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Informist, Monday, Dec. 29, 2025

 

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* RBI releases FY25 Trend and Progress of Banking in India report 
* Global economic outlook stays clouded amid heightened uncertainty 
* Indian financial system remained resilient during FY25, FY26 
* Indian economy's near-term outlook remains positive 
* Stable economic environment underpinned India financial system resilience 
* Innovation-stability balance crucial for resilient financial system 
* Banking sector resilient on strong balance sheet, profitability 
* Prudent regulation crucial for resilient financial system 
* Banking sector resilient on better asset quality, capital buffers 
* Banks' credit growth 12.5% FY25 vs 16.0% FY24 excluding HDFC merger 
* Banks' deposit growth 11.4% FY25 vs 13.4% FY24 excluding HDFC merger 
* Continuing with effort to link Indian payment system globally 
* Reviewing fincl inclusion index to improve its coverage 
* Private-sector banks' share of deposits rose FY25, borrowings fell 
* 479 banks migrated to '.bank.in' domain as of Dec 1 
* AI poses risk of systemic error, credit assessment error 
* Regulatory policies to focus on reinforcing cybersecurity 
* Banks' asset-liability mismatch rose in sub 1-year segment 
* Regulatory policies to stay focused on fraud mitigation 
* Banks' asset-liability mismatch rose in sub 1-yr segment FY25 
* Despite its current strength, global GDP is seen slowing down 
* Banks' RoA rose to 1.4% in FY25 vs 1.3% in FY24 
* Banks' RoA at 1.3% as of Sept. 30 
* Trade uncertainty calls for vigilance to fincl system risks 
* Banks' Return on Equity at 12.5% as of Sept. 30 
* Banks' gross NPA ratio at multi-decade low 2.2% Mar 31 vs 2.7% YoY 
* Fiscal discipline key to macro-fincl stability amid global risks 
* Banks' gross NPA ratio at 2.1%, net NPA ratio 0.5% as of Sept 30 
* Calibrated monetary policy key to fincl stability amid risks 
* Banks' capital adequacy ratio 17.4% Mar 31 vs 16.9% year ago 
* Banks to face competition to meet commercial sector's needs 
* Responsible tech adoption essential for banks 
* Banks' strong fundamentals support capacity for credit growth 
* Banks' strong fundamentals a buffer against risks 
* Banks' well capitalised, liquidity ratios above regulatory norms

 

NEW DELHI – The Indian banking sector remains resilient on strong capital buffers, robust earnings, and improved asset quality--with multi-decade low gross non-performing asset ratio--thereby ensuring credit flow to productive sectors, the Reserve Bank of India said Monday. Banks' gross non-performing asset ratio dropped to 2.1% at end of September from 2.2% in March, the central bank said in its Trend and Progress of Banking in India 2024-25 (Apr-Mar) report. Net NPA ratio as of end September was 0.5%.

 

Balance sheet saw double-digit expansion with deposits and credit growing in double digits in FY25, although with a moderation from the previous year, the report said. Banks' capital adequacy ratio was 17.2% end of September, slightly lower than 17.4% end of March. Profitability of banks remained robust with the return on assets at 1.3% and return on equity at 12.5% in Apr-Sept, the report said. This was, however, lower than 1.4% return on assets and 13.5% return on equity at the end of March.

 

"The Indian financial system remained resilient during 2024-25 and 2025-26, despite formidable global headwinds, including geopolitical risks, trade policy uncertainty and financial market volatility," the RBI said. "Balancing financial innovations with stability, strengthening public trust, and supporting sustainable development will continue to guide the Reserve Bank's policies going forward," it said. 

 

Excluding the HDFC Bank merger, Indian banks' credit grew 12.5% in FY25, lower than 16.0% in FY24. Deposits in the same period grew 11.4% as against 13.4% a year ago. The report also showed that the share of deposits in the total liabilities of private banks increased in FY25, while their borrowings fell. It added that mismatches between banks' assets and liabilities widened in the short term, or below 1-year maturity, bucket in FY25 compared with the previous year, although it remained low relative to the pre-pandemic levels.

