhotra:
No, whenever we give out the numbers, then obviously, the value would be with the same frequency. I think we do it weekly.

Latha Venkatesh:
Yes, the amount is given weekly.

Sanjay Malhotra:
We give it weekly, so the price will also be changed weekly. It will be revalued weekly. I mean, it cannot be that you give the value weekly, and the price is adjusted at a different frequency. I mean, that is my understanding, and I suppose that's how it should be.

Brij Raj:
Thank you, Sir. I will now request Kshipra Petkar from Financial Express to ask her question. Shipra, please.

Kshipra Petkar, Financial Express:
Thank you, Brij, sir. Good afternoon, Governor. My question is on the transmission of rates. Now, despite cumulative policy easing, transmission across segments in the financial system remain uneven. Even in the Annual Report, there was data which said that for FY 2025-26, Agri saw transmission of a decline of 49 basis, whereas MSME saw decline of around 85 basis points. Now, is the RBI satisfied with the pace of transmission and are there any areas where further improvement is needed?

Sanjay Malhotra:
The credit growth, the proof of pudding is in eating it. I think credit growth has been very robust at 16% plus. Banking total put together is at 15% plus. So, it is satisfactory. Given, the whole economic macro-economic situation the way it is, I think it is quite satisfactory and we'll continue to work on further improving it wherever we find there is scope.

Brij Raj:
Thank you, sir. I will now request Aaryan Khanna from Informist Media to ask his question. Aryan, please.

Aaryan Khanna, Informist Media:
Thank you, sir. Sir, just one clarification on the FX measures. On both the ECB concession window as well as the FCNR (B) measure, will you allow all applicants who, apply for that window for those windows until September 30th or is there a cap that you have in mind? So that's, just one clarification I would like.

And the question is that looking at the inflation forecasts going ahead in FY27, did the MPC discuss a rate hike because these measures on capital inflows are external to the MPC. So did the MPC discuss a rate hike, possibly in this meeting, either because of inflation or because of the currency? Thank you.

Sanjay Malhotra:
So cap, I think you are talking about the in terms of value, right?

Aaryan Khanna:
Right, Sir.

Sanjay Malhotra:
Because the period is already there. No. So, as I have said there is no target that we have set for ourselves and when we meet the target, and we close that window. No, that is not the case.

As to whether the Monetary Policy Committee discussed whether to rate hike or not, that is the whole purpose of the meeting. Whether to hike, whether to retain, or whether to reduce, that's the purpose of the meeting. So certainly, all possibilities are discussed and after that a decision is taken.

Brij Raj:
Thank you, Sir. I will now request Saurav Mukherjee from ANI to ask his question. Saurav, please.

Saurav Mukherjee, ANI:
Thank you for giving me the opportunity, sir. My question to you is you recently warned or cautioned against the excessive speculation in the Rupee. Was the RBI message aimed at discouraging short sellers from building aggressive one-way bets against the currency? And your take on the government-issued ordinance to exempt FIIs from capital gains tax on G-Secs. What impact it may have on Indian economy?

Sanjay Malhotra:
It's a positive move, as mentioned earlier. It will further strengthen our balance of payments and so it's a welcome move.

Saurav Mukherjee:
And on the Rupee speculation, Sir?

Sanjay Malhotra:
I don't have anything more to add. See, if there is any speculation, excessive speculation - a speculation which leads to excessive volatility, let me put it like that - any disorderly movement that we see, it's then that we intervene and we take appropriate macro prudential, regulatory measures and will be watchful, we will be vigilant, and we will take measures as may be necessary.

Brij Raj:
Thank you, Sir. I will now request Jeevan Bhawasar from Akashvani to ask his question. Jeevan, please.

Jeevan Bhawasar, Akashvani:
Namaskar, Sir. Sir, there is a discussion in the market that RBI is going to launch plastic banknotes on an experimental basis or for testing. How much truth is there in these discussions? And my second question was on the shortage of currency notes, at ATMs and bank branches. There were many complaints about it too. So, what are the measures being taken by the RBI in this regard and why are we facing this problem again and again?

Sanjay Malhotra:
As regards polymer notes, the proposal is currently under consideration. We will let you know as soon as a decision is made. So whatever news articles have come, there is some truth in it, but there is no decision. It is only under consideration. We are examining the pros and cons of it and whether, you know, it will be worthwhile to do it. It is still at a preliminary stage. And on your second question on ATMs, we will make every effort to ensure that wherever there is shortage of currency in any of the ATMs, we will deliver the currency there at a quick pace.

Brij Raj:
Thank you, Sir. I will now request Soumyajit Saha from Nikkei to ask his question. Soumyajit, please.

Soumyajit Saha, Nikkei:
Good afternoon, Governor. So, we have seen some of our Asian peers like Thailand and Indonesia who are ahead of us in the same cycle face a little bit of a, not a little bit, but a fairly good amount of shortage in fertilizers. I just wanted to understand now that the lower monsoon forecast is pretty much unanimous across private and government forecasters, what is your updated understanding of the fertilizer crisis and its percolation down to food inflation, if you could give us some updates?

Sanjay Malhotra:
My understanding is that we have sufficient fertilizer supplies for the Kharif crop and in any case, if the monsoon is going to be, we don't know, if it is going to be sub-normal, then that only reduces, not increases, that's my understanding of fertilizers because if there is less rainfall, then you can't apply, that's my understanding of the issue. But there is sufficient fertilizer stock with the government.

Ekta Suri, Zee Business:
Sir one?

Sanjay Malhotra:
Okay.

Ekta Suri:
Sir, on 100% collateral and bank guarantees for prop trading, you gave some relaxation and extended the date (for implementation of instructions) from April 1st to July 1st. So, is further relaxation possible now, or will it be implemented on July 1st?

Sanjay Malhotra:
No, that will happen. We did not give any relaxation; we only extended the implementation date because there was very little time to implement the instructions. We did not give any relaxation or any exemption.

Ekta Suri:
So, will you extend this any further?

Sanjay Malhotra:
No there is no requirement or scope to extend the duration. There is no need. We only extended the date of applicability of the circular and the rules. It should not be seen as a relief in that sense.

Manojit Saha, Business Standard:
One more, Sir? Just one?

Sanjay Malhotra:
Last two.

Manojit Saha:
Now all these measures are in place. You think there is a case to continue or discontinue the NOP cap?

Sanjay Malhotra:
No, there is no change. Whatever is there, is there. There is no proposal to discontinue with what we had announced and what we have implemented.

Latha Venkatesh:
While your overall inflation forecast has been raised by 50 basis points from 4.6 to 5.1, for the second quarter itself, you all have raised it by 70 basis points, I mean, from 4.4 to 5.1. It is – would not it be unfair to a saver that, the real return for a good 12 months is going to be, you know, far less than 1%? So, shouldn't one not expect an earlier hike because of that? From the point of view of the saver.

Sanjay Malhotra:
I have already - you have asked the same question, you know, in a different form. The reasons you have given is different. Others are saying, you know, that inflation is inching up. You have said that the deposit - the depositors' interest may get compromised, for a longer period. So, let's wait, let's watch, let's see, how the data comes, and we will take a decision, you know, policy by policy.

Piyush Shukla:
Governor, Sir, just one question on Mythos. Anthropic has given access to a couple of corporates globally. In India also, there are a few companies which have got access. Have any of the banks, got the access to the new Claude model or how are you working around, assessing this whole issue?

Sanjay Malhotra:
I will request my DG, he [DG(SJ)] looks after cyber security. I will request him if he can throw more light on it. To the best of my knowledge, it has not yet been given. There is talk, there are discussions on Claude and others which hopefully, we will get. But what is the preparedness, I will request - whether there is, this Mythos LLM or software or not - what is our preparedness? Nevertheless, despite that, we are fully prepared, and we keep, beefing up. I will request my DG to let you know of some of the measures that we are taking to be able to meet this challenge.

Swaminathan J:
Absolutely, Sir. Just to supplement on that, this is an item that has been engaging our attention, both at the government level and at the financial sector inter-regulatory forum level. And as you mentioned, India has been included as one of the countries that will be part of this project with select corporates and financial entities having access to the project. But the details of which are still fully awaited.

And once this opportunity opens up, how exactly to make use of it in consultation with government and with other regulators, we will take further steps. But in the meantime, in terms of getting the preparedness for the regulated entities, we have issued the required advisories. We remain fully prepared in terms of handling cyber security threats of this nature as well as the conventional nature. And we will keep the market informed once we have full details as to how we plan to handle this. Thank you.

Piyush Shukla:
Okay. Thank you very much.

Brij Raj:
Thank you, Sir. With this, we come to the end of this press conference. I would like to thank the Governor and our Deputy Governors for patiently answering all the questions and making this interaction engaging and interactive. I thank all members of the media for their participation. Wish you all a pleasant day ahead. Thank you very much.

Sanjay Malhotra:
Thank you.

Distinguished faculty members, dear students, ladies and gentlemen.

2. It is a pleasure to be here at Columbia University’s School of International and Public Affairs. As many of you would know, SIPA was established in 1946, in the aftermath of the Second World War, at a time when the world was rebuilding institutions for a new international order. Its purpose was to deepen understanding of global affairs and prepare professionals for public service across countries, institutions and disciplines.

3. We meet at a time when the global policy conversation is again crowded with large themes: geopolitics, climate change, artificial intelligence, technological disruption and the reordering of supply chains. Against that backdrop, banking resilience may seem like a quieter subject. But it has one distinct feature: when it is absent, its importance is immediately recognised. A weak banking system can quickly transmit stress from financial balance sheets to firms, households, public finances and the broader economy.

4. It is for this reason that I thought banking resilience would be an appropriate subject for a school of international and public affairs, and I would like to approach it today through India’s experience.

India’s current position: strength with vigilance

5. India today stands on a relatively strong macroeconomic footing¹. Even amid geopolitical uncertainty, supply-chain disruptions and volatile commodity conditions, domestic economic activity has shown resilience, supported by strength in industrial and services activity, broad-based demand and improving corporate performance. Inflation is within our tolerance band and external vulnerabilities remain manageable. The Indian financial system enters this uncertain phase with strength: healthier balance sheets, comfortable capital buffers, improved profitability and non-performing assets at multi-decade lows.

