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📌 Monetary Policy Update in India (2025–Feb 2026)

🔹 Policy Shift
RBI moved from tight monetary policy (inflation control phase) to a calibrated easing approach in 2025 to support economic growth.

🔹 Current Policy Stance
🧭 Stance: Neutral (data-dependent approach).
RBI ready to act based on inflation and growth trends.

🔹 Key Policy Rate
💰 Repo Rate: 5.25% (Feb 2026)
Indicates moderate borrowing cost to balance liquidity and inflation.

🔹 Policy Corridor
📉 Standing Deposit Facility (SDF): Repo – 0.25%
📈 Marginal Standing Facility (MSF): Repo + 0.25%
↔️ Corridor maintained at 50 basis points for liquidity stability.

🔹 Inflation Target Framework
🎯 RBI continues Flexible Inflation Targeting (FIT).
Target CPI Inflation: 4%
Tolerance Band: 2% to 6% (±2%)

🔹 Rate Movement During 2025
RBI implemented gradual 25 bps rate cuts to:
📊 Boost credit demand.
🏭 Support MSMEs and industry.
🏠 Encourage housing and consumption.

🔹 Liquidity Management Tools Used
🔄 Open Market Operations (OMO).
💵 Variable repo/reverse repo auctions.
⚙️ Fine-tuning to maintain adequate banking system liquidity.

🔹 Impact on Banking Sector
📉 Lending rates linked to external benchmarks declined.
📈 Credit growth improved in retail, infrastructure, and priority sectors.
💼 Borrowing became cheaper → improved investment sentiment.

🔹 RBI’s Strategy
⚖️ Balance between growth support and inflation control.

Avoid aggressive cuts to prevent:
Asset bubbles.
Currency volatility.
Financial instability.

🔹 Overall Policy Signal
🔁 Transition from inflation-fighting phase to growth-support phase while maintaining macroeconomic stability.

⭐ Exam-Focused Takeaways
Repo Rate: 5.25%
Inflation Target: 4% ±2%
Stance: Neutral
Policy Trend: Gradual easing with controlled liquidity support

Risk-Based Deposit Insurance Premium (Effective 1 April 2026 – India)

Regulator: Reserve Bank of India through Deposit Insurance and Credit Guarantee Corporation (DICGC)

🔔 Major Reform in Deposit Insurance System

From 1 April 2026, India shifts from a flat premium system to a Risk-Based Premium (RBP) system for deposit insurance.

💰 Deposit Insurance Coverage (No Change)
✔ Coverage limit remains ₹5,00,000 per depositor per bank
✔ Covers principal + interest
✔ Applicable to commercial banks, RRBs and eligible cooperative banks

⚖️ What Changes?
Earlier ➝ All banks paid the same premium rate
Now ➝ Premium depends on the risk profile of each bank

📊 Risk Parameters Considered
• Capital Adequacy Ratio (CRAR)
• Gross & Net NPA levels
• Profitability (ROA)
• Liquidity position
• Leverage ratio
• Compliance track record

🏦 Impact on Banks

✅ Strong & well-managed banks
• May get premium reduction up to ~33%
• Additional vintage incentive up to ~25%
• Lower cost burden & better profitability

⚠️ High-risk banks
• Higher insurance premium
• Pressure to improve asset quality & capital strength
• Stronger supervisory oversight

🛡️ Objective of the Reform
• Strengthen financial stability
• Encourage prudent risk management
• Discourage excessive risk-taking
• Protect Deposit Insurance Fund

📅 Effective Date
➡ Applicable from 1 April 2026

🎯 Exam-Focused Highlights
• Coverage limit: ₹5 lakh
• Earlier system: Flat premium
• New system: Risk-based premium
• Regulator: RBI / DICGC
• Objective: Stability + Risk discipline

Macroeconomic & Policy Reforms – Latest Banking Updates (India, 2026)

🏛️ High-Level Committee on Banking (Viksit Bharat)
• Union Budget 2026-27 proposed a High-Level Committee to review the entire banking ecosystem
• Focus areas: structure of banks, efficiency, financial inclusion, risk management, consumer protection, and future readiness
• Objective: align banking reforms with Viksit Bharat 2047 vision

🌍 Proposed Increase in Foreign Investment in PSBs
• Government considering raising FDI limit in Public Sector Banks from 20% to 49%
• Aim: strengthen capital base of PSBs and support long-term credit growth
• Decision subject to RBI approval and policy safeguards
• Existing private bank FDI cap remains up to 74% (with conditions)

💰 Capital Market & Investment Reforms
• Simplification of Foreign Exchange Management (Non-Debt Instruments) Rules to improve ease of foreign investment
• Expansion of market-making and derivative instruments to deepen corporate bond markets
• Incentives for large municipal bond issuances above ₹1,000 crore to fund urban infrastructure
• Enhanced participation limits for Persons Resident Outside India (PROI) in equity markets

📊 Macroeconomic Stability Backing Reforms
• Strong GDP growth outlook supporting banking sector expansion
• Emphasis on fiscal discipline, inflation control, and investment-led growth
• Banking reforms positioned as enablers of sustainable credit flow to productive sectors

🎯 Core Policy Objectives
• 💼 Capital strengthening of banks
• 🏦 Improved efficiency and governance
• 🌱 Financial inclusion with systemic stability
• 🌐 Greater global integration of Indian banking and financial markets

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