The Reserve Bank of India (RBI) has announced a series of measures aimed at easing regulations for banks, improving the flow of credit, and strengthening resilience in the sector. The central bank’s latest initiatives are designed to simplify the operating environment for regulated entities while enabling more efficient capital deployment.
Following the announcements, brokerages expressed optimism about large, well-capitalised private banks, suggesting they are best positioned to benefit from the new regulatory framework.
Transition to Expected Credit Loss (ECL) Provisioning
One of the key measures introduced by the RBI is the shift to an expected credit loss (ECL) provisioning framework from April 2027. The central bank has also provided a transition period of five years to help banks adjust to the new system.
Jefferies noted that this transition period may benefit banks, particularly public sector units, by smoothing the upfront impact of provisioning charges. Private banks, being better capitalised, are likely to absorb the charges immediately. Nuvama Institutional Equities highlighted that among large banks, Kotak Mahindra Bank may face the most impact due to a smaller capital buffer, while Axis Bank would see only a mild effect.
The ECL framework will also affect microfinance and private lenders such as AU Small Finance Bank, RBL Bank, IDFC First Bank, and IndusInd Bank. State-owned banks will experience some impact on existing loans, although previous disclosures by SBI suggested the shortfall on older loans has reduced from Rs 25,000 crore to below Rs 20,000 crore.
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Operational Flexibility for Banking Groups
The RBI also removed the proposed restrictions on the overlap of group businesses. This revision is expected to give banking groups greater operational flexibility and regulatory clarity, allowing them to better leverage synergies between their banking operations and non-banking financial subsidiaries.
According to Motilal Oswal, the move will support more efficient capital use, sharper customer segmentation, and competitive product structuring, ultimately enhancing the franchise value of these groups. Jefferies added that this is positive for HDFC Bank and HDB Financial Services, as well as Kotak Mahindra Bank and Axis Bank, which have NBFC subsidiaries. Nuvama also suggested that Kotak Mahindra Bank, HDFC Bank-HDB Financial, Canfin Homes, PNB Housing, and Bajaj Finance could see some relief.
Revised Basel III Capital Adequacy Norms
The RBI’s measures also include adjustments to Basel III capital adequacy norms. The revised rules will lower risk weights on residential real estate loans, including housing, and on lending to micro, small, and medium enterprises (MSMEs).
Nuvama Institutional Equities expects that these lower risk weights will likely be passed on as softer lending rates, promoting credit growth. Motilal Oswal noted that the changes will ease capital requirements and improve capital efficiency, particularly benefitting banks with a high share of MSME and mortgage portfolios.
The brokerage added that incremental lending to these sectors at more competitive pricing should boost credit, although robust underwriting will remain critical to manage risk effectively.
Reduced Risk Weights for NBFC Infrastructure Lending
The RBI also proposed lowering risk weights for non-banking financial companies (NBFCs) engaged in operational infrastructure projects. With eased provisioning norms for project finance already in place, this step will reduce capital costs for NBFCs, allowing them to fund viable infrastructure projects at competitive rates.
Motilal Oswal noted that a decline in borrowing costs is likely if the benefits of lower risk weights are passed on. However, the measure’s effectiveness will depend on clear definitions of “high-quality” projects and rigorous monitoring to avoid potential slippages.
Measures to Boost Credit Flow
To further support lending, the RBI introduced multiple steps aimed at easing credit availability. These include allowing Indian banks to finance acquisitions by domestic corporates, removing the ceiling on lending against debt securities, and increasing limits for lending against shares from Rs 20 lakh to Rs 1 crore, and for IPO financing from Rs 10 lakh to Rs 25 lakh. Restrictions on lending to large borrowers with credit limits of Rs 10,000 crore have also been lifted.
Jefferies commented that these steps, along with the transition timelines for the ECL regime, are balanced and likely to support credit growth. Private banks with higher capital adequacy and stronger buffers are expected to be better positioned under the new rules.
Brokerages Favor Well-Capitalised Banks
Following the RBI’s announcements, brokerages highlighted their preference for large private banks. Jefferies said its top picks include HDFC Bank, Axis Bank, and ICICI Bank, while among public sector banks, SBI remains preferred. Nomura echoed this view, projecting credit growth to rise to 12 percent year-on-year in FY26, compared with 10 percent currently.
The Japan-based brokerage also suggested focusing on banks with stronger return profiles, lower asset-quality risks, and better liability franchises. Nomura’s preferred picks include ICICI Bank, State Bank of India, and Axis Bank, reflecting the emphasis on capital strength and operational resilience.
Conclusion
The RBI’s latest measures represent a significant step in easing banking regulations, promoting credit growth, and supporting sector resilience. By introducing a gradual transition to ECL provisioning, revising Basel III norms, providing operational flexibility, and lowering risk weights on infrastructure and MSME lending, the central bank has strengthened the operating environment for both private and public sector banks.
Brokerages remain bullish on well-capitalised, large private banks, suggesting that HDFC Bank, Axis Bank, and ICICI Bank are best positioned to benefit from these regulatory changes. Analysts believe that these reforms will not only enhance capital efficiency but also encourage incremental lending to key sectors, supporting overall credit growth in the Indian economy.