6. This position of strength is encouraging. But one message we consistently emphasise to banks and other regulated entities is that the best time to build resilience is when conditions are favourable. Central banks are sometimes seen as cautious voices in otherwise optimistic times, expected to ask difficult questions just when the party appears to be going well². In banking, that is often exactly the point. Risk has a habit of building quietly in good times and introducing itself loudly when conditions change. Buffers, governance and risk discipline must be strengthened when growth is strong, asset quality appears comfortable, and risk appetite naturally rises. Resilience must therefore be built before it is tested.

7. That is the idea behind the theme of my remarks today: resilience by design. India’s recent banking resilience reflects policy learning, supervisory vigilance, stronger prudential frameworks, transparent recognition of stress, credible repair mechanisms and improvements within banks themselves.

8. For a public policy audience, the important question is not only whether banks are strong today, but how that strength is built and preserved. Banking resilience does not arise automatically from growth or favourable conditions. It has to be designed at multiple levels: in the rules that govern banks, in the supervisory systems that detect vulnerabilities, in the resolution architecture that addresses stress, and in the behaviour of banks themselves. India’s recent experience suggests that resilience is strongest when these elements reinforce one another.

9. Let me illustrate this idea through five recent dimensions of resilience by design: transparent recognition of stress, balance sheet strengthening, stronger supervision, calibrated and adaptive regulation, and resilience within banks themselves.

Recognition of stress

10. The first dimension is transparent recognition of stress.

11. Banking practice teaches us that risk often builds when conditions appear favourable. During an upswing, collateral values look adequate, projected cash flows appear reasonable, and optimism becomes embedded in credit appraisal. A project exposure, restructuring decision, collateral valuation or sectoral concentration may look manageable for one bank. But when similar assumptions are replicated across institutions, they can create macro-financial vulnerability.

12. India’s post-2015 asset quality experience brought this issue into sharp focus. The stress that became visible after the Asset Quality Review had built up over several years. It reflected a combination of factors, including rapid credit growth in certain sectors, challenges associated with large and long-gestation projects, changing economic conditions, delays in stress recognition, and, in some cases, gaps in risk management and governance frameworks.

13. The Asset Quality Review was more than an accounting exercise. It changed the information regime of the banking system. Recognition required banks to provision, owners to recapitalise, borrowers to negotiate, supervisors to intervene, and markets to reassess risk. Transparency changes incentives.

14. Recognition is rarely the most popular item on the bank board’s agenda. It affects reported profitability, capital planning, market perception and, at times, internal confidence. But delayed recognition is usually more costly. It weakens credit discipline, obscures the true allocation of losses and increases the eventual burden of resolution. Timely asset quality recognition is therefore part of the institutional architecture of financial stability.

Balance sheet strengthening

15. Recognition by itself is not enough. It must be followed by a credible chain of action leading to balance sheet strength. Recognition without resolution can leave banks’ balance-sheet constrained. Capital support without governance improvement may improve financial metrics but not contribute to resilience. Resolution without stronger underwriting standards can sow the seeds of the next cycle of stress.

16. In India, this phase involved coordinated action across the public policy ecosystem. The Government provided important elements of the legal, fiscal and institutional architecture. The Insolvency and Bankruptcy Code strengthened the resolution environment and altered the relationship between creditors and borrowers. Recapitalisation of public sector banks helped absorb recognised losses and restore lending capacity. Public sector bank consolidation sought to create institutions with greater scale and capital strength. Depositor protection, recovery laws, credit guarantees, financial inclusion initiatives and digital public infrastructure also contributed to a deeper and more formal financial architecture.

17. The banking system itself also undertook significant balance sheet strengthening. Banks improved provisioning, pursued recoveries and write-offs, raised capital and placed a sharper focus on asset quality. The movement towards more transparent, better-provisioned and diversified balance sheets has been an important part of the resilience journey.

Stronger supervision and prudential discipline

18. The Reserve Bank’s supervisory approach has evolved significantly. The focus is no longer limited to entity-level compliance or point-in-time inspection findings. It has moved towards a more holistic, risk-based and forward-looking assessment of supervised entities, covering governance, assurance functions, conduct, business models, technology risk, cyber resilience and emerging balance sheet vulnerabilities.

19. A key element of this approach has been deeper engagement with the Boards and senior management of banks. Supervisory findings are increasingly used not only to identify deficiencies, but also to understand their root causes: whether they arise from weak governance, inadequate risk management, ineffective internal audit, poor compliance culture, technology gaps or misaligned incentives. The objective is to ensure that issues are addressed at their source, rather than merely corrected at the surface.

20. The supervisory toolkit has also been strengthened. Off-site surveillance, stress testing, vulnerability assessments, early warning indicators, cyber risk indicators, thematic reviews, conduct-related assessments and micro-data analytics are now important parts of the supervisory process. These tools help supervisors identify patterns across institutions and activities, rather than focusing only on individual balance sheets in isolation.

21. This has also required a wider view of assurance within banks. Supervision cannot substitute for the responsibility of the Board, senior management, risk management, compliance, internal audit and external audit. Supervision can only act as an additional layer of oversight, but resilience must first be built within the institution.

22. The larger point is that modern supervision is not merely about checking compliance with rules. It is about asking whether governance is effective, whether risks are understood and priced correctly, whether control functions have stature, whether customer conduct is fair, whether technology risks are managed, and whether the institution can continue to perform its core functions under stress.

Calibrated and Adaptive Regulation

23. The fourth dimension is calibrated and adaptive regulation.

24. Modern financial intermediation no longer fits neatly within traditional institutional boundaries. Credit, payments, customer acquisition, underwriting, servicing and technology support may involve banks, NBFCs, fintech entities, payment systems, lending service providers and third-party technology partners. This does not reduce the importance of banks; it makes the system more interconnected and the transmission of risk more complex.

25. The regulatory response, therefore, must be both entity-aware and activity-aware. The resilience of a bank or NBFC depends on its governance, capital, liquidity, risk management and conduct. At the same time, where similar activities create similar risks, regulatory attention must remain aligned with the underlying risk, irrespective of institutional form.

26. This approach is reflected in recent measures such as scale-based regulation for NBFCs, tier-based regulatory frameworks for urban cooperative banks, digital lending guidelines, IT governance requirements and directions on fraud risk management. It was also visible during the Covid-19 period, when relief measures were designed to provide timely support while retaining a path back to normal prudential treatment as conditions improved. The use of sunset clauses reflected an important lesson from earlier crisis episodes: support measures should cushion near-term stress without weakening long-term risk discipline.

27. RBI’s initiatives also illustrate its endeavours at calibrated regulation: protecting customers without stifling innovation, supporting inclusion while ensuring responsible conduct, and reducing unnecessary friction without diluting safeguards.

28. In a sense, resilience by design also means regulation by continuous review. Rules must be stable enough to provide certainty, but adaptive enough to remain relevant. They must be right when framed, and kept right over time as markets evolve, technology changes and evidence accumulates. This has also informed recent institutional initiatives³ within the Reserve Bank to strengthen periodic review of regulations and deepen stakeholder consultation.

Resilience within banks

29. The fifth dimension is resilience within banks themselves.

30. Governments can create frameworks, and regulators can set expectations, but resilience has to be embedded inside banks. It must be visible in how banks originate assets, price risk, manage liabilities, invest funds, monitor stress, govern technology, treat customers and escalate concerns.

31. A significant change in recent years has been the shift in portfolio behaviour. Earlier stress was concentrated in large, lumpy corporate and infrastructure exposures. Banks have since moved towards more granular portfolios, better-rated corporate exposures, retail, MSME and other segments with clearer risk assessment. These segments are not risk-free. Retail and unsecured credit can create vulnerabilities of their own. However, a diversified and better-monitored portfolio is structurally different from one dominated by a few large, correlated exposures.

32. This bank-level transformation matters because the durability of resilience depends on behaviour inside institutions. Public policy can create the framework, but banks must convert lessons into practice. In the end, resilience is built through everyday decisions: what is financed, how risk is priced, how exceptions are approved, how early warnings are acted upon, how technology risks are governed and how accountability is enforced.

The next tests: complexity and uncertainty

33. Having discussed some recent initiatives and experiences, it is useful to turn briefly to what lies ahead. The next phase of banking resilience will be less about addressing known balance sheet stress and more about managing complexity and uncertainty.

34. Recent years have shown that shocks can arise from very different sources: pandemics, geopolitical tensions, supply chain disruptions, commodity price volatility, cyber incidents or sudden shifts in market sentiment. The task, therefore, is not only to prepare banks for known risks, but also to make them adaptable to risks whose timing, form and transmission may be difficult to predict.

35. Retail credit, digital lending and microfinance have expanded access, but they also require careful underwriting, fair recovery practices and close monitoring of borrower leverage. Similarly, technology can make banking faster, but it does not automatically make it wiser. AI, cyber risk, third-party dependencies, climate-related risks and financial interconnectedness will therefore require ongoing attention from banks and supervisors.

Conclusion

36. Let me conclude with one broad thought. Banking resilience is not a fixed achievement. It is a continuing institutional project. As India’s recent experience has shown, it is built through discipline across the balance sheet and beyond, transparent recognition of stress, balance sheet strengthening, calibrated and adaptive regulation, and responsible conduct within banks.

37. Strong banks require capital and technology, but they also require judgment, governance, accountability and institutions that learn. That, perhaps, is the central public policy lesson: resilience is not only about withstanding the last shock, but about building the capacity to respond well to the next one.

38. Thank you. Jai Hind.

¹ The RBI Bulletin, May 2026, notes that domestic economic activity exhibited resilience in April 2026, with industrial and services sectors maintaining strength across several segments; CPI inflation stood at 3.5 per cent in April with core inflation steady; net FDI remained positive for the second consecutive month in March; and listed private non-financial companies recorded double-digit growth in aggregate sales and operating profit in Q4:2025-26. It also notes that listed banking and financial companies saw higher revenue growth and a surge in net profit growth, largely reflecting lower provisions and contingencies.

² “Taking away the punch bowl just when the party is getting going" is a famous financial metaphor attributed to former Federal Reserve Chairman William McChesney Martin in 1955

³ The Reserve Bank had earlier undertaken a time-bound Regulations Review Authority 2.0 exercise to streamline regulatory instructions and reduce compliance burden, including withdrawal or repeal of redundant circulars and rationalisation of returns. More recently, the Reserve Bank has strengthened the institutional mechanism for regulatory review through a Regulatory Review Cell in the Department of Regulation, intended to ensure a comprehensive and systematic review of regulations every five to seven years, supported by an external Advisory Group on Regulation to channel industry feedback into the review process.

Good morning, Adam and my fellow panellists.

