RBI weighs deeper scrutiny of banks’ business models amid rapid sector expansion

RBI considers a move away from checklist-based inspections toward deeper assessments of how lenders generate, deploy and manage credit

PGurus Newsdesk

February 4, 2026

Beyond box-ticking: RBI looks to revamp how it supervises lenders

India’s banking boom tests old rules

India’s financial regulator is considering a sweeping overhaul of how it supervises banks, shifting away from traditional, ratio-driven inspections toward a deeper examination of lenders’ business models, according to people familiar with the discussions.

The Reserve Bank of India (RBI) is exploring a supervisory framework that would focus on how banks actually conduct their business—how credit is generated, deployed and priced—rather than analysing financial ratios in isolation during routine inspections, the people said. They declined to be identified as the deliberations are private.

As part of the proposed revamp, the RBI also plans to strengthen its supervision wing by hiring additional officers, with a growing emphasis on specialists in cybersecurity and digital risk management, as technology-related vulnerabilities multiply across the banking system.

The overhaul is still under consideration and the final contours may evolve. The RBI did not respond to a Bloomberg email seeking comment.

Old tools, new risks

The rethink comes at a time when India’s banking system is expanding at an unprecedented pace, stretching supervisory frameworks designed for a far simpler financial landscape. Recent episodes of governance failures—such as those involving IndusInd Bank and the now-defunct New India Co-operative Bank—have highlighted how traditional, backward-looking supervision can miss emerging risks hidden behind apparently healthy balance sheets.

Regulators are increasingly wary that snapshot-based assessments of capital adequacy and asset quality may fail to capture deeper structural weaknesses in lending practices, governance or risk concentration.

Credit boom raises stakes

Rapid balance-sheet expansion and the proliferation of complex financial products have added urgency to the RBI’s proposed shift. The push to build globally competitive Indian banks has fuelled aggressive credit growth across the sector, raising the stakes for supervisors.

For the RBI, larger banks mean more intricate risk profiles, tighter margins for error and potentially systemic consequences if vulnerabilities go undetected. As lending expands across sectors, even small misjudgments in credit underwriting or risk pricing could have outsized effects.

Learning from global practices

According to the people, the RBI has initiated discussions with global consultants to evaluate international best practices in supervisory oversight. The aim is to move toward a more forward-looking approach that assesses how banks originate loans, manage concentration risks and price credit—rather than relying predominantly on periodic examinations of financial statements.

The revamped framework would help flag anomalies early, such as excessive exposure to specific industries or lending practices where headline credit costs mask underlying risks.

The proposed system would also outline clearer mechanisms for identifying irregularities and determining supervisory actions or penalties. The RBI’s supervisory ambit covers commercial banks, non-bank finance companies and cooperative banks, all of which would be brought under the new approach.

If implemented, the shift would mark one of the most significant changes to India’s banking supervision architecture in years—reflecting the regulator’s attempt to keep pace with a rapidly evolving financial system.

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