Financial Sector and Markets - Newspaper Summary

 The sources detail significant activity and regulatory developments in the Financial Sector and Markets during October 2025, covering central bank policies, stock market performance, banking sector consolidation, digital payments evolution, and key regulatory reforms concerning mutual funds and commodities exchanges.

1. Central Bank Policy and Global Market Dynamics

The financial landscape is heavily influenced by the actions of the US Federal Reserve (Fed) and broader global market sentiment.

• Federal Reserve Balance Sheet Runoff: Fed officials face a pressing decision this week regarding whether to halt the shrinking of the central bank's $6.6 trillion asset portfolio immediately, or wait until the end of the year.
  • The Fed has been reducing its balance sheet since 2022, when it peaked near $9 trillion.
  • The goal of shrinking the balance sheet is to reduce the supply of interest-bearing reserves in the banking system, thereby ensuring the Fed maintains effective control over short-term interest rates.
  • Recent pressure in overnight funding markets suggests the Fed is nearing the point where reserves are becoming "less ample," necessitating a decision to stop the runoff sooner than anticipated. Analysts note that continuing the runoff for too long increases the risks of problematic volatility, potentially repeating the funding spike seen in September 2019.
  • The Fed allows up to $35 billion in mortgage securities and $5 billion in Treasurys to roll off monthly, aiming eventually to hold only Treasurys.
• Interest Rate Outlook: Investors widely anticipate another interest rate cut by the Federal Reserve this week.
• Global Stock Market Optimism: Global stock markets showed strong momentum, hitting fresh records. This optimism was driven by a strong start to the earnings season, hopes for improved US-China trade relations, and a flurry of corporate deal-making. The S&P 500 is up 17% year to date. However, skeptics warn that the enthusiasm might be excessive, pointing to signs of froth such as traders piling into leveraged stock funds and struggling companies while also buying gold.

2. Indian Banking Sector Consolidation and Regulation

India is advancing major reforms aimed at scaling up and streamlining public sector banks.

• Mega-Merger Proposal: The Finance Ministry is considering the merger of Union Bank of India and Bank of India. If approved, this combination would create the second-largest state-run lender in India by assets, surpassing Bank of Baroda. The merged entity would have assets of ₹25.67 trillion, nearly comparable to ICICI Bank’s assets of ₹26.42 trillion.
  • The primary motivations for consolidation include achieving operational synergies, enhancing capital deployment efficiency, enabling faster growth, and strengthening public sector banks through scale and efficiency.
• Other Mergers and Privatization: The Ministry is also considering merging Indian Overseas Bank and Indian Bank. Furthermore, Punjab & Sind Bank and Bank of Maharashtra are being considered as potential candidates for privatization in later phases.
• Banking Health: State-run banks have performed well over the last two to three years, with their average risk-weighted capital adequacy ratio (CRAR), a key health metric, standing at 16.15% as of March 2025.
• Regulatory Scrutiny and Misconduct: HDFC Bank placed two senior executives on "gardening leave" amid a probe into allegations of misselling Credit Suisse securities (Additional Tier 1 bonds) to customers. Although HDFC Bank stated it had not found any instances of misselling so far, the action underscores the serious approach taken toward reputational matters.
• Small Finance Bank Status: The Reserve Bank of India (RBI) returned Jana Small Finance Bank’s application to become a universal bank due to non-fulfillment of criteria.

3. Market Operations, Regulation, and Digital Payments

Regulators are actively addressing structural changes and operational risks across financial markets.