1. First of all, let me quote Alan Greenspan, former Chair of the Federal Reserve who said that “uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape”. In other words, uncertainty is the only certainty in monetary policy.

2. This is so because even in times of low uncertainty and volatility, the economy, monetary policy transmission, economic models are complex and ever-changing, bringing uncertainty in policy making.

3. So, central bankers have learnt to live with uncertainty. The monetary policy frameworks have embedded principles, which help them navigate uncertainty.

1. First principle is to prioritise robustness over optimality during uncertain times.

2. Second is the Brainard principle of attenuation which essentially talks about gradualism in policy making.

3. Anchoring inflation expectations, maintaining transparency and effective and clear communication are some other principles.

4. Let me also mention that in India, we are also used to frequent supply shocks. Food items comprise roughly 40 per cent of our CPI basket. Indian agriculture, being significantly dependent on monsoons, is vulnerable to supply shocks.

5. Supply shocks pose a challenge – pre-emptive and sharp policy tightening, if the shock is temporary, can exacerbate loss of output (growth foregone), while delaying the same can lead to unhinging of inflation expectations, making it difficult to rein in inflation.

6. In a supply shock, we generally try to "look through" the first-round impact, if we believe that it is transitory and will dissipate quickly. However, if sustained increase in prices drive up wages, production and transportation costs (second-round effects) and lead to generalisation of inflation pressures, the "look through" approach is no longer optimal, requiring tighter policy.

7. Since the pandemic and particularly after the outbreak of the Russia-Ukraine war, central banks have moved towards a more flexible, meeting-by-meeting approach in policy formulation. They are now dependent on a wider array of information variables, using high-frequency data to make faster and more informed decisions. Moreover, while targeting headline inflation, they are increasingly distinguishing between transitory headline spikes and persistent core inflation trends to avoid any pre-emptive policy tightening that is unwarranted.

8. Central banks have also realised that in the face of structural supply challenges, monetary policy alone cannot handle supply-side bottlenecks. Close coordination with fiscal and structural policies is necessary to address the nature and source of shocks. For instance, in case of adverse supply shocks that have an impact on food inflation, the government has to ease supply constraints through various means – imports, prevention of hoarding, use of food reserves and buffers – to contain such inflation.

9. Thus, frameworks focused on price stability are essential anchors. Moreover, conventional economic models often fail during unprecedented supply disruptions, making data-dependent decisions (meeting-by-meeting approach) more important. To be effective, central banks must be flexible enough to handle the immediate impact of shocks without losing sight of the medium-term goal.

10. Moreover, they need to clearly explain the trade-offs to maintain credibility without adhering rigidly to short-term targets. The future of price stability focused frameworks lies in enhancing their agility and credibility rather than in abandoning them.

11. Given the above backdrop, India’s monetary policy framework, which is a rule-based framework with elements of flexibility embedded in it, has helped in navigating through the persisting shocks and provided us the flexibility to respond depending upon evolving circumstances. I may mention that average inflation, after inflation targeting was introduced, has reduced by about two per centage points.

12. The sufficiently wide tolerance band of (+)/(-) 200 basis points around the inflation target of 4% provides the necessary policy space to accommodate supply shock induced volatility in the short run, while maintaining focus on the medium-term objective of price stability. It allows for deviations from the target in the face of temporary shocks without frequent changes in the interest rate. The wide tolerance band had come handy during earlier supply shocks like the pandemic, when temporary deviations from the target due to supply disruptions – even when it breached the upper tolerance band of inflation – was ignored in order to remain growth supportive.

13. The sufficiently longer target horizon of three quarters (nine months) also gives us the due flexibility to address transmission challenges in an uncertain environment.

14. Regarding the current energy shock, we have clearly articulated in our MPC resolution of April 2026 that the economy is confronted with a supply shock and it may be prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook.

15. We have been transparent and communicated the conditions which will necessitate the tightening of monetary policy.

16. That being said, we are aware that the global situation is still fluid, and its macroeconomic implications are still unfolding. We are keeping a close vigil on whether and when the supply shock can become embedded in the general price level that may warrant monetary policy action. We have been maintaining a neutral stance since June 2025, which gives us the flexibility to remain nimble in our approach and respond judiciously to incoming data and information.

17. Summing up, faced with supply shocks and uncertainty, it is important that policy frameworks focused on price stability are flexible enough to allow central banks to look through transitory shocks while remaining agile and nimble, maintaining a broad policy stance, and avoid making firm commitments on the future path of policy. In such circumstances, broad approach is to be even more data dependent and to continuously reassess the balance of risks. Whether to look through or not depends on the duration of inflation and whether it is generalised in the economy.

¹Transcript of the intervention by Shri Sanjay Malhotra, Governor, Reserve Bank of India during a panel discussion titled “Monetary Policy in a Time of Heightened Uncertainty” jointly organized by the Swiss National Bank (SNB) and the International Monetary Fund (IMF) on May 12, 2026, as part of the 12th High-Level Conference on the International Monetary System. The panel was moderated by Mr. Adam Posen, President of the Peterson Institute for International Economics. Other panelists included Mr. Joachim Nagel, President of the Deutsche Bundesbank; Mr. John C. Williams, President and CEO of the Federal Reserve Bank of New York; and Mr. Erik Thedeen, Governor of the Central Bank of Sweden.

It is my pleasure to be here at the Columbia Indian Economy Summit, 2026. I would like to thank Prof. Arvind Panagariya for his kind invitation to me to speak on issues related to India’s growth trajectory, both at the national and at the states’ level.

My talk is in three parts. I will first present select salient features of the trajectory of economic growth of India over the past four decades, and what it bodes for the years to come. Then, I will present key characteristics of the states’ respective growth trajectories. Finally, I will draw some inferences and implications from these observations for our quest to attain the status of a much more prosperous economy by 2047.

1. Salient features of the trajectory of economic growth of India over the past four decades²

India’s economic growth has consistently accelerated since the early 1980s. Average real gross domestic product (GDP) growth has increased from 5.7 per cent in the 1980s to 5.8 per cent in the 1990s, rising further to 6.3 per cent in the 2000s, to 6.6 per cent in the 2010s, and reaching 7.7 per cent in the most recent four-year period (Table 1).

The acceleration is even more pronounced in per capita income (Figure 1). From about US$ 274 in 1981 and US$ 306 in 1991, per capita income has risen nearly tenfold to around US$ 2700 in 2024. Importantly, while it took over two decades for per capita income to double initially, it has expanded by almost fivefold in the subsequent two decades, indicating a clear structural shift in growth momentum. As per the forecasts in October 2025 World Economic Outlook (WEO) of the IMF, per capita income is projected to increase to US$ 2818 in 2025, US$ 3051 in 2026 and US$ 4346 in 2030.

Decline in population growth, too, has contributed to faster per capita income growth. India’s population growth, once significantly above the global average, has steadily moderated and has converged to global levels since around 2014, amplifying gains in per capita terms.

India has attained a virtuous cycle of accelerated growth and macroeconomic stability. Macroeconomic stability is reflected in sustainable and resilient outcomes across inflation, the current account balance, fiscal position, debt quality, and financial sector health, among others. Key macroeconomic outcomes, especially growth (overall and sectoral) and inflation, are broadly less volatile and move within a narrower, more predictable range.

Inflation has declined at a faster rate than in most economies, resulting in a narrowing of the inflation differential vis-à-vis advanced economies and other emerging and developing economies. India’s decadal average current account deficit has varied within a moderate range of 0.5-2.2 per cent of GDP since 1990 and has remained modest in recent years. The banking sector has undergone a structural turnaround­­–following a decade-long phase of balance sheet repair, banks today are significantly stronger and better capitalized, both historically and relative to their peers.

On the fiscal front, while deficit and debt levels rose during COVID-19, India has retreated to a path of consolidation, with a clear focus on reducing deficits and stabilizing debt over the medium term.³ There has been a distinct focus on enhancing the quality of fiscal outcomes, with a notable shift towards capital expenditure, thereby strengthening the growth potential of the economy (Government of India, 2026).

These improved outcomes are attributed to robust policy frameworks and nimble policy responses. India’s policy frameworks have steadily evolved and today reflect global best practices, while remaining well-anchored in domestic realities. In fiscal policy, the Fiscal Responsibility and Budget Management (FRBM) framework has provided a rule-based path for fiscal management, while retaining flexibility to respond to shocks such as COVID and other external events. In tax policy, reforms such as the Goods and Services Tax (GST) have unified the indirect tax system and improved compliance.

In monetary policy, the Flexible Inflation Targeting (FIT) framework introduced in 2016 has lowered inflation, anchored inflation expectations, reduced macroeconomic volatility, and enhanced policy credibility. In the broader financial sector, stronger banking supervision, improved capital norms, and wide-ranging regulatory reforms across financial markets have reinforced system resilience.

2. Salient features of the trajectory of economic growth across states

States have become more prosperous than before. India’s growth story consists of broad-based prosperity, with every state recording a significant increase in per capita gross state domestic product (GSDP) over the past two decades, indicating that progress has been nationwide rather than confined to a few states or regions.⁴ This is seen both in US dollar terms as well as in constant rupees terms, adjusted for inflation.

In the last two decades, average per capita incomes across states have surged nearly fivefold in current US dollar terms and more than threefold in constant rupees, underscoring the strength and sustained pace of India’s long-term income gains (Table 2).

Yet, the pace of income growth has varied across states. Some states have become five to ten times more prosperous over the last two decades, while others have recorded more modest gains of around three times. One strong correlate of the relative performance is their initial prosperity levels. Per capita income levels in more prosperous states have grown faster than in relatively less prosperous ones. The fact that richer states have experienced greater prosperity than the poorer states in the past, and that this trend has not reversed, implies that income levels across states have not been converging.

Notwithstanding this, the extent of divergence has weakened considerably over time (Figure 2a, 2b, and 2c). In other words, the growth gap between richer and poorer states has narrowed in recent years. The association between initial income and subsequent growth was positive and statistically significant (at 5 per cent level) during the decade of 1990s (Figure 2a). It became numerically smaller and less significant statistically in the subsequent decade (at 10 per cent level, Figure 2b). During the last decade, the coefficient has declined sharply; and the relationship between the initial income and the subsequent decadal growth has become insignificant (Figure 2c). The attrition of divergence can be attributed to the better performance of relatively lower-income states such as Odisha, Assam, and Uttar Pradesh during the past decade, among other factors.

