Advantage India
Robust
Demand
*Public Sector Banks recorded their highest-ever annual net profit of Rs. 1.98 lakh crore (US$ 224.04 billion) in FY26, while total business increased to Rs. 283.3 lakh crore (US$ 3,205.57 billion).
*In February 2026, Moody’s projected a stable outlook for India’s banking sector, supported by strong economic growth of 6.4% in FY27 and low system-wide non-performing assets expected at 2–2.5%, reinforcing confidence in asset quality and credit expansion across the banking system.
Innovation in
Services
*In the recent period, technological innovations have led to marked improvements in efficiency, productivity, quality, inclusion and competitiveness in the extension of financial services, especially in the area of digital lending.
*Digitalization of Agri-finance was conceptualized jointly by the Reserve Bank and the Reserve Bank Innovation Hub (RBIH). This will enable delivery of Kisan Credit Card (KCC) loans in a fully digital and hassle-free manner.
*In February 2026, Axis Bank launched rooftop solar finance for MSMEs, offering collateral-free loans from Rs. 10 lakh (US$ 0.01 million) to Rs. 2 crore (US$ 0.23 million) to support solar adoption, reduce energy costs and strengthen long-term financial resilience.
Business
Fundamentals
*The Indian banking industry has seen robust growth, driven by strong economic expansion, rising disposable incomes, growing consumerism, and easier credit access.
*Digital modes of payments have grown by leaps and bounds over the last few years.
*In May 2026, transactions through UPI stood at Rs. 29.90 lakh crore (US$ 313.44 billion) in value and 23.20 billion in volume across 720 banks, reflecting the continued expansion of India's real-time digital payments ecosystem.
Policy
Support
*The RBI has launched a pilot to digitalize KCC lending in a bid for efficiency, higher cost savings, and reduction of TAT. This is expected to transform the flow of credit in the rural economy.
*RBI reduced the policy repo rate to 5.5% in June 2025, along with a 25 basis points cut in Cash Reserve Ratio (CRR) to support liquidity and lending, which is expected to stimulate demand in the banking sector.
Introduction
India’s banking sector stands as a pillar of the nation’s economic progress, playing a vital role in mobilising capital, expanding credit access, and driving financial inclusion. While it continues to navigate challenges such as regulatory shifts, rising operational costs, and growing competition from fintech players, the sector is simultaneously embracing opportunities brought by digital innovation, structural reforms, and evolving customer needs. From UPI’s global reach to a surge in fintech investments and grassroots financial schemes like Jan Dhan Yojana, India’s banking landscape is undergoing a dynamic transformation, laying the groundwork for a more inclusive, tech-driven, and resilient financial ecosystem.
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.The Indian banking industry has recently witnessed the rollout of innovative banking models like payments and small finance banks.
In recent years India has also focused on increasing its banking sector reach, through various schemes like the Pradhan Mantri Jan Dhan Yojana and Post payment banks. Schemes like these coupled with major banking sector reforms like digital payments, neo-banking, a rise of Indian NBFCs and fintech have significantly enhanced India’s financial inclusion and helped fuel the credit cycle in the country. Indian Fintech industry is estimated to be at Rs. 12,99,450 crore (US$ 150 billion) by 2025. India has the third largest FinTech ecosystem globally. India is one of the fastest-growing Fintech markets in the world. There are currently more than 2,000 DPIIT-recognized Financial Technology (FinTech) businesses in India, and this number is rapidly increasing.
The digital payments system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments Innovation Index (FPII). India’s Unified Payments Interface (UPI) has also revolutionized real-time payments and strived to increase its global reach in recent years.
Banks are launching new online services and AI-powered chatbots to make digital banking more secure and convenient. Two-factor authentication and biometric verification are being strengthened to safeguard digital transactions.
As per the latest guidelines of the National Payments Corporation of India (NPCI), the UPI ID of customers linked to an inactive mobile number will become inactive.
Market Size
As of May 2026, India's banking infrastructure continued to strengthen with 210,114 ATMs and CRMs, 11.53 million PoS terminals, 5.60 million micro-ATMs, over 1.03 billion UPI QR codes and 120.45 million Bharat QR codes. The country also had 290.36 million credit cards and 296.72 million debit cards in circulation, reflecting the rapid expansion of both physical and digital payment infrastructure. Led by major banks such as State Bank of India, HDFC Bank and ICICI Bank, this growing payments ecosystem continues to accelerate digital transactions, deepen merchant acceptance and strengthen financial inclusion across urban and rural India.
