India’s monetary and financial sectors have remained stable in the first nine months of FY25.
Key trends include: steady credit growth, improved bank profitability, declining NPAs, strong capital markets, and progress in financial inclusion.
Challenges exist in the form of increasing consumer credit, unsecured lending, and risks associated with non-bank financing.
RBI’s Monetary Policy Committee (MPC) maintained the policy repo rate at 6.5% throughout April–December 2024.
Policy stance changed from ‘withdrawal of accommodation’ to ‘neutral’ in October 2024 to balance growth and inflation.
Cash Reserve Ratio (CRR) reduced from 4.5% to 4% in December 2024, injecting ₹1.16 lakh crore into the banking system.
Reserve Money (M0) growth slowed to 3.6% YoY (Jan 2025) from 6.3% a year ago.
Broad Money (M3) growth was 9.3% YoY (Dec 2024) compared to 11% in Dec 2023, reflecting liquidity moderation.
Money Multiplier (MM) increased to 5.7 (Dec 2024), indicating efficient credit creation in the banking system.
Increased financial inclusion and digital banking led to a decline in cash holdings, raising the MM.
Gross Non-Performing Assets (GNPAs) declined to a 12-year low of 2.6% (Sept 2024) due to better loan recoveries and reduced slippages.
Capital Adequacy Ratio (CRAR) of Scheduled Commercial Banks (SCBs) stood at 16.7% (Sept 2024), well above regulatory norms.
Bank profitability improved, with profit after tax (PAT) rising 22.2% YoY in H1 FY25.
Net Interest Margin (NIM) declined slightly, but return on assets (RoA) and return on equity (RoE) improved.
Bank credit growth moderated to 11.8% YoY (Nov 2024) from 15.2% in the previous year due to rising interest rates and regulatory changes.
Growth in term deposits outpaced savings deposits, reflecting preference for higher returns.
Credit-to-GDP ratio improving, indicating a revival in credit demand.
Agriculture credit growth at 5.1% (Nov 2024), supporting rural financial stability.
Industrial credit picked up to 4.4% (Nov 2024), with strong MSME lending (13% YoY growth).
Personal loans and NBFC credit growth moderated, due to RBI’s increased risk weights for consumer lending.
Financial Inclusion Index rose from 53.9 (March 2021) to 64.2 (March 2024), driven by digital payments and banking expansion.
Regional Rural Banks (RRBs) recapitalized with ₹10,890 crore in FY22-FY23, leading to improved profitability and reduced NPAs.
Credit-to-deposit ratio of RRBs increased to 71.2% (March 2024), highest in 33 years.
DFIs support infrastructure financing and long-term economic development.
Key DFIs in India:
Infrastructure Finance Company (IIFCL): Financed over 780 projects worth ₹13.9 lakh crore, supporting highways, energy, and port infrastructure.
NaBFID (established in 2021): Sanctioned ₹1.3 lakh crore loans, focusing on roads, power, railways, and renewable energy.
India's stock market outperformed global peers, reaching new highs despite geopolitical tensions.
IPO boom: Number of IPOs increased by 32.1% YoY (April–Dec 2024); IPO funding tripled to ₹1.53 lakh crore.
Debt market expanded, with corporate bond issuance reaching ₹7.3 lakh crore (April–Dec 2024).
Nifty 50 gained 4.6% in 2024, though growth moderated post-September due to global economic uncertainties.
Market Capitalization-to-GDP ratio reached 136% (Dec 2024), reflecting rising investor confidence.
Demat accounts surged to 18.5 crore (Dec 2024), driven by retail participation.
Mutual fund industry grew rapidly, with Assets Under Management (AUM) rising to ₹66.9 lakh crore (+25.3% YoY).
SIP (Systematic Investment Plan) contributions doubled in three years, highlighting retail investors' growing role in capital markets.
Rising consumer credit and unsecured loans pose risks to financial stability.
Regulatory interventions needed to prevent overleveraging by young and first-time borrowers.
AI adoption in Indian banks is improving risk management, fraud detection, and credit underwriting.
Risks include lack of transparency, cyber threats, and regulatory challenges.
RBI announced a regulatory sandbox for AI applications in finance to ensure ethical AI deployment.
1068 corporate resolutions under IBC recovered ₹3.6 lakh crore for creditors.
79 distressed companies were sold as going concerns, ensuring business continuity.
IBC led to lower credit spreads, improved bond market confidence, and enhanced debtor discipline.
Challenges: Delays in NCLT proceedings, high legal costs, and need for faster resolution mechanisms.
Expansion of financial inclusion through digital banking.
Strengthening capital markets to support infrastructure and corporate growth.
Use of AI and digital tools to enhance banking efficiency.
Managing risks in consumer lending and non-bank finance.
Improving insolvency resolution to free up capital for productive use.
Enhancing regulatory framework for AI, cybersecurity, and financial stability.
Monetary Policy & Inflation Control
RBI's cautious monetary policy to balance inflation and growth.
CRR cut to infuse liquidity into the banking system.
Banking Sector Stability & Credit Growth
Declining NPAs and improved capital adequacy.
Strong growth in MSME credit, but moderation in personal loans and NBFC lending.
Capital Market Growth & Investment Trends
IPO boom and mutual fund expansion driving financial deepening.
Corporate bond market remains underdeveloped, requiring structural reforms.
Structural Reforms & Digital Finance
AI integration in banking presents both opportunities and risks.
Insolvency resolution improving, but delays in NCLT need addressing.