Overall, the outperformance of the richer states in the past has been driven not only by higher income growth but also by slower population growth (Table 3). States above median income levels have both higher GSDP growth as well as slower population growth, resulting in a faster growth in per capita income.

While income convergence across states remains gradual, several other welfare indicators, most notably per capita consumption expenditure, have been converging more decisively. In earlier periods, for example in case of rural consumption expenditure, consumption growth tended to be positively associated with initial consumption levels, meaning richer states showed higher levels of consumption growth (Figures 3a and 3b). However, in the recent period (2011–12 to 2023–24), this relationship has reversed: states with historically lower consumption levels are now recording faster consumption growth, a pattern confirmed by a statistically significant negative coefficient on initial consumption levels (Figure 3c). This marks a meaningful shift toward distributional convergence in living standards across Indian states.

Beyond consumption expenditure, multiple other dimensions of socio-economic wellbeing have been converging. Indicators spanning health, education, demography, physical infrastructure, access to electricity, safe drinking water, sanitation, clean cooking fuel, and financial inclusion have all trended toward greater parity across states, irrespective of their initial income levels. This broad-based convergence is likely driven by sustained policy efforts, saturation levels in the richer states where further gains are numerically not feasible or are inherently harder to achieve, and rising demand in the poorer states that have been experiencing increases in their income levels.

Figure 4 (4a to 4h) illustrate these trends across a selection of key outcome indicators. Women’s literacy rate (literacy rate per 100 women) has risen steadily over the decades while fertility rate (number of births per female) has declined sequentially (Figures 4a and 4b). Percentage of children who are not underweight has improved meaningfully, increasing from around 62 per cent in 2005-06 to close to 70 per cent in 2019-21 (Figure 4c). Infant survival rate, too, has also improved sequentially over the decades (Figure 4d).

Access to basic services has strengthened considerably across states with an increase in households’ access to electricity, sanitation facilities, improved drinking water facilities (Figures 4e, 4f and 4g). Financial deepening indicators have improved, e.g. per cent of women in India with access to a bank account has jumped to around 80 per cent during 2019-21 from 14 per cent in 2005-06 (Figure 4h). Convergence is also evident in other development indicators like sex ratio (proportion of females to males), vitamin A coverage among children, incidence of anaemia among women and children, stunting (low height for age) and wasting (low weight for height), access to clean fuel, women’s ownership of a phone and house/land; and household health insurance coverage.⁵ There is significant improvement in each of these indicators, with a narrowing of dispersion across states, reflecting a broad-based improvement in welfare outcomes as well as increasing convergence in living standards across states. What we have depicted here is only a subset of indicators. There are many other indicators where similar phenomenon is prominently visible.

It is equally important to note that convergence has not been universal across all enablers of growth and development. Data limitations make it difficult to establish this with full empirical precision, but interstate convergence appears limited for some of the structural variables, including the share of agriculture in state economies, the pace of movement out of agriculture, productivity growth, capital formation, FDI inflows, and bank credit growth. As per the patterns in these indicators, some of the drivers or correlates of growth are still showing divergence across states.

If the past rates of growth are maintained, many states will become or come close to becoming “rich” by 2047 (as per the prevailing international thresholds of prosperity). As a simple thought experiment, we calculate each state's average annual growth rate in per capita GSDP (in USD terms and again in constant INR) over the past decade (2013-14 to 2024-25); and use these to project income levels in 2046-47 assuming that the same rate of growth would prevail over the next two decades.⁶

On this basis, India's per capita income is projected to grow by 4 times in USD terms by 2046-47. This expansion is expected to be broad-based: both above-median and below-median states are projected to record substantial gains, with below-median states contributing considerable momentum, reinforcing the inclusive nature of India's growth trajectory (Figure 5).

3. Inferences and implications of the above observations for our quest to attain the status of a much more prosperous economy by 2047

Sustaining or exceeding recent growth trajectories to reach an even higher level of prosperity by 2047 will require extending our growth frameworks at the subnational levels. Policy priorities will naturally differ across the spectrum of states. For above-median states, the focus ought to be on innovation and scale, planned urbanization, attracting global and domestic talent, expanding market share both domestically and internationally, and actively taking part in shaping national frameworks on trade, FDI, and finance. For below-median states, priorities could include unlocking productivity in agriculture and reimagining the sector; building skills; integrating more in the national and international labour markets, complementing more advanced states, particularly in labour-intensive activities, emulating proven best practices nationally and internationally while developing niche strengths, and strengthening fiscal capacity to support faster growth.

Accelerating growth would require a clearer acknowledgement and more effective use of the distinct policy roles available to the centre and the states respectively.

Many macro policies are formulated at the national level. These include monetary policy; financial sector regulation covering banks, non-bank financial institutions; development of equity and debt markets, and private equity; policies related to the external sector including for trade, exchange rate and capital account openness; and industrial and competition policy among others.

At the state level, the policy space and levers available are different, though no less consequential. State governments shape the ease of doing business environment; determine land and labour market conditions; quality and reach of education and health services; delivery of public services; and enhancing the quality of public finances including allocation of their budgets into recurrent and capital expenditure and between merit and non-merit activities. Strengthening all of these in a holistic framework would be important to accelerate the rate of growth of prosperity for each one of the states and thereby the national average.

Conclusion

Prosperity is both India’s ambition and its destiny. The central question is no longer whether India will prosper, but how quickly, how broadly, and how equitably that prosperity would be shared across its states and its people.

The pace of income divergence has weakened considerably with the growth gap between richer and poorer states narrowing over successive decades. Meanwhile convergence has been faster and more decisive across a wide set of welfare and development indicators: per capita consumption expenditure, literacy, nutrition, access to basic services, financial inclusion, and a range of health and gender outcomes. Lagging states are catching up, and the distribution of wellbeing across India is becoming more equal.

Looking ahead, if growth trajectories of the past two decades are sustained, the average state per capita income could approach high-income thresholds by 2046-47. Crucially, below-median states are projected to contribute substantially to this expansion, reinforcing the broad-based nature of India’s growth story. Realising and accelerating the path to this potential, however, would require moving towards state-specific growth strategies that are anchored in local strengths, structural realities, and their respective stages of development.

This calls for holistic assessments, richer dialogues, greater awareness, specific actions across states, alongside learning from each other, to fully leverage their existing strengths and building new comparative advantages.

References

Eichengreen, Barry, Gupta, Poonam, and Ahmed, Ayesha. (2024). India's debt dilemma, India Policy Forum, vol. 20(1), pages 1-62.

Government of India (2026). Fiscal developments - Anchoring stability through credible consolidation, Chapter 2, Economic Survey 2025-26, Ministry of Finance.

Gupta, Poonam (2025). Policy frameworks for economic resilience: The case of emerging markets and India (Address at the Business Standard BFSI Insight Summit, Mumbai).

Gupta, Poonam (2026). Perspectives on India’s growth: Last four decades to the present (14th Foundation Day Lecture, Centre for Development Studies).

International Monetary Fund (2025). World Economic Outlook, October.

Panagariya, Arvind (2010). India on the growth turnpike: No state left behind, Columbia Program on Indian Economic Policies Working Paper No. 2010-1.

Reserve Bank of India (2025). Financial Stability Report, December.

¹ Speech by Dr. Poonam Gupta, Deputy Governor, Reserve Bank of India, delivered at the ‘Columbia Indian Economy Summit 2026’ at the Raj Centre on Indian Economic Policy at Columbia University on April 11, 2026. Inputs provided by Asish Thomas George, Somnath Sharma, and Shivam are gratefully acknowledged.

² This section draws on Gupta (2026).

³ India’s public debt remains sustainable. As noted by Eichengreen, Gupta, and Ahmed (2024), its structure–predominantly domestic, long-term, and rupee-denominated–mitigates rollover and currency risks, and under most assumptions, the debt-to-GDP ratio is expected to decline gradually.

⁴ See Panagariya (2010) for evidence to this effect in the earlier decades.

⁵ Households with at least one family member covered by health insurance.

⁶ This simple approach is agnostic about the sources of growth or the respective trajectories of population growth rates, nominal GSDP growth rates; or that of the deflators.

It is a pleasure for me to be here at NCAER to speak on India’s current monetary policy framework. My remarks focus on how the existing framework has evolved over the past decade, where it stands today, and the issues that may shape its next iteration in five years from now.

2. As you know, the Government of India issued a Gazette notification on March 25, 2026, renewing the existing inflation target of 4 per cent with ±2 per cent tolerance band for five more years, extending the current inflation target (IT) mandate through March 2031. This renewal, wherein all the features of the framework were retained, invites reflection, not merely on continuity, but also on what a decade of experience has taught us and what refinements, if any, may be warranted in the future.

3. My remarks are organised as follows. I begin with a brief account of the framework’s architecture and a decade of monetary policy decisions and outcomes. I then turn to the public consultation process followed in the latest review, focusing on the four questions that structured it, presenting for each the national and international evidence, and the feedback received. Finally, I will touch on a few issues that may warrant consideration when the framework comes up for its next review in 2031.

1. Framework’s architecture and a decade of monetary policy decisions and outcomes

4. India’s monetary policy framework has evolved continuously during the past decades, responding to domestic macroeconomic realities as well as advances in global best practices.² The impetus for a more fundamental rethink started to emerge around early 2010s in the context of high inflation that exceeded India’s own historical averages and other peer economies, highlighting the need for a strong and explicit nominal anchor for monetary policy.³ By this time, many countries had successfully implemented inflation targeting and their impacts were broadly assessed to be favourable. India, too, came to regard IT as the appropriate framework to adopt.⁴

5. Inflation targeting was formally institutionalised with the amendment of the Reserve Bank of India (RBI) Act, 1934 in May 2016. RBI was entrusted with the responsibility of conducting monetary policy in India with the primary objective “to maintain price stability while keeping in mind the objective of growth”.

6. Section 45ZA of the RBI Act, 1934 mandates that “The Central Government shall, in consultation with the Bank, determine the inflation target in terms of the Consumer Price Index, once in every five years”. The government initially notified the inflation target of 4 per cent with a tolerance band of +/- 2 per cent for the period 2016 to 2021. Following the review in March 2021, the target was retained for the subsequent five-year period from 2021 to 2026. In the second statutory review, through the Gazette notification dated March 25, 2026, the framework has been renewed again, for a five-year period through March 2031.⁵

7. Responsibility of monetary policy decisions is vested with the Monetary Policy Committee (MPC), which was specifically given the task of deciding the policy repo rate required to achieve the inflation target. The decisions of the MPC were to be taken by a majority of votes, with Governor having the casting vote in case of a tie - a provision that, notably, has not needed to be invoked ever during the past decade.