In 2026, total assets in the public and private banking sectors were Rs. 1,92,47,302 crore (US$ 2,177.33 billion) and Rs. 1,30,11,622 crore (US$ 1,472.29 billion), respectively. The interest income of public banks reached Rs. 12,48,450 crore (US$ 141.26 billion) in 2026. In 2026, interest income in the private banking sector reached Rs. 9,39,660 crore (US$ 106.32 billion). The interest income of public banks reached Rs. 11,89,229 crore (US$ 139.14 billion) in 2025.
Credit under the housing segment grew to Rs. 30,10,477 crore (US$ 348.0 billion) as of March 2025 and further reached Rs. 33,05,691 crore (US$ 364.1 billion) by February 2026, reflecting sustained demand for home loans and stronger momentum in housing finance supported by rising urbanisation and affordable housing demand.
Credit under the housing segment continued to expand, increasing from Rs. 30,37,367 crore (US$ 358.95 billion) as of May 2025 to Rs. 33,69,034 crore (US$ 353.12 billion) by May 2026. The sustained growth in housing credit reflects resilient demand for home loans, supported by rising urbanisation, improving affordability, and continued momentum in the residential real estate market.
The number of banks live on UPI increased from 668 in April 2025 to 705 by March 2026, while monthly transaction volume grew from 17.89 billion to a record 22.64 billion.
Non-resident deposits with the Indian banking system continued to register steady growth, with total outstanding deposits increasing from Rs. 14.09 lakh crore (US$ 164.68 billion) at the end of March 2025 to Rs. 15.68 lakh crore (US$ 165.65 billion) by the end of March 2026.
Bank deposits grew steadily to Rs. 26,538,623 crore (US$ 2,781.59 billion) as on 31 May 2026, reflecting continued improvement in savings mobilization, stronger household deposits and sustained confidence in India’s banking system amid expanding financial inclusion and economic growth.
Investments/Developments
Key investments and developments in India’s banking industry include:
- Emirates NBD's acquisition of a 62% stake in RBL Bank marks the largest foreign direct investment in India's banking sector. The transaction reflects growing global investor confidence in India's banking industry and is expected to strengthen capital availability.
- In May 2026, India's digital payment infrastructure continued to witness robust transaction activity through both NEFT and RTGS. NEFT processed over 849.63 million transactions amounting to Rs. 42.33 lakh crore (US$ 443.63 billion), while RTGS facilitated high-value fund transfers worth Rs. 186.19 lakh crore (US$ 1,951.48 billion) across 31.54 million transactions.
- In May 2026, Slice Small Finance Bank launched India's first AI-powered phygital banking branch in Guwahati, integrating AI-enabled self-service kiosks, paperless banking and digital onboarding.
- In April 2026, Punjab National Bank partnered with Kiwi to expand Credit on UPI by launching the PNB Kiwi RuPay Credit Card with fully digital onboarding and seamless UPI integration.
- In February 2026, HDFC Bank inaugurated its new Tech & Digital Factory in Guwahati, its fourth such facility in India, to strengthen AI, cloud, cybersecurity and digital innovation capabilities while expanding technology talent development in Northeast India.
- In February 2026, the Reserve Bank of India approved SBI Mutual Fund to acquire up to 9.99% stake in Bandhan Bank, supporting strategic investment activity and strengthening investor confidence in India’s banking sector.
- Indian tourists can now use the Unified Payments Interface (UPI) at major United Arab Emirates (UAE) outlets such as Dubai Duty Free and Lulu Hypermarket, with this acceptance live as of the latest update from National Payments Corporation of India (NPCI) International. NPCI International is now expanding UPI integration across more high-frequency sectors in the UAE in line with the Government of Dubai’s goal of achieving 90% digital transactions by 2026.
- In May 2025, Japan’s Sumitomo Mitsui Banking Corporation (SMBC) agreed to acquire a 20% stake in Yes Bank for Rs. 13,480 crore (US$ 1.58 billion), marking the largest foreign investment in an Indian bank to date.
- In early August 2025, AU Small Finance Bank received in-principle approval from the RBI to become the first small finance bank in nearly a decade to transition into a universal bank, expanding its lending and service capabilities.
