Indian Banks Far More Mature Than a Decade Ago: RBI Governor
Reserve Bank of India Governor Sanjay Malhotra stated on Friday that Indian banks have become significantly more mature than they were a decade ago, crediting a series of regulatory measures focused on ‘recognition, resolution and recapitalisation’.
Key Takeaways
- Credit and deposits have expanded almost three times over the past decade.
- Capital adequacy (CRAR) improved from 13.5% (2015) to 17.5% (2025).
- Gross NPAs plummeted from 11.2% (2018) to 2.3% (2025).
- Return on Assets surged from -0.24% to 1.37% between FY18 and FY25.
Substantial Improvement in Banking Health
Governor Malhotra, speaking at the SBI Banking & Economics Conclave, highlighted dramatic improvements in key banking metrics. Capital buffers have strengthened considerably, with CRAR rising to 17.5% and CET-1 ratio increasing to 14.73% as of March 31, 2025.
“Asset quality has also improved. GNPA and NNPA have reduced to 2.3% and 0.5% in March 2025 after rising to highs of 11.2% and 5.96% respectively in March 2018. Profitability of banks has enhanced significantly,” the Governor stated.
Profitability metrics show remarkable recovery. Return on Assets increased from -0.24% to 1.37%, while Return on Equity jumped from -2% to 14% between financial years 2017-18 and 2024-25.
Regulatory Evolution and Future Approach
Malhotra emphasized that regulation must acknowledge this transformed performance. “This evolution implies that prudential rulebooks too should evolve in a calibrated manner as banks are now stronger and supervision more alert,” he said.
The RBI’s approach remains balanced: granting banks greater commercial freedom for growth and innovation while ensuring risks are minimized and financial stability is maintained.
He cited several key regulatory measures that contributed to this turnaround, including:
- Asset Quality Review (AQR) initiated in 2015
- Prompt Corrective Action (PCA) framework
- Consolidation of 27 public sector banks into 12 by 2020
- Introduction of Insolvency & Bankruptcy Code (IBC) in 2016
Vision for Advanced Economy by 2047
“We have set ourselves an ambitious goal of becoming an advanced economy by 2047. The financial sector has a large role to play in it. RBI remains steadfastly committed to this goal,” Malhotra concluded.
Liberalising Acquisition Finance
On acquisition finance, the Governor described it as “an integral element of an evolved financial system, that helps in better allocation of financial resources.”
He noted that non-bank players such as NBFCs and bond markets are already permitted to provide such funding, and removing restrictions on banks will benefit the real economy.
The proposed safeguards—including limiting bank funding to 70% of deal value, debt-to-equity ratio limits, and exposure limits relative to Tier-1 capital—are designed to contain risks while allowing banks to benefit from additional business opportunities.
