Reserve Bank of India (RBI) Governor Sanjay Malhotra on Thursday addressed the 12th SBI Banking and Economics Conclave, offering key insights into the central bank’s proposals to revise lending norms related to securities and capital market intermediaries.
Malhotra said that the proposals are part of the RBI’s “normal process of review,” aimed at ensuring the regulatory framework remains aligned with evolving market conditions while maintaining systemic stability.
Distinction Between Equity And Debt Recognised
Explaining the reasoning behind the proposed changes, Malhotra said, “The proposals to enhance the limits for lending to individuals against securities and rationalise the norms for lending to capital market intermediaries are part of the normal process of review… The proposed removal of limits on loans against debt instruments, while retaining regulatory limits on equity instruments, recognises the fundamental difference between equity and debt from a risk perspective.”
#WATCH | Mumbai, Maharashtra: RBI Governor Sanjay Malhotra addresses 12th SBI Banking and Economics Conclave.
He says, “… The proposals to enhance the limits for lending to individuals against securities and rationalise the norms for lending to capital market intermediaries… pic.twitter.com/9E45o9DvL0
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He emphasised that only listed, investment-grade debt securities would be eligible as collateral for such loans, highlighting the regulator’s cautious approach toward credit risk exposure in the banking system.
Guardrails to Ensure Financial Stability
Addressing concerns about potential risk from increased exposure, Malhotra outlined several protective measures built into the proposal.
“Guardrails, such as limiting bank funding to 70 per cent of the deal value, debt-to-equity ratio limits, aggregate exposure limits relative to the bank’s tier 1 capital, eligibility criteria, etc., will ensure safety while allowing banks and their stakeholders to reap the benefits of additional business,” he said.
Malhotra underlined that these prudential limits are designed to balance growth in credit flow with the need to safeguard financial stability and investor confidence.
Aim: Safer, Smarter Credit Expansion
The RBI’s ongoing review of lending norms is part of a broader effort to rationalise regulations, promote credit discipline, and enhance access to financing in the capital markets. By differentiating between equity and debt exposure, the central bank aims to strengthen risk management while providing banks with flexibility to support economic growth.
Malhotra’s comments underscore the regulator’s commitment to maintaining a stable and well-supervised credit environment, even as the banking sector explores new avenues for expansion.
