India Finance & Economic Update — October 8, 2025

 

1. RBI Proposes Overhaul of Credit Risk Rules

The Reserve Bank of India (RBI) has floated a major proposal to revise how banks assess and provision for credit risk. Reuters Highlights include:

  • Adjusted risk weights for corporate, MSME, real estate exposures — potentially lowering capital requirements for some sectors. Reuters

  • Introduction of an Expected Credit Los
    s (ECL)     framework that classifies loans by risk stages; though initial provisioning may increase, the transition is phased over five years. Reuters

  • These changes are slated to take effect from 1 April 2027, with public feedback open until November 30. Reuters

📝 Why it matters: This could ease capital pressure on banks, especially those with heavy MSME or real estate exposure, and free up funds for lending. But changes must ensure prudence and avoid under-provisioning risks.

2. GIFT City & RBI to Enable Real-Time Forex Settlement


Gujarat’s GIFT City is working with the RBI to allow real-time FX settlements for domestic banks. Reuters Key points:

  • A real-time forex clearing system is already live within GIFT City for U.S. dollar transactions (settling in ~30 seconds vs ~24 hours previously). Reuters

  • If approved, this could be expanded across India in 6–8 months. Reuters

  • NSE has also launched daily expiry contracts for “GIFT Nifty,” a dollar-based derivative tailored for institutional investors. Reuters

Also, India has formally launched the foreign currency settlement system via GIFT City during the Global Fintech Fest. Reuters

🖊 Implication: This is a key step in building India’s infrastructure for competing with global finance hubs (Dubai, Singapore). It reduces FX settlement friction, improves liquidity, and may attract more global financial flows.

3. RBI Defends the Rupee, Keeps Volatility in Check

The RBI continues to actively defend the ₹88.80 / USD mark by intervening in both spot and forward currency markets. Reuters

  • Volatility metrics are low: the 10-day realized volatility has dipped under 2%. Reuters

  • The central bank uses state-run banks to inject currency into markets and dampen excessive swings. Reuters

⚠️ Watch out: Prolonged low volatility may discourage hedging — making some entities more vulnerable if a sudden rupee move occurs.

4. Regulators Target Higher Liquidity via Share Lending & Borrowing

India’s markets regulator (SEBI / associated body) is consulting stakeholders to ease constraints on securities lending and borrowing (SLB). Reuters

  • The goal: increase liquidity in the cash equity market, currently dwarfed by the derivatives space. Reuters

  • The SLB mechanism allows investors to borrow shares they don’t own (useful for shorting, hedging) — this could shift activity from futures to cash markets if properly enabled. Reuters

📊 Potential effect: Better price discovery, narrower bid-ask spreads, and more depth for institutional & retail trades.

5. Surge in Gold, ETFs See Record Flows

Gold surged past $4,000/oz — a record — as investors sought safe havens amid global uncertainty. Reuters

  • Spot gold touched ~$4,034/oz, up ~1.3%. Reuters

  • Meanwhile, India’s gold ETFs reached a milestone $10 billion in assets under management (AUM), driven by a record monthly inflow in September. Reuters

  • The ETFs saw ~$902 million inflows (~7.3 tonnes) in September alone, bringing total holdings to ~77.3 tonnes. Reuters

📈 Context: With equities cool and the rupee under pressure, gold is drawing attention as a reserved asset. But heavy reliance could strain the trade balance via higher imports.

6. Equities Mixed; IT Stocks Buck the Trend

  • The Sensex and Nifty lost ~0.2% each, reversing recent gains. Reuters

  • IT stocks bucked the trend: the Nifty IT index rose ~1.5%, with TCS shares up ~1.8%. Reuters

  • Titan jumped ~4.3% following a strong pre-quarter update. Reuters

  • The financials sector, which had been rallying, cooled down amid profit booking. Reuters

Also:

  • India’s IT sector faces another weak quarter, with softened global demand and tariff uncertainty. Reuters

  • Foreign investors have exited heavily from IT stocks in 2025, contributing to the sector’s underperformance. Reuters

7. Broader Economic & Policy Signals

🔍 Key Themes & Outlook

ThemeInterpretationWatch Points
Regulatory modernization & flexibilityFrom credit risk reforms to SLB easing, the push is toward more dynamic, efficient markets.Feedback on proposals, implementation timelines, regulatory clarity
Build India’s financial infrastructureReal-time FX settlement, deposit tokenization, and improved liquidity tools position India for global finance.Adoption rate, technical robustness, cross-border integration
Safe-haven demand & capital flowsSurge in gold demand suggests investor caution. Equity inflows may slow if risk aversion rises.Gold/ETF flows vs. equity flows; rupee & import impact
Sectoral divergencesIT sector underperforming, financials cooling, strength in selective pockets like jewellery/consumer.Earnings season commentary, client outlook, discretionary demand
Inclusion & credit expansionExpanding the base of eligible borrowers is critical for sustaining growth.Fintech uptake, default rates, outreach metrics

🔮 What to Watch Next

  1. Public feedback & fine-tuning of the RBI credit risk drafts (open till Nov 30)

  2. Listing & trading of Tata Capital IPO — may set tone for Q4 issuances

  3. IT & financials’ quarterly results & guidance — signals of recovery or further stagnation

  4. Real-time FX system scaling across India and its operational continuity

  5. Gold vs equity flows — whether risk-on appetite returns or safe-haven trend persists

  6. Tokenisation pilot results — success may pave the way for broader digital banking innovation

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