• Mutual Fund Regulatory Overhaul (Sebi): The Securities and Exchange Board of India (Sebi) proposed sweeping changes to mutual fund regulations, focusing on increased transparency and easing business restrictions.
  • Total Expense Ratio (TER) Transparency: Sebi outlined overhauling the TER structure, suggesting a more comprehensive definition that includes all charges (base expense ratio, brokerage, regulatory fees, etc.), while simultaneously proposing to exclude statutory levies (STT, GST, stamp duty) from the main TER limit.
  • Brokerage Caps: Sebi proposed capping brokerage and transaction costs charged to investors, suggesting a reduction in the brokerage limit for cash market transactions from 12 basis points (0.12%) to 2 bps (0.02%), and for derivatives from 5 bps (0.05%) to 1 bps (0.01%). This aims to stop the bundling of additional services, like research, into brokerage fees.
  • Business Flexibility: Sebi proposed relaxing constraints on Asset Management Companies (AMCs) to allow them to offer investment management and advisory services to non-pooled funds (catering to large, non-retail investors).
• Commodities Market Disruption (MCX): A technical glitch at the Multi Commodity Exchange of India (MCX) coincided with the expiry of silver monthly options contracts, sending traders into a tizzy.
  • Penalty Risk: The four-hour outage, which delayed trading resumption, exposed MCX to a potential fine of approximately ₹25 crore. Sebi rules mandate declaring a "disaster" within 30 minutes and restoring trading within 45 minutes of the declaration. The ₹25 crore fine is calculated as 10% of the average standalone net profit of the preceding two fiscal years.
• Digital Payments Power Shift (RuPay/UPI): The homegrown credit card network RuPay is aggressively gaining market share by leveraging its exclusive integration with the Unified Payments Interface (UPI) platform.
  • Market Share Surge: RuPay credit card transaction volumes surged to 28% and value rose to 5.3% of total credit card transactions in the April-October 2024 period, a sharp increase from 10% and 1.8% in FY24, respectively.
  • This growth is primarily attributed to the ubiquitous nature of UPI acceptance, which is far wider than that of traditional credit card point-of-sale (PoS) machines. Global card networks (Visa, Mastercard, American Express) are not yet permitted to use UPI as an underlying payments platform.

4. Corporate Funding and Debt Markets

Developments in external borrowing and sovereign bond markets impact corporate financing decisions.

• Green Bond Issuance (RBI): The Reserve Bank of India (RBI) is planning a Green Bond auction valued at ₹5,000 crore at a yield estimated to be around 7.18%. This rate is anticipated to be slightly lower (around 10 basis points) than the yield on regular sovereign bonds, reflecting the "greenium" or premium investors are willing to pay for environmentally aligned assets. The move aims to develop the market for instruments that support green projects.
• External Commercial Borrowings (ECBs) Easing: The RBI introduced "sweeping relaxations" to rules governing how Indian companies borrow overseas, including raising borrowing limits and scrapping cost caps on ECB rates.
  • Muted Response Expected: Despite the relaxations, an immediate surge in ECBs is not expected. Corporates are deterred by cheaper local loans and high hedging expenses, especially since the rupee weakened by about 3.7% against the dollar in the first half of FY26.
  • Some companies are instead focusing on domestic borrowing. However, the eased ECB rules are expected to provide an important safety valve against potential funding stress in the fourth quarter if domestic credit demand rises and liquidity remains tight.
• Gold Market Surge: The price of gold skyrocketed this year, driven by the Fear of Missing Out (FOMO) and uncertainty. Net flows to US-based gold mutual funds and ETFs topped $35 billion through September, the largest haul since at least 2005. However, some analysts suggest this rally will fade, and the time for significant gains was before the surge began.

5. Private Capital and Venture Funding

The flow of private capital continues, with a focus on specific high-growth areas.

• Venture Capital Funding: Blume Ventures made the first close of its fifth fund at $175 million and aims for a final close of up to $275 million by early 2026. Blume is intensifying its focus on Artificial Intelligence (AI) as a horizontal capability across sectors like SaaS, fintech, and healthcare.
• Global Investment Focus on India: Singapore-based asset manager Lighthouse Canton plans to invest over $1.5 billion in India over the next few years, targeting private credit (over $1 billion) and real estate (over $500 million).
• NBFC Funding: Loan-against-property lender Optimo Capital raised $17.5 million in equity funding, led by its founder, with participation from Blume Ventures and Omnivore, along with an additional debt raise of nearly $12.5 million from IDFC Bank and Axis Bank.
• Prediction Markets as Assets: Prediction contracts, which allow users to bet on outcomes like inflation-rate changes and elections, are gaining massive investor appetite, prompting firms like Trump Media & Technology Group Corp. (via Truth Predict) to enter the space. Leading prediction platforms, Polymarket and Kalshi, are now valued in the billions.