India’s financial regulators serve the same public: savers, borrowers, investors, policyholders, and shopkeepers. Their intentions are broadly aligned; their outcomes are not. Recent actions by the RBI, SEBI and IRDAI show that the difference often lies in how public purpose becomes a market rule, and how that rule is communicated.

Regulatory communication, however, requires a careful balance. Regulators cannot always disclose their intentions or likely actions in full, particularly where doing so could allow market participants to anticipate or game an intervention. Some discretion is therefore necessary for policy to remain effective. 

But communication should not become so ambiguous that participants are left unable to understand the purpose, mechanics or likely consequences of a regulatory change. The challenge is to preserve necessary discretion while providing enough clarity for markets to respond in an informed and orderly manner.

Visible Purpose
The RBI’s interventions this year were consequential but caused comparatively less alarm because their purpose was clearer and the ground better prepared. Its direct market role and the wider reach of its decisions require a thorough process, even when that appears slow.

After the rupee touched ₹96.96 per dollar on May 20, the RBI intervened directly and introduced measures to ease the demand-supply imbalance. A concessional swap window opened on June 8 for banks mobilising fresh foreign-currency deposits from non-resident Indians.

Total inflows under its special swap measures, including for overseas borrowings by banks and companies, reached about $143.6 billion by September 21. The deposit-swap scheme closed before its scheduled end, raising a whopping $133 billion, suggesting a willingness to adapt.

The inflows also exposed the familiar “impossible trinity”: the difficulty of combining a stable exchange rate, open capital flows and independent monetary policy. Banking-system surplus liquidity was reported at about ₹11.6 trillion by early September, while the swaps created future dollar obligations.

External liquidity improved, but the trade-offs remained. The rupee was still among Asia’s weaker-performing currencies, and reserves fell $14.88 billion in the week to September 18, the largest weekly decline since November 2024.

The RBI’s loan-recovery directions show similar preparation. Finalised in August after public drafts in February and May, they restrict recovery calls to 8 AM–7 PM, prohibit pressure through borrowers’ relatives, employers or colleagues, and limit phone-locking to financed devices while preserving essential functions. They take effect on January 1, 2027.

The government’s new UPI merchant-discount-rate framework, operationalised by NPCI and endorsed by the RBI, similarly seeks to balance commercial sustainability with consumer protection. From October 15, merchant payments above ₹2,000 can attract MDR of 0.4%, subject to exemptions.

Person-to-person transfers remain free, and merchant payments up to ₹2,000 remain exempt from MDR. Merchants should not pass the charge to customers.

Costly Transition
SEBI’s concern for retail traders rests on hard evidence. Its September 2024 study found that 93% of over 10 million individual equity-derivatives traders lost money during 2021–22 to 2023–24, with aggregate losses exceeding ₹1.8 trillion. Subsequent measures included higher minimum contract sizes, fewer weekly index expiries and upfront collection of option premiums.

The Closing Auction Session (CAS), introduced on August 3, replaced the 30-minute volume-weighted average closing price with a single auction-derived price. It sought better price discovery and fewer distortions, but strained the link between cash and derivatives markets precisely when it mattered most: expiry-day settlement.

Continuous stock trading stopped at 3:15 PM, and the auction ran until 3:25 PM, while derivatives continued until 3:40 PM, responding to shifting indicative auction values. On August 27, the indicative Sensex swung about 2,200 points on changes in the auction order book alone.

These were not prices at which trades had occurred, yet such movements drove volatility in option premiums, caused losses and complicated hedging. A reform intended to strengthen market integrity had created another source of risk.

SEBI has acknowledged the concerns without abandoning CAS. Its September 12 consultation proposes either a value-weighted blend of the final 30 minutes of continuous trading and 10 minutes of auction prices for expiry settlement, or temporary continuation of the earlier 30-minute methodology, alongside closer alignment of trading hours.

The proposed corrections preserve the objective. But a change affecting settlement in such an active derivatives market deserved more rigorous testing and a gentler phase-in.

Harsh Verdict
IRDAI’s September 23 consultation paper similarly pursued sound objectives: tighter expense limits, changes to commissions and restrictions on loan-linked insurance. It sought to address distribution costs, policy persistency and selling practices. Yet its breadth unsettled the market and challenged the economics of major distributors.

The proposals would reward continuation of multi-year life-insurance payment plans rather than only first-year sales, while lowering renewal commissions for high-awareness products such as health insurance. They would also restrict making insurance a condition for a loan and ban “dark patterns”, including demands for personal details before websites display product features and prices.

On the next trading day, PB Fintech shares fell 36%. The market priced the potential commercial consequences without waiting for the consultation period or proposed glide path.

The timing may have contributed. Released after trading hours on Wednesday, the paper left limited time for assessment before the next session. Its second part contained extensive historical data on distributor remuneration and costs for 2022–23 to 2024–25, but did not appear to provide a forward-looking, quantified estimate of the proposals’ financial impact on distributors, agents, banks and NBFCs.

Its assessment section set out parameters for measuring outcomes rather than estimates of financial impact. A consultation intended to begin a conversation was therefore initially read more like a final verdict—not necessarily because its objectives were misunderstood, but because market participants had not had sufficient time to assess its commercial implications.

Public Good
The distinction is not between regulators with good intentions and those without. It is between different degrees of preparation, communication and readiness to adjust. The RBI’s actions involved liquidity and reserve trade-offs; SEBI is correcting settlement problems; IRDAI’s proposals allowed apprehension to outrun understanding.

The public includes the policyholder and the agent, the small investor and the trader hedging in good faith. Serving them requires not only the right rule but the right path to it.

Three priorities follow: test reforms against adverse rather than average conditions; publish the diagnosis alongside transparent estimates of who gains and who bears the costs; and strengthen market intelligence through effective two-way communication.

Market participants have responsibilities too. Regulation cannot substitute for informed, ethical decisions. Nor can regulators eliminate uncertainty. What they can do is prepare carefully, communicate clearly and correct course when implementation produces unintended consequences.