India is implementing financial sector reforms to counter $17 billion in foreign outflows and boost investment through regulatory easing
MUMBAI: India is intensifying financial sector reforms following nearly $17 billion in foreign investor outflows this year.
The government aims to strengthen capital buffers and increase investment while addressing concerns about economic impacts from US tariffs.
Recent months have seen the central bank and market regulator announce multiple measures to anchor foreign participation and boost credit.
These include faster company listing pathways and easier entry for foreign funds and overseas lenders.
Corporates can now borrow more easily while banks can finance mergers under new rules.
Six regulatory and market sources revealed additional regulatory easing in India’s 260 billion dollar financial sector is under discussion for the next six to twelve months.
Possible changes involve boosting capital market participation by retail investors from smaller towns and further banking regulation relaxation.
Prime Minister Narendra Modi is pushing for greater economic self-reliance amid concerns about US tariffs affecting India’s growth.
The sources requested anonymity as they were not authorised to speak to media.
The Reserve Bank of India did not respond to requests for comment on potential new easing measures.
A Securities and Exchange Board of India spokesperson cited eleven major reforms introduced for foreign investors to improve India access and global competitiveness.
Kotak Alternate Asset Managers managing director Srini Srinivasan noted increased focus on ease of doing business and clearing regulatory cholesterol.
Foreign investors have net sold nearly 17 billion dollars in Indian equities this year compared to 124 million dollars in inflows during 2024.
This sell-off makes India the worst-hit Asian market for foreign portfolio withdrawals.
India’s regulatory loosening coincides with China’s recent initiatives including opening its stock option market to foreign investors.
The Reserve Bank of India estimates economic growth at 6.8% for the fiscal year ending March 31 2026.
This compares to 6.5% growth in the previous year but remains below the central bank’s aspirational 8% target.
The regulatory changes are designed to be pro-business and revive foreign investment while boosting growth.
M&G Investments portfolio manager Vikas Pershad cited regulatory easing and strong growth outlook as reasons for remaining constructive on India.
Pershad noted this year’s concerted efforts to ease regulatory requirements have not gone unnoticed among long-term investors.
The regulatory shift follows leadership changes at both the Reserve Bank of India and Securities and Exchange Board of India.
Sanjay Malhotra became Reserve Bank of India governor in December while Tuhin Kanta Pandey started as Securities and Exchange Board of India chief in March.
Both previously worked together in the finance ministry and focus on reversing years of tight regulation following the 2016-2018 debt crisis.
Analysts and insiders say Malhotra argued crisis-era rules remained in force too long during internal meetings.
Banks can now fund acquisitions and lend more against listed debt and equity securities under recent changes.
Capital buffer requirements for non-bank lenders funding infrastructure have been eased while additional provisions on bank lending to large corporates were removed.
Long-standing rules limiting lower-rated borrowers from raising overseas debt have also been dismantled.
Former Reserve Bank of India deputy governor HR Khan stated the current governor leans toward liberalisation and optimum regulation.
Securities and Exchange Board of India’s focus includes simplifying foreign investor access and encouraging investment from smaller urban areas.
A Securities and Exchange Board of India spokesperson said mutual funds have proven effective for bringing retail investors from smaller cities into capital markets.
Fiera Capital senior portfolio manager Ian Simmons noted financial deregulation is positive but deeper reforms are needed to unleash market forces.
Simmons emphasized the importance of bigger bureaucratic judicial and tax reforms for reviving private sector animal spirits. – Reuters
