Overview of India's Banking System
The Reserve Bank of India (RBI) has released its "Trend and Progress of Banking in India 2024-25" report, highlighting the resilience of the country's banking system. Despite intense competition from non-bank sources for resource mobilization, the system remains strong with low bad loans and significant capital buffers.
Economic and Banking Sector Growth
- The Indian economy demonstrated robust growth in a rapidly changing global environment.
- The near-term outlook is positive with a multi-year low in inflation rates.
- The banking sector's resilience is supported by strong balance sheets, sustained profitability, improving asset quality, and high capital buffers.
Profitability Metrics
- Scheduled commercial banks (SCBs) maintained robust profitability with:
- Return on Assets (RoA) at 1.4% in 2024-25, slightly decreasing to 1.3% in the first half of 2025-26.
- Return on Equity (RoE) at 13.5% in 2024-25, dipping to 12.5% in the first half of 2025-26.
Challenges and Risks
- Commercial banks face increasing competition from non-bank entities as credit growth surpasses deposit growth, leading to a credit-deposit ratio exceeding 80%.
- Rapid technological changes and digitization pose new risks, such as cyber threats.
- The RBI emphasizes the importance of strong risk assessment frameworks, operational efficiency via responsible technology adoption, financial inclusion, and consumer protection.
Non-Performing Assets (NPAs)
- SCBs' overall gross non-performing assets (NPAs) have fallen to their lowest in several years.
- Retail loans have the lowest GNPA ratio, while consumer durables top the retail segment's GNPA ratio.
- Asset quality improvements were noted in education and housing loans, while consumer durables, credit card receivables, and vehicle loans showed a decline.
Advances and Risk Measures
- The proportion of unsecured loans in SCBs' gross advances decreased to 24.5% by the end of March 2025.
- This decline aligns with the RBI's risk containment strategies introduced in November 2023.