- On August 7, 2025, the RBI approved RBL Bank’s acquisition of a stake in Utkarsh Small Finance Bank (USFBL) post-amalgamation, supporting its growth in the small finance banking sector.
- On April 28, 2025, an announcement was made about the "Digital Assam 2025" initiative. It includes the distribution of free smartphones to women associated with self-help groups, subsidized data packs to promote mobile banking, and a massive expansion of high-speed internet access under BharatNet Phase 2. These measures aim to boost mobile banking adoption in rural Assam.
- Banks are launching new online services and AI-powered chatbots to make digital banking more secure and convenient. Two-factor authentication and biometric verification are being strengthened to safeguard digital transactions.
- As per the latest guidelines of the National Payments Corporation of India (NPCI), the UPI ID of customers linked to an inactive mobile number will become inactive.
- Union Minister of Finance, Ms. Nirmala Sitharaman, announced that over Rs. 38,98,350 crore (US$ 450 billion) has been transferred through Direct Benefit Transfers (DBT) to citizens in the last eight years.
- The Defence Accounts Department (DAD) has entered into Memoranda of Understanding (MoUs) with four banks in New Delhi. This partnership will establish SPARSH [System for Pension Administration (Raksha)] Service Centres at 1,128 branches of these four banks nationwide. It aims to enhance last-mile connectivity for pensioners, particularly in remote regions.
- Digital payments have significantly increased in recent years, because of coordinated efforts of the Government and RBI with all the stakeholders, UPI volume for FY24 (until May) recorded to 27,338.
- Google India Digital Services (P) Limited and NPCI International Payments Ltd (NIPL), have signed a Memorandum of Understanding (MoU) to expand the transformative impact of UPI to countries beyond India.
- The banking, financial services, and insurance (BFSI) sector in India is projected to exceed last year's record of approximately 11 million square feet (msf) in office leasing, according to JLL. Between January and September 2024, BFSI leasing accounted for around 8.8 msf, representing 16.4% of India's total gross leasing of 53.4 msf.
- Warehousing Development Regulatory Authority and Punjab & Sind Bank signed Memorandum of Understanding to facilitate low interest rate loans to farmers.
- Fincare Small Finance Bank Limited (Fincare) and AU Small Finance Bank Limited (AU) has merged, with AU being the surviving entity (merged entity).
- Shriram Housing Finance Limited (SHFL), a provider of affordable housing finance services, was acquired by Warburg Pincus for Rs. 4,757 crore (US$ 554 million) on May 13, 2024. It was a key acquisition with 100 percent stake acquired.
- The BFSI sector in India saw 64 M&A and private equity (PE) deals in Q3 CY24, with a total value of Rs. 27,472 crore (US$ 3.2 billion). High-value deals exceeding Rs. 2,576 crore (US$ 300 million) accounted for nearly Rs. 12,878 crore (US$ 1.5 billion), as per data by Grant Thornton.
- In September 2024, IDFC FIRST Bank completed its reverse merger with parent IDFC Limited, offering 155 equity shares for every 100 shares held in IDFC Limited.
- In 2024, Kohlberg Kravis Roberts & Co. (KKR) acquired a controlling stake in HDFC Credila, India’s largest education loan NBFC, in a deal worth Rs. 9,444 crore (US$ 1.1 billion).
Government Initiatives
- In April 2026, the Reserve Bank of India launched Mission SAKSHAM, a nationwide capacity-building initiative for the urban co-operative banking sector. The programme aims to strengthen governance, improve operational capabilities, enhance compliance standards and build greater institutional resilience, supporting the sustainable growth of urban co-operative banks.
- In February 2026, the RBI introduced measures to strengthen cooperative banks through higher housing loan limits, expanded branch openings, improved deposit security and priority sector lending support for cooperative societies via NCDC. Digital inclusion was further supported through ‘Sahakar Sarthi’ and upgraded IT infrastructure, improving banking access and governance across urban and rural cooperative banks.
- In February 2026, the government launched a Central Bank Digital Currency (CBDC)-based Public Distribution System (PDS) in Gujarat to enable secure, transparent and faster food grain distribution for beneficiaries.
- The Government of India plans to expand the network of Digital Banking Units (DBUs) by nearly doubling their count to 200 by the end of FY26. This initiative aims to enhance financial inclusion by allowing DBUs to offer a wider range of financial products, including insurance and pension schemes.
