A Leaner Rulebook Begins Malhotra’s RBI Legacy

Central bankers are often associated with an institutional reform that endures beyond their tenure. For D. Subbarao, it was financial inclusion. For Raghuram Rajan, the Asset Quality Review. For Urjit Patel, the defining theme was his push to safeguard central bank independence. For Shaktikanta Das, it was steering India’s financial system through the COVID shock.

A drive to modernise and simplify the RBI’s regulatory architecture has now moved to the centre of Sanjay Malhotra’s tenure.

On Friday, the RBI announced that 244 Master Directions now consolidate what was previously scattered across 9,445 circulars, some dating back to 1944. The change goes well beyond administrative housekeeping. By replacing layers of overlapping circulars with a single, continuously updated directive for each subject, the RBI has removed years of interpretive uncertainty that left entities unsure which rule prevailed, often complicating compliance and supervision. Circulars will no longer anchor regulation; Master Directions, amended as needed, now function as the operative text for all future instruction.

Another structural issue the overhaul aims to address is the absence of sunset clauses. Over the years, instructions that no longer reflected market realities or supervisory priorities remained technically in force, adding to the regulatory load. By embedding periodic review into the new framework, the RBI is seeking to prevent such build-ups of outdated requirements from recurring.

Malhotra is understood to have led the overhaul with the support of roughly three dozen cross-functional officers. His involvement appears to have shifted the exercise from an administrative clean-up to a policy priority.

The deeper significance lies in the future architecture of regulation. With a single, updated directive replacing a lineage of circulars, compliance teams will spend less time harmonising documents, and supervisors will be able to enforce standards without debating the hierarchy of legacy instructions. Courts, too, may find the new structure easier to navigate in the event of disputes.

The overhaul also strengthens the regulatory base for newer sectors. Fintechs, payment intermediaries, and digital lenders had often operated amid ambiguity because older instructions were never formally withdrawn. A single, updated directive for each subject reduces uncertainty and gives new entrants a more consistent framework to work within.

To prevent future accumulation of outdated requirements, the RBI has established a Regulatory Review Council with external industry expertise. If it functions as intended, the mechanism should ensure that each instruction is periodically assessed for continuing relevance, reducing the likelihood of outdated material returning to the system.

Much will depend on whether amendments are consistently incorporated into Master Directions with the required editorial discipline. The risk of drift is real: without sustained attention, the consolidated texts could become unwieldy over time. The framework, however, is designed to limit that outcome, and early indications suggest the RBI sees this as a continuing exercise rather than a one-off clean-up.

The overhaul marks a substantive shift in how the RBI organises and updates its regulatory corpus, making it more navigable and less susceptible to internal contradiction as the financial system grows more complex.

If sustained, this reform could become the kind of enduring institutional shift by which central bank tenures are ultimately remembered.