Reserve Bank of India Governor Sanjay Malhotra urged non-banking financial companies (NBFCs) and housing finance companies (HFCs) to strengthen underwriting standards and uphold customer-centric practices during a high-level meeting in Mumbai. The Governor emphasized that these measures are essential to ensure sustainable growth and maintain confidence in the sector.

Meeting Details and Participation

The meeting brought together managing directors and chief executive officers from select NBFCs, government NBFCs, housing finance companies, and microfinance institutions. This gathering marked the first such interaction with NBFCs since February, highlighting the importance of regular stakeholder engagement.

Key Areas of Focus

During the interactive session, Governor Malhotra highlighted several crucial aspects for the sector's sustainable development:

Industry Representation and Engagement

The meeting achieved significant industry representation, with participants accounting for approximately 53% of NBFC sector assets. Key attendees included representatives from self-regulatory organizations such as Sa-Dhan, the Micro Finance Institutions Network, and the Finance Industry Development Council.

Senior RBI officials led by Deputy Governors T. Rabi Sankar, Swaminathan J, Poonam Gupta, and SC Murmu participated alongside the MD & CEO of the National Housing Bank, ensuring comprehensive regulatory oversight and guidance.

Strategic Implications

The Governor's emphasis on strengthening underwriting standards reflects the central bank's commitment to maintaining financial stability while supporting economic growth through adequate credit flow. The focus on customer-centric practices aligns with broader regulatory objectives of ensuring that NBFCs and HFCs continue their vital role in credit intermediation while maintaining high standards of governance and risk management.

This engagement underscores the RBI's proactive approach to sector supervision and its commitment to fostering sustainable growth in the non-banking financial sector through regular dialogue with key stakeholders.

The Reserve Bank of India successfully completed its fourth open market operation since the December 2025 monetary policy meeting, injecting ₹50,000 crore into the financial system while rejecting all bids for a specific long-term bond paper. The central bank accepted the full notified amount across other securities but declined all offers for the 8.30% 2040 paper due to pricing concerns.

OMO Results and Market Response

The RBI received overwhelming response from market participants, with total bids worth ₹1.32 lakh crore across all securities offered in the auction. However, banks participating in the operation likely bid higher than the prevailing market price for the 2040 paper, leading to complete rejection of those bids by the central bank.

"In all papers that were illiquid, bank books would have been in profit. So, they (banks) likely sold them and booked these profits. These securities were sold at a 15-20 paise discount to market prices," explained Gopal Tripathi, head of treasury at Jana Small Finance Bank.

Security-wise Performance

The auction results showed varied demand across different maturity papers, with the 7.40% 2035 security emerging as the most sought-after instrument:

Upcoming Market Operations

The RBI has announced a series of additional market operations scheduled for January 2025. Two more open market operations of ₹50,000 crore each are planned for January 12 and January 22, indicating the central bank's continued focus on liquidity management.

Additionally, a significant USD/INR buy/sell swap auction worth $10 billion is scheduled for January 13, which will provide market participants with foreign exchange liquidity options. These operations reflect the RBI's systematic approach to managing both rupee and dollar liquidity in the financial system.

Market Implications

The rejection of bids for the 2040 paper highlights the central bank's disciplined approach to pricing, ensuring that securities are purchased only at appropriate market levels. Banks' willingness to bid above market prices suggests strong liquidity positions and profit-booking opportunities in illiquid securities. The successful completion of the ₹50,000 crore target demonstrates robust market participation and adequate liquidity absorption capacity in the banking system.