8. Clear communication and transparency are recognised as defining features of an effective inflation-targeting regime. India’s IT framework reflects this emphasis: the RBI publishes the resolution adopted by the MPC following each meeting; releases the minutes of the individual members of the MPC on the 14th day thereafter; Governor’s statement and press briefings are used effectively as the modes of policy communication; and the RBI publishes Monetary Policy Report (MPR) once every six months, providing a medium-term macroeconomic assessment of domestic and global macroeconomic and financial conditions and an analysis of inflation dynamics and outlook.

9. Indian experience with IT is rather recent as inflation targeting has a history spanning more than three decades at the global level. First adopted by New Zealand in the early 1990s, it has since become the benchmark monetary policy framework across advanced economies (AEs) and emerging market and developing economies (EMDEs). Today, 48 countries, comprising of 14 AEs and 34 EMDEs, operate under inflation-targeting framework. India was among the later adopters when it formally institutionalised the framework in 2016. No inflation targeting country has ever abandoned it after adoption, although countries have periodically revised their frameworks in line with their evolving economic structures. These point towards both durability and flexibility of the IT framework.

10. International evidence broadly associates inflation targeting with three outcomes. First, countries under inflation targeting have experienced measurably lower and more stable inflation.⁶ Second, the credibility of monetary policy has improved, and inflation expectations have become better anchored to the stated target in such countries.⁷ Third, fiscal dominance have receded, and coordination between monetary and fiscal policies has strengthened.⁸

11. A broadly similar pattern has unfolded in India. Inflation has declined and stabilized. The average headline CPI inflation has declined from 8.1 per cent in the pre-IT decade (2006-16) to 4.6 per cent in the IT period (2016-26) - a decline of 3.5 percentage points. More importantly, the inflation variability has reduced as range of variation has lowered from 3.3-13.4 per cent in the pre-IT decade to 0.3-7.8 per cent during the IT period (Chart 1).⁹ Meanwhile, growth has been sustained and has become more stable.

12. A concern sometimes raised about inflation targeting is that the single-minded pursuit of price stability may come at the cost of growth. India's experience does not bear this out. Average annual GDP growth actually edged up marginally from 6.8 per cent in the pre-IT decade to 7.0 per cent in the IT decade — excluding the COVID-affected years of 2020–21 and 2021–22 (Chart 2). Equally significant is the improvement in stability: the range of annual growth outcomes narrowed from 3.1–8.5 per cent pre-IT to 3.9–9.2 per cent post-IT, with the floor rising by nearly a full percentage point. Price stability and growth have thus proved complementary rather than conflicting objectives under the Indian framework.

13. India has achieved a stronger reduction in inflation relative to many other economies. Prior to the adoption of IT, India’s inflation was persistently above the world average and even the average of the EMDEs. During IT period, there has been a decisive reversal: India’s inflation has moderated to below that of EMDEs average and has converged towards the world average (Table 1). In 2025, India's headline inflation stood at 2.2 per cent, well below the EMDE average of 5.2 per cent and the world average of 4.1 per cent.

14. Inflation expectations have become more anchored since the inception of IT.¹⁰ This is a clear reflection of the fact that IT has helped countries not only navigate the persisting supply shocks, e.g., during the pandemic and the Ukraine war, without derailing expectations, but also ensured a faster convergence of inflation towards the target post these shocks. This happens to be the experience of India as well. Among other benefits, it is also seen to result in better coordination between monetary and fiscal policies; and more transparency and credibility of monetary policy.¹¹

2. Five-year reviews of the IT Framework

15. In accordance with the provisions of the RBI Act, the first statutory review of the inflation target was conducted in March 2021. As a part of the process, the RBI published a report titled ‘Reviewing the Monetary Policy Framework’, which reviewed the practice and outcomes of IT during 2016–2021.¹² Subsequent to this, the Government of India, via a Gazette notification dated March 31, 2021, retained the existing target for a further period of five years, up to March 2026.

16. The RBI adopted a different, more consultative approach in the second review. It published a Discussion Paper on August 21, 2025¹³ surveying the practices, institutional designs, and emerging literature across economies with established IT frameworks; and presenting evidence in the Indian context. The paper sought comments and suggestions on the following four features that are central to the framework: (i) Whether headline CPI inflation or core inflation would better serve as the operative guide for monetary policy, given the evolving dynamics of food and core inflation and weight of food in the CPI basket? (ii) Whether the 4 per cent inflation target continues to remain optimal for the Indian economy, balancing the objectives of price stability and growth? (iii) Whether the tolerance band of ±2 per cent around the target warrants revision, through narrowing, widening, or elimination? and (iv) Whether the point target with a tolerance band inflation should be replaced by a range, so as to preserve operational flexibility without undermining the framework's credibility?

17. The discussion paper prompted wide-ranging discussions through seminars and coverage in the print and electronic media. The RBI received 75 direct responses on one or more of the four questions posed, though not every respondent responded to every question (Table 2).

18. Let me now turn to each one of these questions.

Question 1: Headline or Core Inflation as the Policy Target?

19. The hypothetical case for retaining headline CPI rests on the following grounds. First, food and fuel inflation, which is included in headline but not in core, may not be considered a transient supply-side disturbance. For instance, persistently elevated food inflation can feed into core through second-round effects particularly via wage and cost indexation and could become entrenched. Second, the average citizen experiences and understands prices in totality, as in headline.¹⁴ Third, headline signifies institutional continuity, and a departure from it would need a reasonably high bar of justification.¹⁵

20. The case for core inflation, in turn rests on the following grounds. Food and fuel prices are inherently volatile and primarily driven by supply-side factors such as monsoon variability and global commodity cycles, on which monetary policy has limited traction.¹⁶ In India specifically, food carries a large weight in the CPI basket, which means that transitory supply shocks can produce sharp swings in headline inflation that may not warrant a monetary policy response.

21. In terms of the responses, over 90 per cent (66 out of 72) respondents, favoured retaining headline CPI inflation as the target (Chart 3).

22. A disaggregated reading of the 66 respondents who favoured headline CPI reveals some nuance within the broad consensus (Table 3). While 41 of them supported headline as the sole and sufficient target, a significant minority of 25 felt that core inflation should play a complementary role-21 favoured headline as the formal target with core serving as an operational guide for policy deliberations; while 4 advocated for core to be accorded the status of an explicit additional target alongside headline.

23. Interestingly, international experience is quite definitive in the choice between headline and core. Of the 48 countries that currently operate under an inflation-targeting framework, 47 target headline inflation. Uganda stands as the sole exception in targeting core inflation. Notably, several countries that initially adopted core inflation as their target, including Thailand and Norway, subsequently transitioned to headline CPI (Table 4). The cross-country evidence thus reinforces the case for the headline.

24. Looking ahead, the structural distinction between the dynamics of headline and core inflation may be becoming less stark. Some evidence shows that Indian agriculture has become more resilient to rainfall shocks; and food prices volatility has moderated especially due to better management and narrowing of demand-supply gaps by the government. Besides, with the recent revision of the CPI basket by MoSPI, weight of food in overall CPI has declined, which means headline and core inflation are likely to track each other more closely going forward.

25. Thus, the suggestions received, the experience of the past ten years, and the international evidence all seem to favour retaining headline inflation as the target.

Question 2: Is the 4 per cent inflation target still optimal?

26. On the second question on the target rate of inflation, responses from public consultation indicated strong support for retaining the 4 per cent target (Chart 4).

The case for retaining the 4 per cent target rests on several mutually reinforcing factors. First, 4 per cent target was as per the assessment of the RBI's Expert Committee in 2014. They established it as the rate at which macroeconomic conditions were deemed to be optimised with a zero-output gap. Subsequent re-estimations of trend inflation for India also reiterated this assessment.¹⁷ Second, current 4 per cent target is considered to be suitable to its stage of economic development when compared with other inflation-targeting economies. AEs, such as US, UK, Euro Area, Japan, Canada, and others, cluster around a 2 per cent target, reflecting the lower equilibrium inflation rates associated with their advanced and low-growth economies. EMDEs are placed at a higher range between 2.5 and 4 per cent (Chart 5). India's 4 per cent target places it at the upper end of the EMDEs.

27. Thus, the analytical arguments; suggestions received; and international experiences seem to favour 4 per cent target as optimal for India.

Question 3: Should the tolerance band be retained, narrowed, or redesigned?

28. Two-thirds of respondents favoured retaining the existing tolerance band of ±2 per cent (Chart 6). The remaining 21 respondents favoured a narrower band, on the grounds that tighter bounds would strengthen policy commitment, sharpen the signalling content of the target, and further anchor inflation expectations.

Among those who favoured narrowing the band, the proposals varied in specificity and design (Table 5). The most commonly recommended alternative was a symmetric band of ±1.5 per cent, favoured by 9 respondents. A further 4 respondents advocated for a tighter band of ±1 per cent, while 6 did not specify an exact width. A minority of 2 respondents proposed an asymmetric band, tolerance band being higher on the upper side and smaller on the lower side, say 3-6 per cent as the band around 4 per cent target which could allow greater accommodation of supply-side shocks on the upper side while maintaining a firmer floor.

29. India's own IT experience has demonstrated the usefulness of the tolerance band. In the annual inflation data across the IT period, inflation exceeded the upper tolerance limit of 6 per cent in 2020-21 due to the COVID-19 pandemic and then again during the Russia-Ukraine war in 2022-23 (Chart 7). The lower tolerance band was not breached on an annual average basis although inflation remained below 2 per cent for a short period during 2025-26 due to very benign food price inflation.¹⁸

30. Internationally, advanced economies have generally moved to point targets, while tolerance bands are more prevalent and wider in emerging market and developing economies. Cross-country evidence suggests that target ranges or targets with bands are more successful in providing flexibility to address shocks while also maintaining credibility, aiding in inflation anchoring (Ehrmann, 2021). Most large emerging market economies have moved towards a 3 to 4 per cent target with a band of 1 to 1.5 per cent, leveraging their accumulated success with inflation targeting (Eichengreen and Gupta, 2024).

Taken together, the consultation responses and India's own IT experience converge on the same conclusion: the ±2 per cent tolerance band has served the framework well, providing the flexibility necessary to absorb large external shocks without sacrificing the credibility of the target itself.

