New Delhi: India’s banking sector weathered a challenging global environment in FY25 with balance sheets strengthening further, credit growth remaining healthy and stress indicators continuing to improve, the Reserve Bank of India (RBI) said in its annual Report on Trend and Progress of Banking in India 2024-25, released this week.
The central bank noted that scheduled commercial banks and non-banking financial companies (NBFCs) remained well-capitalised and profitable, enabling them to support credit demand from productive sectors of the economy while advancing financial inclusion.
The RBI said the resilience of the financial system was underpinned by robust macroeconomic fundamentals, a moderation in inflation to multi-year lows and a supportive monetary policy stance. During calendar year 2025, the central bank cut policy rates by a cumulative 125 basis points, including a 25-basis-point reduction in December, following a 100-basis-point cut in the first half of the year, as growth-inflation dynamics improved.
Against this backdrop, banks recorded sustained profitability, steady improvement in asset quality and high capital adequacy ratios, while NBFCs posted double-digit credit growth and comfortable capital buffers.
According to the report, regulatory and supervisory policies during the year focused on balancing efficiency with stability, aligning domestic norms with international standards and simplifying compliance.
The RBI said it consolidated more than 9,000 regulatory circulars into function-wise master directions to reduce compliance costs and improve ease of doing business, while also operationalising a Regulatory Review Cell to institutionalise stakeholder feedback.
Key reform initiatives included draft frameworks on capital market exposure, related-party lending and migration towards an expected credit loss-based provisioning regime from April 2027, with a phased transition to smoothen the impact on bank capital.
The central bank also flagged the growing role of technology in reshaping banking and financial services. Digital public infrastructure such as UPI and the Unified Lending Interface (ULI) played a critical role in improving credit delivery, particularly to agriculture, MSMEs and rural borrowers. As of December 2025, 64 lenders, including banks and NBFCs, were onboarded onto ULI, using more than 136 data services across multiple loan products.
The RBI said such platforms were helping lenders improve credit assessment and speed up disbursements, while reducing reliance on manual processes.
Digital payments continued to expand rapidly, with the RBI noting progress in making districts fully digitally enabled and efforts underway to extend direct access to payment systems like RTGS and NEFT to select non-bank entities.
At the same time, the central bank acknowledged rising risks from cyber frauds and said it was deploying technology-led solutions such as MuleHunter.ai and a digital payments intelligence platform to strengthen fraud detection and customer protection.
On financial inclusion, the RBI said sustained policy efforts had pushed its Financial Inclusion Index to 67 in March 2025, up sharply from 43.4 in March 2017. The release of the National Strategy for Financial Inclusion 2025–30 marked a renewed push towards equitable access to affordable financial services, supported by financial literacy, digital infrastructure and stronger consumer protection.
The central bank also highlighted ongoing reviews of the business correspondent model, Kisan Credit Card scheme and lead bank framework to deepen last-mile access.
The report also underlined emerging risks that could test the system going forward. These include heightened interconnectedness between banks and non-banks, increasing use of artificial intelligence in credit and operations, climate-related financial risks and persistent global uncertainty arising from geopolitical tensions and trade policy shifts.
The RBI said it was working on model risk management guidelines, climate risk data infrastructure and a shift to risk-based deposit insurance premiums to strengthen systemic resilience.
Overall, the RBI said the Indian banking and financial system entered FY26 on a strong footing, with sound balance sheets, improved governance and a policy framework focused on balancing innovation with stability.
Maintaining public trust, strengthening cybersecurity, improving grievance redressal and integrating climate and technology risks into core risk management would remain key priorities as the financial sector supports India’s medium-term growth ambitions.