RBI shifting towards principle- and outcome-based regulatory framework: Rao
Mumbai, Aug 21, 2025
RBI Deputy Governor M Rajeshwar Rao said the central bank is gradually transitioning to a principle- and outcome-based regulatory framework to ensure flexibility and resilience
The Reserve Bank of India (RBI) is progressively transitioning towards a principle- and outcome-based regulatory framework, Deputy Governor M Rajeshwar Rao said on Monday at the DoPT MDP on Financial Market Regulations at the Indian Institute of Management Kozhikode. The speech was released on the RBI website on Wednesday.
He said the approach offers regulated entities greater operational flexibility, enabling them to align their activities with their business models while adhering to broader regulatory expectations. It aims to ensure that the intended regulatory outcomes are achieved without imposing excessive rigidity on operational practices, he added.
“There is no perfect regulatory approach. However, principle- and outcome-based regulation is generally found to be more suitable for mature markets. Nevertheless, even developed economies use rule-based frameworks when it comes to safeguarding the interests of consumers. We at the Reserve Bank are gradually shifting towards principle- and outcome-based regulations, as it gives operational flexibility to the REs for conduct of their operations and allows them to tailor their activities to their unique needs, while adhering to the regulatory framework for delivering the outcomes expected from them,” he said.
He added that regulators today face complex and rapidly evolving challenges, requiring a forward-looking and adaptive approach. Proactive regulation, rooted in innovation and the strategic use of data and technology, is essential to ensure financial system resilience. Enhancing supervisory efficiency, conducting horizon scanning and collaborating with domain experts will be key for regulators to stay ahead of emerging risks and technological shifts.
He emphasised that another important area is the timely review of regulatory prescriptions and reporting mechanisms to streamline, rationalise and enhance their effectiveness. Such reviews not only help reduce compliance burdens but also allow regulators to assess the continued relevance of regulations in light of evolving market practices and developments, he said.
Adopting best practices in regulatory approaches, both ex-ante to anticipate potential impacts and avoid unintended consequences, and ex-post to evaluate actual outcomes and enable course correction, is essential. Together, these practices help ensure that regulation is both “right the first time” and “kept right over time.”
[The Business Standard]
