Trend and Progress of Banking in India 2024-25 Report
Kartavya Desk Staff
Source: LM
Subject: Economics
Context: RBI’s latest “Trend and Progress of Banking in India” report flags a resilient banking system with multi-decadal low NPAs, strong balance-sheet expansion and policy push for safer, more inclusive finance.
About Trend and Progress of Banking in India 2024-25 Report:
What it is?
• An annual RBI flagship assessment of banking & NBFC performance, risks, regulation/supervision priorities, payments, technology adoption, financial inclusion and consumer protection, culminating in an overall systemic soundness assessment.
Key trends:
• Balance sheets expanding: Scheduled commercial banks (SCBs) grew at a double-digit pace in deposits and credit (with some moderation).
• Asset quality stronger: SCBs’ GNPA ratio fell to a multi-decadal low.
• Capital & liquidity buffers: Banks are well-capitalised with leverage and liquidity ratios above regulatory minimum.
• Digital inclusion scale-up: 514 districts became fully digitally-enabled (at least one digital payment mode for every eligible individual).
• Financial Inclusion Index up: RBI’s FI Index improved to 67.0 (from 43.4 earlier), indicating deeper inclusion.
• ULI expanding credit access: 64 lenders (41 banks, 23 NBFCs) onboarded; using 136+ data services across 12 loan journeys.
• Deposit insurance reform: Shift approved to risk-based deposit insurance premium, moving beyond the flat premium (ceiling noted as 12 paise/₹100 assessable deposits).
Positive growth of the Indian banking sector in India
• Asset quality at multi-decade best: Gross Non-Performing Assets (GNPA) ratio declined to ~2.1% of total advances, the lowest level seen in several decades, indicating strong recovery and prudent lending.
• Sustained credit expansion: Bank credit has been growing at double-digit rates (~14–16%), reflecting healthy demand from industry, MSMEs, housing and services sectors.
• Robust capital adequacy: Scheduled Commercial Banks maintain Capital to Risk Weighted Assets Ratio (CRAR) well above 16%, significantly higher than the Basel III requirement of 11.5%, ensuring shock absorption capacity.
• Strong deposit mobilisation: Bank deposits have also grown at ~12–13%, showing rising public trust in the formal banking system despite alternative investment avenues.
• Deepening financial inclusion: RBI’s Financial Inclusion Index improved to about 67, up sharply from earlier levels, reflecting wider access to accounts, credit, insurance and digital payments.
Key initiatives taken:
• PRAVAAH portal: Centralised digital portal for regulatory submissions; wider service coverage to improve transparency and turnaround.
• Digital payments push: Inclusion-focused measures (district-level digital enablement; accessibility for PwD).
• Unified Lending Interface (ULI): Plug-and-play data architecture to speed up safer lending decisions and widen formal credit.
• FREE-AI framework: Principles + governance rails for responsible AI adoption (fairness, accountability, safety, transparency).
• Risk-based deposit insurance: Incentivises sound risk management and strengthens trust in the banking system.
Key challenges in banking:
• Customer grievances rising: Complaints in loans, cards and digital channels are increasing, exposing weak service delivery, slow resolution and inconsistent customer communication.
• Digital fraud and cyber risk: UPI/online banking growth expands the attack surface, and weak cybersecurity hygiene plus social engineering can quickly erode trust and trigger losses.
• AI and model-risk concerns: Greater use of AI in credit and fraud systems brings opacity, bias and privacy risks; poor governance can cause systemic mis-scoring and unfair outcomes.
• Retail-credit stress pockets: Even with overall better asset quality, certain unsecured/small-ticket segments can show strain, especially when underwriting and collection discipline weaken.
• Inclusion-quality gap: Access to accounts is not equal to meaningful inclusion; low financial literacy, language barriers and digital discomfort can lead to exclusion or mis-selling.
Way ahead:
• Quality-first credit expansion: Strengthen underwriting with verified data, tighter affordability checks and risk-based pricing so growth remains sustainable, not consumption-bubble driven.
• Stronger consumer protection stack: Upgrade internal ombudsman processes, faster turnarounds and transparent escalation so grievances reduce and trust becomes a competitive advantage.
• Tech governance and audits: Build board-level oversight for AI and IT systems, mandate explainability, periodic audits, bias testing and strong data protection across lifecycle.
• Cybersecurity-by-design: Shift from reactive controls to continuous monitoring, secure authentication, staff training and coordinated fraud intelligence sharing across banks and agencies.
• Deepen financial literacy: Scale targeted literacy for rural users, seniors and first-time digital users, focusing on safe payments, fraud awareness and informed borrowing decisions.
Conclusion:
The report underlines that India’s banks are entering a stronger phase with low NPAs, solid buffers and expanding balance sheets. Next gains will come from responsible tech adoption (ULI/AI) and faster, fairer customer protection. A stability-first approach that still enables innovation is the key to sustaining credit-led growth and inclusion.
Q. What do you understand by regulatory capture in the banking sector? Critically examine how it undermines financial stability. (10 M)