The Reserve Bank of India (RBI) has recently released its Financial Stability Report. The update highlights key developments in the country’s financial ecosystem and what we can expect in 2025.
Jaya Vaidhyanathan, CEO, BCT Digital has shared insights with CI on the nation’s banking sector.
Jaya Vaidhyanathan of BCT Digital noted that the RBI highlights the significant improvement in the banking sector’s health, with the Gross Non-Performing Assets (GNPA) ratio of Scheduled Commercial Banks (SCBs) declining to “a multi-year low of 3.6% as of September 2024, compared to 5.0% in March 2023.”
Vaidhyanathan added that this reduction “underscores enhanced credit discipline, robust monitoring, and effective recovery mechanisms.”
The Provision Coverage Ratio (PCR), a critical measure of risk resilience, stood “at an impressive 75%, further strengthening banks’ capacity to manage potential credit shocks.”
They added:
“On the fraud management front, regulatory guidelines have focused on enhancing Early Warning Systems (EWS) and leveraging technology for fraud detection. Cybersecurity measures and stronger digital payment controls have been instituted to mitigate risks in an increasingly digital banking ecosystem.”
They also mentioned that the sector’s resilience was “reaffirmed through stress tests, indicating that even under severe macroeconomic shocks, the Capital to Risk-Weighted Assets Ratio (CRAR) of SCBs remains well above the regulatory minimum of 9%, signaling the robustness of the sector’s financial buffers.”
Vaidhyanathan also noted that as India progresses into 2025, the banking sector is set to “sustain its momentum of stability and growth.”
The GNPA ratio is expected to “stabilize below 3.5%, supported by strong asset quality, stringent risk management practices, and favorable macroeconomic conditions.”
Credit expansion in high-growth sectors and “improving consumer sentiment are likely to bolster profitability further.”
They continued:
“However, the sector must remain vigilant to risks in microfinance and consumer credit, which make up 15% of SCB loans, with delinquency rates reaching 8.2% in small personal loans and 3.8%-4.2% in microfinance.”
Vaidhyanathan pointed out that banking fraud surged “to ₹21,367 crore in H1 FY25, with internet and card frauds accounting for 44.7% of the amount and 85.3% of cases.”
They concluded that these trends emphasize the “urgent need” for advanced fraud detection technologies and stronger cybersecurity to “address evolving risks.”