Question 4: Point target with tolerance band, or pure range targeting?

31. The last question elicited fewest responses with only 56 respondents addressing it. While a pure range, instead of a point target with a tolerance band, could provide as much flexibility, the arguments against range targeting seem equally compelling. First, the midpoint of any range tends to be interpreted as the de-facto central target regardless of the central bank's stated intent. Second, under a point target, if MPC members differ in their preference for rate action, it can be straightly mapped to the differences in their assessment of the economy. Range targeting adds an additional layer of ambiguity as it could also be construed that the differences stem from their perception of the target itself. This may be true even for other stakeholders like markets and investors, thus, weakening the anchoring of expectations. Third, such a transition would defy the global trend and require a very compelling argument to be considered. Finally, in the absence of a compelling rationale, such a shift could be interpreted as a weakening of commitment and dent the hard-earned credibility of the existing framework.

32. The public consultation reflected these considerations. Of the 56 respondents 52 favoured retaining the existing point target with a tolerance band. Only 4 respondents, supported moving to a pure range target (Chart 8).

33. Among inflation-targeting central banks, range targeting is not a popular choice. Countries such as the Czech Republic, New Zealand, South Korea and South Africa initially adopted range targets as transitional arrangements but subsequently moved to point targets with tolerance bands. Currently, only Australia, Israel and Thailand operate with a pure range, of 1 to 3 per cent, 1 to 3 per cent and 2 to 3 per cent respectively. The direction of travel among inflation targeters has been away from range targeting, not towards it.

3. Going forward

34. Renewal of India’s inflation targeting framework through March 2031, has come at a moment of considerable global uncertainty. Geopolitical tensions, supply chain disruptions, energy price volatility, and an uneven global growth outlook have made the macroeconomic environment more complex and less predictable. In this context, the decision to preserve the framework's core architecture including the headline CPI inflation target of 4 per cent and the ±2 per cent tolerance band is a policy choice of consequence. The review strengthens the framework precisely when it is most needed.

35. That said, the decision to continue with the existing framework is not to be construed as inertia towards change; the framework's durability over the past decade reflects a willingness to learn from experiences.

36. This begs the question of what might a future review look like? Would the same set of questions remain relevant in five years from now? Which new issues may surface at that time? Much would depend on the combination of inflation and growth outcomes as they evolve during the next five years; and the shocks, especially the global ones, that the economy may have to weather meanwhile. If growth-inflation mix evolves as it has in the past ten years: robust growth, and lower and more stable inflation, one could perhaps consider tweaking the level of inflation and the tolerance band a bit (keeping in view the international experiences, it would point towards a slightly lower inflation and a slightly narrower band). But if the global environment remains as challenging as it has been during the past six years, it would warrant both predictability and flexibility inherent in the existing framework.

37. On an ongoing basis, RBI too, on its part, can consider some further refinements, particularly with regard to more engagement on its core inflation measures. More, better, and timely communication has been a work in progress and will continue to remain so.

38. To conclude, the existing monetary policy framework has all the inherent features that can be duly leveraged to nudge the economy towards further improved macroeconomic outcomes. Calibrated refinements, backed by structural changes, if any, can continue to retain the relevance and appropriateness of the framework in the years ahead.

¹ Speech by Dr. Poonam Gupta, Deputy Governor, Reserve Bank of India delivered at Joint Seminar and Discussion - ‘India’s Inflation Targeting Framework’ and ‘Regional Economic Outlook for Asia and Pacific’, NCAER, New Delhi on May 5, 2026. Inputs from Sangita Misra, Somnath Sharma, and other colleagues are gratefully acknowledged.

² India practiced a “multiple indicators approach” for a decade and a half prior to inflation targeting, when the objectives of monetary policy were stated to be price stability, growth, and financial stability. See Rakesh Mohan and Partha Ray (2018), “Indian Monetary Policy at the time of Inflation Targeting and Demonetisation” Brookings India, WP 4; Poonam Gupta (2016), ‘Capital Flows and Central Banking: The Indian Experience’ Policy Research Working Paper, World Bank, February. Das S (2020), ‘Seven Ages of India’s monetary policy’, RBI Bulletin, February; Dua P (2020), "Monetary policy framework in India," Indian Economic Review, Springer, vol. 55(1), pages 117-154, June.

³ Particularly in the post-Global Financial Crisis period when headline inflation hovered close to double digits for several years.

⁴ An Expert Committee was set up in September 2013 by the then Governor Dr Raghuram Rajan, under the chairmanship of Dr Urjit Patel, Deputy Governor, Monetary Policy. The Committee submitted its Report in January 2014. Against the backdrop of double-digit inflation, the Committee recommended a glide path of disinflation – reduction in inflation to 8 per cent by January 2015 and 6 per cent by January 2016. After various rounds of discussions between Government and Reserve Bank, the final agreement on adoption of IT framework was signed in February 2015.

⁵ Gazette Notification S.O.1580 (E) dated March 25, 2026.

⁶ Borio, C. E. (2024). Whither inflation targeting as a global monetary standard?. BIS Working Papers No 1230.

⁷ Ehrmann, M. (2021). Point targets, tolerance bands or target ranges? Inflation target types and the anchoring of inflation expectations. Journal of International Economics, 132, 103514.

⁸ Mishkin, F. S., and Kiley, M. (2025). The Evolution of Inflation Targeting from the 1990s to the 2020s: Developments and Challenges (No. w33585). National Bureau of Economic Research.

⁹ Based on the CPI (2012=100) series, average headline inflation declined from 7.4 per cent in April 2012 to August 2016 to 4.7 per cent in September 2016 to December 2025 in the post-IT period.

¹⁰ See Eichengreen, Gupta, and Choudhary (2021), Eichengreen and Gupta (2024), and RBI (2025).

¹¹ Ben S. Bernanke, and Frederic S. Mishkin. (1997). Inflation targeting: A new framework for monetary policy? Journal of Economic Perspectives, 11(2), 97–116; Mishkin, F. S., & Kiley, M. (2025). The Evolution of Inflation Targeting from the 1990s to the 2020s: Developments and Challenges (No. w33585). National Bureau of Economic Research.

¹² This report was published as an edition of the Report on Currency and Finance, 2020-21.

¹³ https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=61067

¹⁴ Das, S. (2024). at a forum at the Peterson Institute for International Economics in Washington D.C. on October 25, 2024.

¹⁵ RBI (2014). Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (Chairman: Urjit R. Patel), January.

¹⁶ Data suggest that core inflation is not necessarily lower than headline inflation in India; though on average it is less volatile than headline inflation.

¹⁷ RBI Discussion Paper, August 2025, Annex 9.

¹⁸ The breach is more evident in the quarterly data. Out of the 38 quarters, inflation exceeded 6 per cent in 11 quarters and dropped below 2 per cent in 2 quarters.

Dr. C. Rangarajan, Chairman, Madras School of Economics, Dr. N. R. Bhanumurthy, Director, Madras School of Economics, Shri V. N. Shiva Shankar, Sr. Vice President, Southern India Chamber of Commerce and Industry, members of late Shri G. Ramachandran's family, distinguished guests from industry, academia and banks, esteemed faculty members, staff and dear students, ladies, and gentlemen. A very good morning to all of you.

2. It is a privilege to deliver the G. Ramachandran Memorial Lecture. I use the word privilege consciously because this occasion brings together three enduring values: the memory of a distinguished public servant, the intellectual setting of the Madras School of Economics, and the long institutional legacy of the Southern India Chamber of Commerce and Industry.

3. Shri G. Ramachandran belonged to the generation that helped shape India's economic and financial institutions in the early decades after Independence. A First Class First in Economics from Madras University and a topper in the all-India examination for the civil services, he served with distinction in Tamil Nadu, became its youngest Finance Secretary, was later handpicked for the Prime Minister's Secretariat, and eventually rose to become Finance Secretary to the Government of India. He was closely associated with major economic policy measures, including bank nationalisation and poverty alleviation, and later retired as Executive Director of the Asian Development Bank. His career is a reminder that economics and public policy ultimately derive their meaning from their impact on people, institutions, and the broader economy.

4. I must also acknowledge, with deep respect and admiration, the presence of Dr C. Rangarajan. His contributions to Indian economic thinking, monetary policy, financial sector reform and institution-building occupy a distinguished place in the annals of our economic history. His long stewardship of the Reserve Bank, marked by scholarship, judgment and institutional commitment, has become part of our professional folklore. It is truly humbling to speak in his presence today, and we are grateful for the distinction he lends to this occasion.

5. I speak today in the presence of eminent economists and students of economics. I do so not as a professional economist, but as a career banker and banking supervisor. My perspective is therefore that of a practitioner. I have great respect for economic theory. I have even greater respect for what happens when theory meets reality.

6. The subject on which I wish to speak today is on learning, judgment and supervision – lessons from my banking career. My core theme is that banking cannot be understood only through numbers, models or regulations, though all three are important. It must also be understood through experience, institutional behaviour and the public purpose that finance is meant to serve.

7. In that sense, a life in banking has offered me three educations: the education of the classroom, the education of the banking counter, and the education of supervision. Each offers a different lens, and together they have helped me understand banking more comprehensively. It is this experience that I would like to share, especially with the students gathered here today.

The Classroom

8. Let me begin with the classroom. Economics first came to me through examination papers in school and college. The themes were, in many ways, evergreen: demand and supply, money and banking, public finance, international trade, national income and business cycles. Like many students, I understood them well enough to write examinations. But I do not think that, at that stage, I fully appreciated how deeply they would later shape my understanding of banking and finance.

9. It was only when I entered banking that many of these ideas acquired life. Demand and supply were no longer only curves in a textbook. They could be seen in the appetite for credit, in the pricing of funds, and in the behaviour of borrowers. Money and banking, which had once been a paper in the curriculum, became the world in which I worked every day.

10. That is why I say, with some hindsight, that a good education in economics is a powerful thing. It teaches you to ask questions that are simple in form but deep in consequence. What are the incentives? Who bears the cost? Who receives the benefit? What happens if a rule changes? What are the unintended consequences? Compared to what?

11. Take banking. A bank is not merely a building, a balance sheet or an app on your phone. A bank is a bundle of promises. It promises depositors that their money will be safe and available when needed. It promises borrowers that credit will be available on fair terms. It promises shareholders that their capital will be stewarded with care. It promises the regulator that it will conduct itself prudently. Finally, in a country like India, banks also carry broader developmental expectations: to support inclusive economic growth.

