Add the yogurt to a bowl and stir in the Kashmiri chili powder, turmeric, garam masala, and coriander until well mixed. Set aside.
Add the oil to a large pan over medium heat. When hot, add the onions. Cook for about 10 minutes, stirring often, until softened and browned. Remove from the pan and set aside to cool.
Add the cooled onions, cashews, and a little water to a blender. Blend until a thick paste forms. Set aside.
In the same pan used for the onions, add the remaining 1 tablespoon oil over medium-low heat. Add the ground cardamom, black cardamom pod, cloves, pepper, cinnamon stick, and bay leaf. Cook for a few seconds until fragrant. Add the garlic and ginger and cook for 1 minute, making sure they do not brown.
Add the onion paste and cook for 1 minute. Stir in the spiced yogurt and salt, mixing well to combine with the paste. Simmer for 10 minutes. Add the water and simmer for another 10 minutes, or until the sauce thickens.
Remove the bay leaf and cinnamon stick. Taste for salt and add more if needed.
Serve over cooked basmati rice.