- In Union budget 2024-25, announcement made to open 100 branches of India Post Payment Bank are set to be established in the North East region to enhance banking services.
- As of May 2024, the Jan Dhan Yojana scheme has banked 52.30 crore beneficiaries, with a total amount of Rs. 2,28,057 crore (US$ 27.32 billion).
- Bank accounts opened under GoI Pradhan Mantri Jan Dhan Yojana have deposits of over Rs. 2,17,701 crore (US$ 25.13 billion) in beneficiary accounts. 51.11 crore beneficiaries banked till December 15, 2023.
- India strengthens banking sector with ‘Baanknet,’ a unified e-auction platform enhancing PSB recoveries, transparency, and credit availability.
- National Asset reconstruction company (NARCL) will take over, 15 non-performing loans (NPLs) worth Rs. 50,000 crore (US$ 6.70 billion) from the banks.
- National payments corporation India (NPCI) has plans to launch UPI lite which will provide offline UPI services for digital payments. Payments of up to Rs. 200 (US$ 2.67) can be made using this.
- National Asset reconstruction company (NARCL) will take over, 15 non-performing loans (NPLs) worth Rs. 50,000 crore (US$ 6.70 billion) from the banks.
- As per the Union Budget 2023-24, the RBI has launched a pilot to digitalize Kisan Credit Card (KCC) lending in a bid for efficiency, higher cost savings, and reduction of TAT. This is expected to transform the flow of credit in the rural economy.
- Additionally, the government proposed to introduce a digital rupee or a Central Bank Digital Currency (CBDC) which would be issued by the RBI using blockchain and other technologies.
- According to the Economic Survey 2022-23, over the last few years, the number of neo banking platforms and global investments in the neo-banking segment has also risen consistently. Neo-banks operate under mainstream finance's umbrella but empower specific services long associated with traditional institutions such as banks, payment providers, etc.
Road Ahead
Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector. All these factors suggest that India’s banking sector is poised for robust growth as rapidly growing businesses will turn to banks for their credit needs. The advancement in technology has brought mobile and internet banking services to the fore. AI and automation are demonstrating unprecedented value while Blockchain has sparked innovation throughout the business landscape and is poised to continue in doing so. The banking sector is laying greater emphasis on providing improved services to their clients and upgrading their technology infrastructure to enhance customer’s overall experience as well as give banks a competitive edge.
References: Media Reports, press releases, Reserve Bank of India, Press Information Bureau, PMJDY Website
FAQs
The banking sector in India comprises public sector banks, private banks, foreign banks, small finance banks, payments banks, and cooperative banks. It plays a vital role in mobilising savings, providing credit, enabling digital payments, and supporting economic growth.
The India banking system operates under the regulation of the Reserve Bank of India (RBI), with banks accepting deposits, extending credit, facilitating digital payments, and delivering financial services through physical branches and digital banking platforms.
The Indian banking ecosystem includes public sector banks, private sector banks, foreign banks, regional rural banks, cooperative banks, small finance banks, and payments banks. Each category serves different customer segments while expanding financial inclusion and credit access.
The Reserve Bank of India (RBI) regulates the banking industry in India by maintaining financial stability, supervising banks, managing monetary policy, ensuring payment system efficiency, and introducing reforms that strengthen governance, digital banking, and financial inclusion.
The banking sector in India is being transformed through UPI, AI-powered banking, digital payments, biometric authentication, CBDC, and mobile banking. Rapid expansion of QR codes, PoS terminals, and digital infrastructure is making banking faster, safer, and more accessible.
The banking industry in India is expanding due to digital payments, fintech innovation, financial inclusion, rising credit demand, increasing deposits, housing finance growth, and wider adoption of UPI and other digital banking services.
The Government is strengthening the banking sector in India through PM Jan Dhan Yojana, Digital Banking Units, Mission SAKSHAM, CBDC initiatives, India Post Payments Bank expansion, Baanknet, and RBI reforms that enhance financial inclusion and digital banking.
The banking sector in India supports economic growth by mobilising savings, financing businesses, promoting financial inclusion, enabling digital transactions, and expanding credit access. It also plays a critical role in infrastructure financing and inclusive economic development.
The banking industry in India is expected to witness sustained growth, driven by AI, fintech collaboration, digital banking, blockchain, automation, and expanding credit demand. Continued reforms and technology adoption will further strengthen India's banking ecosystem.
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