In a series of pivotal announcements, the Reserve Bank of India (RBI) has unveiled comprehensive reforms aimed at expanding credit availability and enhancing the global standing of the Indian rupee. While the Monetary Policy Committee (MPC) maintained the repo rate at 5.50% for the second consecutive meeting, signaling a neutral stance, the accompanying measures are set to significantly impact the financial landscape.
RBI Introduces Sweeping Reforms and Maintains Rates
The RBI's reforms, effective October 2025, include a five-fold increase in the limit for loans against shares and debt securities, raising it from Rs 20 lakh to Rs 1 crore per individual. Additionally, limits for IPO financing have been increased from Rs 10 lakh to Rs 25 lakh per person. Banks will now have greater flexibility to finance mergers, acquisitions, and initial public offerings (IPOs), with eased borrowing rules for large companies previously capped at Rs 10,000 crore.
A major thrust is also on the internationalization of the rupee. The RBI has authorized dealer banks to extend trade-linked loans in rupees to non-residents in Bhutan, Nepal, and Sri Lanka, aiming to reduce dependence on the US dollar for cross-border transactions. To further support this, the RBI will provide transparent reference rates for regional currencies and has permitted Special Rupee Vostro Account balances to be invested in corporate bonds and commercial papers, thereby deepening India's corporate bond market.
Strong Economic Growth but External Pressures Loom
India's economy demonstrated significant resilience, recording a robust 7.8% GDP growth in the first quarter of FY25-26, marking a five-quarter high. Driven by strong domestic demand, consumption, investments, and government spending, this performance led the RBI to revise its GDP growth forecast for FY25-26 upwards to 6.8% from an earlier estimate of 6.5%.
However, global analytical firm CRISIL and the Asian Development Bank (ADB) have cautioned that India's GDP growth could face external pressures in the latter half of the fiscal year. This is primarily due to the impact of new US tariffs, including a 50% tariff on various Indian exports like textiles, gems, and jewelry, which came into effect in August 2025. The ADB has lowered its growth forecast for India to 6.5% for FY26, citing these tariff impacts. Economists also highlight challenges such as the decline of globalization, a "China shock 2.0," and automation, which could affect India's economic trajectory.
Benign Inflation and Market Closures
Inflation remains a positive factor, staying below the target for the seventh consecutive month. The RBI has lowered its Consumer Price Index (CPI) inflation forecast for FY25-26 to 2.6% from 3.1%, attributing this to GST rate cuts and favorable food prices. This benign inflation environment provides the central bank with potential policy space for future actions if growth headwinds intensify.
Indian stock markets, including the BSE and NSE, remained closed on Thursday, October 2, 2025, in observance of Gandhi Jayanti and Dussehra. Trading will resume on Friday, October 3rd. The month of October features several market holidays, with a special Muhurat trading session scheduled for Diwali on October 21st.