The performance of the Indian banking sector is intimately correlated with the overall health of the economy, perhaps more so than any other sector. The sector is tasked with supporting other economic sectors like agriculture, small-scale businesses, exports, and banking activities in developed commercial areas and remote rural areas. The improvement of asset quality, application of rational risk management procedures, and capital adequacy are some of the main functions of the Indian banking system.
Banking sector reforms are implemented to improve the condition of the banking system. Multiple banking sector reforms have been introduced in India in the context of economic liberalisation and the growing trend toward globalisation. The main objective is to improve operational efficiency and promote banks' health and financial reliability, so that Indian banks can meet internationally recognised standards of performance.
In 2021, the world suffered through multiple waves of the Covid-19 pandemic, bringing supply chain and logistics disruptions. In order to restore and sustain growth on a long-term basis while ensuring that inflation stays within the target range, India's monetary policy committee (MPC) decided to maintain the status quo on the policy repo rate. Additionally, the Reserve Bank of India (RBI) kept up its targeted efforts to address industry credit needs by:
The overall banking sector in India has evolved significantly over the last decade, from being major lenders to the industry, to being the majority providers of personal loans, vehicle loans, credit cards, and housing loans. Private banks are gradually taking over from public sector banks as the main lenders in the country. Between the end of 2016-2021, the outstanding loans of public sector banks have gone up by Rs. 14.4 trillion (US$ 180.26 billion), whereas the outstanding loans of private banks have gone up by Rs. 22.8 trillion (US$ 285.41 billion), which is a difference of almost 60%.
Another recent change in the banking sector is the emergence of e-banking, which is crucial in offering better services to clients. Internet banking, e-wallets, and mobile banking are some of the new methods that have replaced the traditional methods of conducting transactions.
The reforms in the Indian banking sector have been introduced to increase the efficiency, stability, and effectiveness of banks. Some of these recent reforms are:
India's financial regulators have helped craft one of the strongest banking and financial systems in the world. In order to provide better and more accessible banking experiences, the Indian government has implemented several reforms and policies, which help the country deal with any change in economic conditions and demographics.
Information technology and electronic money transfer systems have become the two cornerstones of modern banking development in the area of technology-based banking. Banks now offer a variety of products that go far beyond traditional banking, and these services are now available 24/7.
Consumers today are more demanding of virtual banking experiences due to the advancement of digital technologies. The pandemic has only increased the demand for stress-free access to financial products and services, and the necessity for quick and easy access to banking products, services, and information. After internet and mobile banking, payments banks will provide a third alternative channel, increasing efficiency and lowering expenses associated with serving customers in rural and semi-urban areas. Upcoming technical advancements, such as the digital rupee, will significantly impact India's banking sector as we move forward.