While almost all the negative financial impact seems to be already out in the open, it is worth asking whether there are any hidden dangers lurking in plain sight, invisible to the untrained eye.
The impact on markets has been somewhat predictable so far. The two leading benchmarks in global energy markets have raced along the expected trajectory. In the domestic market, benchmark stock indices have dropped close to 12% from the eve of the attacks till 31 March. The rupee has depreciated by over 4% during the same period.
Away from this spectrum of anticipated outcomes, it might be time to focus on the financial sector’s unanticipated speed-breakers, especially because regulatory challenges are known to peak during and after crises.
The Reserve Bank of India (RBI) is already faced with four distinct challenges.
The first relates to conduct of monetary policy. RBI’s monetary policy committee is scheduled to start the 2026-27 round of policy meetings on 6 April and will have to immediately reckon with a challenging combination of slowing growth with higher inflationary impulses. Whatever the six wise committee members decide to do—or not do—with interest rates, RBI will have to come up with a suitable liquidity strategy to supplement the panel’s rate call.
Three other distinct regulatory challenges seem to be emerging already.
The first is a collapse of the private credit market, a phenomenon that is already haunting financial markets in advanced economies and could well make a guest appearance in India. In the US, marquee private credit funds—such as Blackstone and Apollo Global Management—are facing unprecedented redemption pressure from investors.
Defenders state that the size of the Indian private credit market—between $30 and $40 billion—is not large enough to warrant panic and any adverse event can be contained effectively.
A research report from investment bank Avendus blithely stated that the private credit market was too small to create “systemic vulnerabilities” because its assets under management were less than 1% of the banking sector’s.
A similar breezy narrative has emerged from some consulting and audit firms, highlighting the wonders of private credit while ignoring the risks and opacity inherent in this market.
The central bank, though, has been voicing its concerns. Its Financial Stability Report of June 2024 had highlighted the channels through which vulnerabilities could become systemic, especially the growing interconnectedness of private credit with banks, finance companies, insurance institutions and pension funds.
The warning in the December 2025 edition of the same report was a bit more portentous: “…the interconnectedness between private credit and the broader financial system is increasing and the channels through which stress in private credit could transmit to the rest of the financial system are growing.”
What further muddies the waters are two structural flaws. The first is an asymmetric compliance regime for private credit when compared with traditional lenders (like banks), which, when combined with lack of regulatory oversight over the market, invests the market with greater opacity and encourages players to take higher risks.
Add to this a regulatory skew: private credit funds are regulated by the Securities and Exchange Board of India (Sebi), but they conduct business which should ideally be regulated by RBI. These cracks tend to widen during any crisis.
Beyond this incipient risk, RBI’s regulatory resolve is bound to be tested by some pots already bubbling away at different boiling points.
The first is a governance firecracker lit by the recent resignation of HDFC Bank’s former chairman. While RBI immediately issued placatory statements to calm markets, various reports state that the central bank is poring over board meeting records to examine the veracity of the outgoing chairman’s claims. His statements have pointed to a larger institutional problem prevalent across the private banking space: a wink-and-nudge attitude to mis-selling and perverse incentives.
The central bank’s response to the impasse will have implications for the future roles in the banking industry of a non-executive chairman, board members, the management led by a chief executive (tasked with clear performance targets) and the regulator.
Market regulator Sebi has also waded into the controversy. What further complicates matters is that both the regulatory heads and HDFC Bank’s former chairman are former colleagues from the civil services.
The second is the ₹590-crore fraud at IDFC First Bank, with its ripples reaching out to even AU Small Finance Bank, which is keen to graduate to universal bank status. Close on the heels of its discovery comes news of another ₹160-crore scam at Kotak Mahindra Bank. These scams are all centred in Chandigarh and hint at an organized racket. It has to be seen whether RBI takes some disciplinary action against senior bank officials in each of these banks, given that excessive marketing aggression is one reason behind the ease of fraud.
Crises, whether external or internal, tend to exacerbate systemic stress. The coming weeks will test the regulatory chops of both RBI and Sebi.
The author is a senior journalist and author of ‘Slip, Stitch and Stumble: The Untold Story of India’s Financial Sector Reforms’ @rajrishisinghal.