12. Economics helps us understand these promises. It gives us concepts such as moral hazard, adverse selection, information asymmetry, and systemic risk. These are not merely academic expressions. They are everyday realities in banking.

13. Moral hazard appears when an institution takes excessive risk because it believes someone else will bear the consequences. Adverse selection occurs when a lender, unable to fully distinguish between good and bad risks, ends up attracting weaker asset quality. Information asymmetry creeps in when the bank does not get to know the true financial position of the borrower. Systemic risk can arise when the failure of one institution damages public confidence in many others.

14. The classroom gives us the language to understand these realities. Practice teaches us how they appear in real life. The financial system is not made up of variables alone. It is shaped by people, institutions, incentives, habits, cultures, memories, fears and, sometimes, greed. That is why the classroom, valuable as it is, must be complemented by experience.

The Counter

15. This brings me to the second education: the counter.

16. For many bankers of my generation, banking began at a branch: customers at the counter, vouchers of various colours and hues, ledgers, cash books, loan applications in paper files, site visits, and credit proposals that had to be examined not as classroom exercises, but in actual practice. It was also a period when banking was beginning to change. The recommendations of Dr. Rangarajan's Committees¹ helped usher in the early phase of bank computerisation, and ALPMs² became one of the visible symbols of that transition.

17. But my subject today is not computerisation. It is about something more basic, and perhaps more enduring. The first lesson one learns in banking is that it is not only about money, accounting or procedures. It is about judgment.

18. Credit is a judgment about the future. Will this borrower repay? Will this business generate the cash flows it has projected? Is the collateral worth what it is claimed to be? Is the promoter being realistic, optimistic, or over-expansive?

19. These questions cannot be answered with certainty, because credit is about the future and the information is ever evolving. Risks often reveal themselves in subtle ways: in the manner in which a borrower presents his accounts, in the assumptions behind a project report, or in the enthusiasm of a relationship manager. They require analysis, but also a gut feel for people, markets, and institutions.

20. After seeing enough loan proposals, borrower meetings and credit committee discussions, one notices signals. A business that is profitable on paper but constantly short of cash, a borrower who explains every delay as temporary, a credit proposal that relies more on collateral than on cash flows, a loan book that grows faster than the bank can monitor, each tells you something. None of these signals is proof by itself. But each is a prompt to pause, ask better questions and look deeper.

21. The counter teaches you the difference between presentation and reality. The audited balance sheet and information memorandum are useful, but they are not the business. The business is in the factory, on the shop floor, in the market, in the supply chain, in the quality of management, and in the decisions taken. The banker's job is therefore, not to be cynical, but to be curious.

22. This is where one begins to appreciate the art, as much as the science, of economics and banking. Numbers, ratios and models are essential. They impose discipline, allow comparison and protect us from relying only on instinct. But they do not interpret themselves. Unlike an exact science, banking deals with people, firms, institutions and uncertainty. A current ratio may tell us something about liquidity, but not everything about the borrower's ability to manage stress. A debt-equity ratio may tell us something about leverage, but not everything about the quality of management. A repayment track record may tell us something about past conduct, but not always enough about future resilience.

23. This is an important lesson for students of economics. Institutions and firms cannot be understood only through reported numbers. Numbers tell a story, but one must learn to ask what lies behind them: whether profits are supported by cash flows, whether growth is supported by capability, whether risk is understood or hiding in plain sight, and whether governance is a living practice or only a formal structure.

24. The counter also teaches the human dimension of finance. Behind every loan account is not only a borrower, but a story. Sometimes it is a story of genuine business difficulty: a sound enterprise affected by a shock beyond its control. Sometimes it is a story of poor judgment: expansion undertaken too quickly, debt taken on too easily, or risks underestimated during good times. Sometimes, of course, it is a story of deliberate misconduct. A banker must learn to distinguish between these situations, not because the discipline of repayment is less important, but understanding the cause will help one respond better.

25. This education of the counter is invaluable. It gives the banker experience, instinct and a feel for risk. But a banker usually looks at risk from the perspective of their own institution. The supervisor must view the same institution from the system's perspective. That shift in perspective brings us to the third education: the education of supervision and public purpose.

The Supervisor's view

26. When one moves to supervision, the viewpoint changes. A banker is naturally concerned with growth, profitability, customer relationships and competitive position. A supervisor is concerned with safety, soundness, governance and the larger public interest.

27. This does not mean that the supervisor is indifferent to the difficulties of running a bank. On the contrary, good supervision requires an appreciation of those difficulties. Banking involves uncertainty. It involves taking risks, managing relationships, making decisions with evolving information and responding to competition. But the supervisor's responsibility is different. The supervisor must ask not only whether the bank is successful, but whether it is safe and sound.

28. This distinction is important. A bank may appear successful for a period because it is growing rapidly, gaining market share and reporting healthy profits. The supervisor's task is to look beneath the surface and form an independent view of the institution.

29. Indeed, the supervisor's job is not always an easy role to explain. Supervision imposes requirements on banks. It asks for information, reviews systems, questions practices, and sometimes requires changes that may appear burdensome.

30. The costs of supervision are often visible. They appear in size of compliance teams, reports, audits, technology systems and management time. The benefits, however, are much harder to measure. How does one measure a crisis that did not happen? How does one calculate the value of a bank run avoided, a depositor protected, a fraud prevented, or a control gap corrected before it became a systemic problem?

31. This is the paradox of good supervision. When it works well, it is often noticed less, not more. Its purpose is not to make headlines. Its purpose is to preserve confidence quietly, so that households can place their savings in banks, businesses can access credit, and the financial system can support the real economy without becoming a source of instability.

32. That is why supervision must look beyond formal compliance. Compliance asks whether the rule has been followed. Supervision asks whether the underlying risk has been understood and addressed.

33. A bank may have the required committees, policies and reports, but the real question is whether these mechanisms are effective. Are risks being recognised in time? Are loans being monitored properly? Are governance structures asking difficult questions? Is growth supported by sound underwriting? These questions matter not because supervisors enjoy asking them, but because unchecked weakness in one institution can impose costs on many others.

34. Seen in this light, banking supervision is not an obstacle but part of the foundation that allows banking to command public trust.

35. A lightly supervised system may appear efficient for some time, because the costs are lower and growth may be faster. But if that growth rests on weak governance, poor credit standards or hidden risks, the eventual cost is borne not only by shareholders or management, but by depositors, borrowers, taxpayers and the wider economy. The true value of supervision lies in reducing the probability and severity of such outcomes.

36. For students of economics, this is also an important lesson in public policy. Some public goods are difficult to price because their greatest value lies in prevention. Financial stability is one such public good. It is taken for granted when present, but its absence is deeply disruptive. Banking supervision is one of the institutional mechanisms through which that public good is protected.

Bringing it all together

37. Let me now draw these strands together. The classroom, the counter and the supervisory perspective may appear to belong to different worlds. But in practice, they are deeply connected. The classroom helps us think clearly. The counter allows us to observe carefully. Supervision enables us to look beyond the immediate institution to the wider system.

38. For the students in this room, I would offer three simple reflections.

39. First, take your formal education seriously. Concepts matter. Frameworks matter. The ability to think in terms of incentives, trade-offs and unintended consequences will serve you well in any field you enter.

40. Second, do not remain confined to concepts alone. Seek exposure to institutions as they actually function. Understand how decisions are made, how risks are taken, how reward structures operate inside organisations, and how policy is translated into practice.

41. Third, remember that finance has consequences beyond the balance sheet. Credit decisions affect businesses, livelihoods and growth. Weak governance in a financial institution can affect many who had no role in creating the weakness. Sound finance is therefore not only a matter of profitability, but also of responsibility.

42. The world that you will enter is very different from the one in which earlier generations of bankers and administrators worked. Banking is becoming more digital, more data-driven and more interconnected. Credit can now be originated through platforms. Payments move instantly. Algorithms may influence lending decisions. Non-bank entities play a growing role in financial intermediation.

43. These changes bring enormous possibilities. They can widen access, reduce costs and improve efficiency. But they also bring new questions: Is the customer being treated fairly? Is the model understandable? Is accountability clear? Are risks being recognised early enough?

44. These questions cannot be answered by technology alone. They require judgment. They require institutional discipline. They require humility about what we do not know. And above all, they require a sense of public purpose.

45. That, to my mind, is also the enduring relevance of Shri G. Ramachandran's life and work. He belonged to a generation that was called upon to build institutions, not merely manage them. He worked at a time when economic policy was inseparable from the task of nation-building. The instruments available then were different, the challenges were different, and the financial system was far less complex than it is today. But the essential question remains the same: how do we ensure that finance serves the needs of the economy and the people?

46. Each generation must answer that question in its own way. Shri Ramachandran's generation answered it through institution-building, public administration and major policy choices. The present generation must answer it through sound regulation, responsible innovation, better governance and a financial system that supports growth without becoming a source of instability. Your generation will have to answer it in ways that may not yet be fully visible to us but which will require the same combination of knowledge, judgement and public purpose..

47. The financial system of the future will need technical skill, but it will need something more. It will need people who can combine knowledge with judgment, and ambition with public purpose.

48. In this context, an apt saying of Tiruvalluvar, about application of knowledge, comes to mind:

கற்க கசடறக் கற்பவை கற்றபின்
நிற்க அதற்குத் தக. (391)

Learn thoroughly what should be learnt,
and let conduct be worthy of the learning.

49. It is in that spirit that we remember Shri G. Ramachandran today. His career reminds us that public service is measured not only by the education one acquires, positions one holds but also by the institutions one helps strengthen, and the larger purpose one serves.

50. I am grateful to the Madras School of Economics, to the Southern India Chamber of Commerce and Industry, and to the family of Shri G. Ramachandran for the honour of delivering this memorial lecture. Thank you. Jai Hind.

¹ Committee on Mechanisation in the Banking Industry (Chair: Dr. C Rangarajan, 1984), Committee on Computerisation in Banks (Chair: Dr. C Rangarajan, 1988)

² ALPMs, or Advanced Ledger Posting Machines, were single-user computer systems introduced in Indian banks during the 1980s to automate ledger maintenance and branch-level banking operations.

1. Distinguished participants, it gives me great pleasure in addressing the 25th FIMMDA¹-PDAI² Annual Conference. The development of India’s fixed income and derivatives markets owes much to such conferences, which provide an opportunity for all stakeholders to get together and deliberate on not only the journey so far but more importantly the way forward. I am confident that this conference will give us many innovative ideas and suggestions for the further development of the markets.