As per the report, banks remain well-capitalised with leverage and liquidity ratios well above the regulatory minimum. "These strong fundamentals provide a buffer against risks and support the banking sector's capacity to sustain credit expansion." 

 

The RBI flagged that going forward, banks will continue to face competition from non-bank sources in meeting the resource requirements of the commercial sector. Furthermore, rapidly changing technology and digitalisation could change the way people transact with banks for their savings and credit needs, while also exposing the banking system to newer risks including cyber risks.

 

In this regard, the central bank is continuing to work with stakeholders, including the Ministry of Home Affairs, to develop and operationalise measures to curb digital and cyber-enabled fraud and strengthen customer protection. Recent initiatives by the RBI include development of MuleHunter.aiTM, to facilitate identification of potential mule accounts which are often linked to fruadulant activities, which has been implemented in 23 banks as of Dec. 17, the report said.

 

To combat the rising instances of fraud in digital payments, the RBI also launched an exclusive internet domain for Indian banks in the form of '.bank.in' on Apr. 22, with a proposal to later extend it to non-bank entities in the financial sector through '.fin.in'. As of Dec. 1, 638 banks initiated the process of obtaining the domain, of which 479 banks have already migrated to it, the report said.

 

"Strengthening risk assessment and improving operational efficiency through responsible technology adoption remain essential, with continued emphasis on financial inclusion, consumer education and protection," the central bank said. RBI is also working on reviewing the financial inclusion index to improve its coverage and parameter. 

 

The central bank believes artificial intelligence can help banks improve real-time fraud and mule account detection, while enabling hyperpersonalised loan solutions tailored to borrower needs and financial flows. But artifical intelligence carries incremental risks including poor model explainability, data or concept drift, automation complacency, and skill gaps which can lead to systemic errors or errors in credit assessments, it pointed out. 

 

In line with the steps taken to promote acceptance of Indian payment instruments globally through initiatives like interlinking the unified payment interface with fast payment systems of other countries in the last few years, the central bank is "actively pursuing measures" to further promote it, the report said. "...include enabling QR-based unified payments interface (UPI) acceptance for cross-border merchant (P2M) payments; interlinking UPI with fast payment systems in other countries for facilitating cross border remittance; and offering deployment of UPI and RuPay technology stack to other countries for development of similar fast payment system and domestic card scheme, respectively," it said.

 

Beyond the Indian banking sector, the report said that globally, policy makers need to remain vigilant to the evolving risks in the financial system amid rising trade and geopolitical uncertainty, technological innovations and climate risks. "Apart from prudent regulation and supervision, fiscal discipline and calibrated monetary policy actions also remain crucial for macro-financial stability in a state of heightened global uncertainty," the report said.

 

For India, climate risks--both physical and transition--may affect credit, market, liquidity, and operational risks and pose material threats to financial stability, RBI said. "To strengthen resilience, comprehensive climate risk assessment underpinned by robust data infrastructure and information flow mechanisms are required."

 

Despite the risks, Indian financial system's resilience is underpinned by a stable macroeconomic environment, sound macroeconomic policies and an agile regulatory and supervisory framework, the report said, with the central bank remaining watchful of emerging risks and challenges. 

 

Purely macroeconomically, the report said that India's near-term growth outlook remains positive despite global headwinds. At 8.2%, India's GDP growth in Jul-Sept was the highest in six quarters, driven by strong private consumption and despite muted government consumption. GDP growth averaged 8% in the first half of FY26 but economic activity is projected to slow down. The strong GDP growth print for the September quarter has pushed economists to raise their FY26 growth forecasts to around 7.5%. The RBI has also raised its growth projection to 7.3% from 6.8%. 

 

The global economy, too, displayed significant resilience to shocks that were largely not anticipated in early 2025, the central bank said, even though the outlook continues to be clouded amid heightened uncertainty. "Despite its current strength, global GDP growth is expected to slow down amidst trade policy uncertainty, while inflation to moderate," the report said.  End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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