Total banking assets in India is expected to cross US$ 28.5 trillion in FY25.

Indian Banking Sector Snaphot

Latest update: August, 2015

Indian banking sector credit growth has grown at a healthy pace

• Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit

• Total credit extended went up to US$ 1,089 billion by FY15

• Credit to non-food industries increased 9.75 per cent to US$ 1,073.4 billion in FY15, from the previous financial year

• Demand has grown for both corporate and retail loans

Growth of ATMs in India
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Last Updated: August, 2015

SECTORAL REPORT | August, 2015


According to the Reserve Bank of India (RBI), the banking sector in India is sound, adequately capitalised and well-regulated. Indian financial and economic conditions are much better than in many other countries of the world. Credit, market and liquidity risk studies show that Indian banks are generally resilient and have withstood the global downturn well.

With a sense of optimism slowly creeping in, the banking industry expects that 2015 will bring better growth prospects. This optimism stems from factors such as the Government working hard to revitalise the industrial growth in the country and the RBI initiating a number of measures that would go a long way in helping the banks to restructure. The recent announcements of RBI, it is felt, are a clear pointer to the future of the restructured domestic banking industry.

Market Size

The Indian banking sector is fragmented, with 46 commercial banks jostling for business with dozens of foreign banks as well as rural and co-operative lenders. State banks control 80 percent of the market, leaving relatively small shares for private rivals.

At the end of February, 13.7 crore accounts had been opened under Pradhanmantri Jan Dhan Yojna (PMJDY) and 12.2 crore RuPay debit cards were issued. These new accounts have mobilised deposits of Rs 12,694 crore (US$ 2.01 billion).

Standard & Poor’s estimates that credit growth in India’s banking sector would improve to 12-13 per cent in FY16 from less than 10% in the second half of CY14.


There have been many investments and developments in the Indian banking sector in the past few months.

  • The United Economic Forum (UEF), an organisation that works to improve socio-economic status of the minority community in India has signed a memorandum of understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from backward communities to set up businesses in Tamil Nadu
  • The RBI has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and said white label ATMs can now tie up with any commercial bank for cash supply.
  • With the objective of increasing investment opportunities for Indian alternative investment funds (AIFs), the RBI has allowed these funds to invest overseas.
  • In a major boost for the infrastructure sector, as well as for banks financing long gestation projects, the RBI has extended its flexible refinancing and repayment option for long-term infrastructure projects to existing ones where the total exposure of lenders is more than Rs 500 crore (US$ 78.98 million).
  • Syndicate Bank is planning to open 300-500 branches in the next financial year
  • RBI governor Mr Raghuram Rajan and European Central Bank President Mr Mario Draghi have signed an MoU on cooperation in central banking. “The memorandum of understanding provides a framework for regular exchange of information, policy dialogue and technical cooperation between the two institutions. Technical cooperation may take the form of joint seminars and workshops in areas of mutual interest in the field of central banking,” RBI said on its website.
  • RBL Bank has announced that it would be the anchor investor in Trifecta Capital’s Venture Debt Fund, the first alternative investment fund (AIF) of its kind in India with a commitment of Rs 50 crore (US$ 7.89 million). This move provides RBL Bank the opportunity to support the emerging venture debt market in India.
  • The RBI has allowed banks to become insurance brokers, permitting them to sell policies of different insurance firms subject to certain conditions.
  • Bandhan Financial Services Pvt. Ltd has raised Rs 1,600 crore (US$ 252.69 million) from two international institutional investors to help convert its microfinance business into a full service bank. Bandhan was one of the two entities to get a banking licence in April 2014 along with infrastructure finance company IDFC Ltd.
  • Yes Bank Ltd has signed an MoU with the US government’s development finance institution Overseas Private Investment Corp (OPIC) to explore US$ 220 million of financing to lend to micro, small and medium enterprises (MSMEs) in India.
  • Reliance Industries Limited (RIL) has said that it has applied for a Payments Bank licence, where the company will be the promoter and State Bank of India will be its joint venture partner with an equity investment of up to 30 per cent.
  • The RBI has allowed bonds issued by multilateral financial institutions like World Bank Group, the Asian Development Bank and the African Development Bank in India as eligible securities for interbank borrowing. The move will further develop the corporate bonds market, RBI said in a notification.
  • The Competition Commission of India (CCI) has cleared the merger of ING Vysya Bank with Kotak Mahindra Bank, which would create the country's fourth largest private sector lender. The proposed Rs 15,000 crore (US$ 2.36 billion) deal is not likely to have any appreciable adverse effect on competition in India, as per the competition "The share of both entities in various relevant markets is insignificant," the CCI said.
  • Tata Consultancy Services Ltd (TCS), India’s largest software services exporter, has announced that it has expanded its presence in Singapore with the opening of a new 1,000-seat TCS Singapore banking and financial services (BFS) centre. The new centre replaces a 500-seat centre opened in 2011 and will offer a broader range of services to global banks in the Asia-Pacific region, with a major focus on digital offerings.

Government Initiatives

There have been a lot of developments in the Indian banking sector.

  • The Government has announced a capital infusion of Rs 6,990 crore (US$ 1.1 billion) in nine state run banks, including State Bank of India (SBI) and Punjab National Bank (PNB), but based on new efficiency parameters such as return on assets and return on equity. In a statement, the finance ministry said, “This year, the Government of India has adopted new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position."
  • The Union cabinet has approved the establishment of the US$ 100 billion New Development Bank (NDB) envisaged by the five-member BRICS group as well as the BRICS “contingent reserve arrangement” (CRA).
  • The RBI has decided to allow nominated banks to import gold, including coins, on a consignment basis, extending its clarification issued in November 2014, which had eased certain categories of gold imports.
  • To help Micro Small and Medium Enterprises (MSME), RBI has permitted setting up of an exchange-based trading platform to facilitate financing of bills raised by such small entities to corporate and other buyers, including government departments and PSUs.

Road Ahead

The Indian economy is now on the threshold of a major transformation, with expectations of policy initiatives being implemented. Positive business sentiments, improved consumer confidence and more controlled inflation should help boost the economic growth. Higher spending on infrastructure, speedy implementation of projects and continuation of reforms will provide further impetus to growth. All this translates into a strong growth for the banking sector too, as rapidly growing business turn to banks for their credit needs, thus helping them grow.

Also, with the advancements in technology, mobile and internet banking services have come to the fore. Banks in India are focusing more and more to provide better services to their clients and have also started upgrading their technology infrastructure, which can help improve customer experience as well as give banks a competitive edge.

Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and debit cards in the market soon. The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.

Exchange Rate Used: INR 1 = US$ 0.0157 as on April 28, 2015

References: Media Reports, Press releases, RBI Documents

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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