The Reserve Bank of India's decision to reverse its November 2023 risk-weight norms for bank lending to non-banking financial companies and microfinance institutions does not come as a surprise. In its last monetary policy announcement, the RBI acknowledged that the cost of regulation was outweighing its objectives of efficiency.However, beneath the veneer of regulatory easing lies a tacit admission: the central bank’s incremental approach is struggling to reconcile conflicting pressures from a depreciating rupee and tightening liquidity.
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