Trends and Progress of Banking in India, 2024–25 Report

Context

• The Reserve Bank of India's latest 'Trends and Progress of Banking in India, 2024–25' report confirms that the country's banking system has become more resilient and confident than ever before, driven by minimal non-performing assets (NPAs), strengthening capital, and widespread digital and financial inclusion.
• This report not only compiles data but also provides a comprehensive assessment of the performance, risks, regulatory priorities, payment systems, technological adjustments, and consumer protection of banking and non-banking financial companies (NBFCs).

Balance Sheet Expansion: A Clear Picture of Growth

• According to the report, the balance sheets of scheduled commercial banks (SCBs) have seen significant expansion. Both deposits and loans recorded double-digit growth, although the pace has slowed somewhat in recent months.
• Growth of approximately 14-16% in bank credit reflects strong demand from industry, MSMEs, housing, and services sectors. Deposit growth of 12-13% indicates that public confidence in the formal banking system remains intact despite the availability of alternative investment options.

Asset Quality

• One of the biggest achievements of Indian banking has been the improvement in asset quality. The gross non-performing assets (GNPA) ratio has declined to approximately 2.1%, the lowest level in several decades. This improvement is a result of improved credit discipline, vigilant underwriting, and effective recovery mechanisms.
• Additionally, banks are adequately capitalized. The capital adequacy ratio (CRAR) remains above 16% on average, well above the Basel III minimum requirement and reflects the ability to withstand potential shocks.

New Heights of Digital and Financial Inclusion

• Digital Payments: Progress has also been significant on the digital payments and financial inclusion front. 514 districts across the country have become fully digitally enabled, with every eligible individual having access to at least one digital payment method.
  • The RBI's Financial Inclusion Index has risen to 67, reflecting deeper and broader access to accounts, credit, insurance, and digital payments. This progress is not limited to numbers but also indicates increased use of financial services.
• PRAVAAH Portal: The PRAVAAH Portal has been launched as a unified digital platform for regulatory applications. Its objective is to simplify, transparently, and timely the process of obtaining various permissions and approvals.
• FREE-AI Framework: To ensure the responsible use of artificial intelligence, the RBI has introduced the FREE-AI Framework. It provides governance guidelines based on principles such as fairness, accountability, security, and transparency, ensuring trust and accountability in AI-based systems.
• Risk-Based Deposit Insurance: Moving beyond a flat premium system, a move has been made towards risk-based deposit insurance. This initiative encourages banks to better manage risk and further strengthens depositors' trust in the entire banking system.
• Unified Lending Interface (ULI): ULI is a technology-based initiative aimed at providing seamless credit to every Indian and furthering the government's comprehensive vision of digital empowerment, financial inclusion, and last-mile service delivery.

Regulatory Reforms: Risk-Based Deposit Insurance

• A key policy recommendation from the report is the move towards risk-based deposit insurance premiums.
• This move away from a uniform premium system will encourage banks to better manage risks and strengthen trust in the overall system.

Emerging Challenges: Risks with Growth

• The expansion of digital banking and UPI has increased the risk of cyber fraud and online fraud. Furthermore, the increase in customer complaints related to loans, cards, and digital channels points to weaknesses in service quality and grievance redressal mechanisms.
• Risks related to transparency, bias, and data privacy are also emerging in AI-based credit and fraud detection systems. At the same time, some unsecured and small-value retail loan segments are showing signs of stress.

The Way Forward: Quality, Security, and Trust

• The report makes it clear that future success will come not just from rapid loan growth, but from quality-led growth. Strict underwriting, strong consumer protection, continued investment in cybersecurity, and targeted financial literacy campaigns will be required.
• Increasing awareness in rural areas, among senior citizens and first-time users of digital services is as important as the expansion of technology.

Conclusion

This RBI report shows that the Indian banking system stands on a strong footing today, with minimal NPAs, strong capital, and a growing balance sheet. The key to sustainable success in the coming years lies in trust-based technology adoption, transparent customer protection, and balanced regulation.