2. We could not have met at a more appropriate city for this conference to deliberate on the challenges and the opportunities that the markets offer today. It was in Amsterdam where merchants started trading shares and bonds of the Dutch East India Company more than four centuries ago. What emerged in the 17th century was one of the earliest examples of a modern financial marketplace: an organised system where investors could pool capital, transfer risk, and finance ambitious commercial ventures across continents. The innovations that took root – tradable securities, secondary markets, and financial intermediation – in many ways, laid the foundations of modern global finance, as we know it today.

I. Challenges for the global economy & financial system

3. The conference could not have been at a more opportune time, when the global financial system is navigating through a period of elevated uncertainty and challenges. These have implications not just for the real sector but also for the financial markets.

4. Geo-economic fragmentation caused by tariffs, trade restrictions, and industrial policies are reshaping not only global supply chains, they are also affecting the free movement of capital and led to fragmentation of financial flows.

5. High levels of public debt in several major economies is another concern. Their continued fiscal expansion has made it difficult for them to return to the path of fiscal consolidation that was expected post the pandemic related stimulus. On the other hand, geopolitical pressures are compelling a significant rise in defence spending – a shift that could pose major challenges for fiscal sustainability.

6. Stretched valuations in certain asset classes, particularly equities including a few tech stocks, could also have implications across markets and geographies.

7. The rapid expansion of private credit markets globally has introduced new areas of opacity and potential systemic risk through increasing interconnectedness with regulated segments.

8. AI is another source of uncertainty. While AI holds promise to enhance productivity, concerns remain about viability of certain business propositions, the level of efficiency gains, the speed of change and its impact on jobs.

9. Overlaying these challenges is the recent escalation of geopolitical tensions in West Asia. Energy prices have risen sharply amidst damages to energy infrastructure and disruptions in supply chains. It has already affected economic activity. If the crisis persists longer, it may also translate into second order inflationary pressures.

II. India’s Economic Resilience Amid Global Turbulence

10. Against this challenging global backdrop, the Indian economy has shown remarkable resilience. In view of this, the theme of this conference, “Indian Financial Markets – Resilience and Resurgence,” is most apt and timely.

11. Since the pandemic, India has consistently been among the fastest-growing major economies in the world. This performance reflects a combination of strong macroeconomic fundamentals, structural reforms, and prudent macroeconomic management.

12. Growth impulses in the economy have remained robust. Domestic demand continues to be supported by strong consumption and public investment. The government’s emphasis on capital expenditure has helped crowd-in private investment and improve productive capacity. Resultantly, we have recorded an average growth of 8.2 per cent during 2021-25. In 2025-26, the economy is estimated to have grown by 7.6 per cent. Growth in 2026-27 is projected at 6.9 per cent.

13. Inflation, although vulnerable to periodic supply shocks, has broadly remained within the tolerance band of the monetary policy framework. The flexible inflation targeting (FIT) regime has provided a credible anchor for managing inflation expectations, and reducing average inflation and volatility post its adoption. In the recent period, headline inflation has remained below the inflation target of 4 per cent. We have projected an average CPI inflation of 4.6 per cent for FY 27.

14. India is firmly on a path of fiscal consolidation. On the revenue side, adoption of GST and other sweeping tax reforms have helped improve tax buoyancy. On the expenditure side, targeted government spending has improved the quality of expenditure, while reducing revenue expenditure as a percentage of GDP.

15. India’s banking and NBFC sectors have undergone a remarkable transformation in recent years. Their balance sheets have been strengthened significantly, with improvements in capital adequacy, asset quality and profitability.

16. Corporate balance sheets have also improved, supported by stronger earnings. The fund mobilisation by Indian corporates through public markets, especially corporate bond markets, has remained strong over the last two financial years, pointing to a steady broadening of financing channels beyond traditional bank credit.

17. On the external front,

1. Our foreign exchange reserves remain comfortable, with 11 months of import cover.

2. The current account deficit (CAD) is sustainable; while elevated energy prices will exert upward pressure on the deficit, the recently concluded trade agreements should offset some of the impact.

3. On the capital account, gross FDI has been encouraging³. This will remain robust with the recent spree of greenfield FDI announcements especially in the finance and tech sectors.

4. With recent correction in financial asset valuations, we expect repatriations to moderate, improving the net capital account position going forward.

18. To sum up, India’s strong macro-economic and macro-financial fundamentals remain strong, supported by continued focus on policy certainty, price stability, financial stability, and thrust on reforms, ease of doing business and inclusive growth.

III. Indian Financial Markets – Measures undertaken for development

19. Moving from the broader economy to financial markets, I must acknowledge that our financial markets have matured considerably over the past few years. This is an outcome of conscious policy choices over the years.

Money Market

20. Starting with money markets, which serve as the primary channel for monetary policy transmission, we have moved towards a more agile liquidity management framework to ensure adequate liquidity in the financial system.

Government Securities Market

21. Government securities markets continue to be deep and liquid, but our efforts are to broaden the investor base, especially by encouraging retail and non-resident participation. The benchmark issuance strategy which has helped build a credible sovereign yield curve and improve price discovery in fixed-income markets, is now being extended to State Development Loans from FY27.

Derivatives Markets

22. The regulatory framework for derivatives markets too has evolved to facilitate ease-of-doing business, wider participation, and innovation.

23. We are facilitating greater product diversity through introduction of total returns swaps on corporate bonds and derivatives on corporate bond indices. These are intended for supporting a well-developed corporate bond market by management of credit risk.

24. We have also introduced forward contracts on government securities. It has been heartening to see long term investors especially insurance companies utilising this product instead of relying on synthetic financial constructs to manage their long-term interest rate risks.

Efficient Financial Market ecosystem

25. While taking measures for the development of various market segments, we have focussed on strengthening market infrastructure; enhancing transparency and ease of Investments for foreign investors across market segments.

Strengthening market infrastructure

26. I would like to highlight three recent initiatives for strengthening market infrastructure.

• First, Electronic trading platforms have been introduced for new products such as forex options and Modified MIFOR based derivatives for enhancing efficiency and transparency. Central clearing and settlement have also been expanded for these products.

• Second, FX forwards up to 36 months tenor are now being centrally cleared; earlier, forwards up to 13 months tenor only were centrally cleared.

• Third, the regulations for initial margin for non-centrally cleared derivatives have come into force. CCIL has put in place the necessary infrastructure for exchange of initial margin. I note that market participants are making use of the system by CCIL.

Enhancing transparency

27. To enhance transparency, we now have the reporting of:

• OTC Rupee foreign exchange and interest rate derivative contracts undertaken by the related parties of market-makers; and

• Cash, tom and spot trades in the foreign exchange market and OTC gold derivative transactions undertaken by banks and by residents.

Ease of Investments for foreign investors

28. Last, but definitely not the least, we have endeavoured to facilitate ease-of-investment for foreign investors:

• We have eased the macroprudential norms applicable for FPI investment in corporate bonds;

• We have expanded the space for investments under the Voluntary Retention Route and provided greater operational flexibility;

• Balances in Special Rupee Vostro Accounts have been permitted to be invested in corporate debt securities and government securities;

• Non-residents have been permitted to open Rupee accounts in their own geographical region and with the overseas branches of Authorised Dealers;

• Another important measure is to connect NDS-OM with global bond trading platforms for deepening secondary market in G-secs.

IV. Areas of improvement

29. While we have made considerable progress in deepening and strengthening our financial markets, more needs to be done. I am mentioning five areas of improvement for you to deliberate on:

1. Although our central government securities market is liquid by most standards, there is scope to improve liquidity across all tenors and securities.

2. OTC derivatives markets, especially interest rate derivatives, remain concentrated in just one or two few products. It needs to improve if efficient interest rate hedging options have to be made available to stakeholders.

3. Indian banks are dealing only with offshore market-makers rather than with end-users. If the global INR market has to be on-shored, Indian banks will need to evolve as market-makers globally.

4. Usage of the FX Retail platform remains limited. All banks should facilitate this as a priority, so that retail users get a fair deal.

5. The development of credit derivatives is yet to take off in any meaningful way. This is largely an underutilised area.

30. At the same time, market participants must acknowledge that while a privilege bestows some benefits, it also entails responsibilities. For example, banks and primary dealers in G-Sec market have exclusive access to our liquidity facilities and to short term money markets. They are market-makers in the OTC derivative markets implying that every entity can only transact with you for hedging. Similarly, users must approach them to meet their market needs. These privileges accord immense market power to the PDs and banks, which is beneficial for their growth.

31. But there are corresponding responsibilities-

1. Responsibilities to ensure that every user has easy access to financial markets;

2. Responsibilities to ensure that every user can transact on fair and transparent terms, irrespective of size and sophistication;

3. Responsibilities to ensure that broader regulatory objectives are met in letter and spirit even as organisational interests are pursued;

4. And responsibilities to protect, promote and sustain market integrity.

32. I am sure you will discharge your responsibilities to the best of your abilities.

Conclusion

33. Let me conclude now.

34. This year marks the 250th anniversary of magnum opus - The Wealth of Nations by Adam Smith. The insight and wisdom of Smith, especially about the importance of markets, remain profoundly relevant in current tumultuous times.

35. Our priorities at RBI, therefore, remain clear. We will continue to deepen financial markets, broaden participation, and further strengthen institutional frameworks. We will continue to strive for efficiency, consumer protection, fairness, transparency, and ethical conduct. In this pursuit, we will continue to assess and meet the emerging market needs. We will also stand prepared to deploy appropriate policy measures, as warranted, to mitigate spillovers and ensure orderly market conditions.

36. But we cannot do it alone. Strengthening financial resilience is a collective and shared responsibility. Institutions such as trade repositories will have to improve data quality and availability to support risk assessment and effective policymaking. FIMMDA and PDAI will have to play a vital role in strengthening market conventions, standardisation, and discipline.

37. I am confident that with continued collaboration among all of us, Indian financial markets will mature further. I am sanguine they will become deeper, more efficient, and more dynamic in the years ahead.

38. With these words, I thank you all for your patience and wish this conference a great success. I look forward for your valuable suggestions and policy inputs.

Thank you.

¹ FIMMDA- Fixed Income Money Market and Derivatives Association

² PDAI - Primary Dealers’ Association of India

³ Gross FDI grew from about USD 71 bn to more than USD 80 bn during 2024-25 and expected to have increased further to about 90 bn USD in 2025-26.