Banking Sector in India

Compared to the world's developed nations, 40% of the world's total digital transactions happen in India.

Advantage India

Robust
Demand

*Increase in working population and growing disposable income will raise the demand for banking and related services.

*By 2025, India's fintech market is expected to reach Rs. 6.2 trillion (US$ 83.48 billion).

Innovation in
Services

*Mobile, internet banking and extension of facilities at ATMs will improve operational efficiency.

*RBI announced the launch of its first global hackathon 'HARBINGER 2021 – Innovation for Transformation' with the theme ‘Smarter Digital Payments’.

Business
Fundamentals

*Rising fee incomes are improving the revenue mix of banks.

*High net interest margins along with low NPA levels will ensure healthy business fundamentals.

Policy
Support

*Wide policy support in the form of private sector participation and liquidity infusion.

*RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to increase retail participation in government securities.

Snapshot Showcase Infographics Reports

Last updated: Sep, 2022

Banking Industry Report

Jun, 2022

Introduction

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.

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.

Market Size

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions As of September 2021, the total number of ATMs in India reached 213,145 out of which 47.5% are in rural and semi urban areas.

In 2020-2022, bank assets across sectors increased. Total assets across the banking sector (including public and private sector banks) increased to US$ 2.67 trillion in 2022.

In 2022, total assets in the public and private banking sectors were US$ 1,594.51 billion and US$ 925.05 billion, respectively.

During FY16-FY21, bank credit increased at a CAGR of 0.29%. As of FY21, total credit extended surged to US$ 1,487.60 billion. During FY16-FY21, deposits grew at a CAGR of 12.38% and reached US$ 2.06 trillion by FY21. Bank deposits stood at Rs. 165.74 trillion (US$ 2.11 trillion) as of May 20, 2022.

According to India Ratings & Research (Ind-Ra), credit growth is expected to hit 10% in 2022-23 which will be a double digit growth in eight years. As of July 29, 2022 bank credit stood at Rs. 123.69 lakh crore (US$ 1,553.23 billion).

As of July 29, 2022 credit to non-food industries stood at Rs. 123.36 lakh crore (US$ 1.54 trillion).

Investments

Key investments and developments in India’s banking industry include:

On June, 2022, the number of bank accounts—opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached 45.60 crore and deposits in the Jan Dhan bank accounts totaled Rs. 1.68 trillion (US$ 21.56 billion).
In April 2022, India’s largest private bank HDFC Bank announced a transformational merger with HDFC Limited.
On November 09, 2021, RBI announced the launch of its first global hackathon 'HARBINGER 2021 – Innovation for Transformation' with the theme ‘Smarter Digital Payments’.
In November 2021, Kotak Mahindra Bank announced that it has completed the acquisition of a 9.98% stake in KFin Technologies for Rs. 310 crore (US$ 41.62 million).
In July 2021, Google Pay for Business has enabled small merchants to access credit through tie-up with the digital lending platform for MSMEs—FlexiLoans.
In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’ Association issued a revised code of conduct for digital lending.
On November 6, 2020, WhatsApp started UPI payments service in India on receiving the National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a graded manner.
In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife Programme’, a holistic healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform.
In 2019, banking and financial services witnessed 32 M&A (merger and acquisition) activities worth US$ 1.72 billion.
In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in green bonds through private placement.
In February 2020, the Cabinet Committee on Economic Affairs gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20 - till 2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI.

Government Initiatives

National Asset reconstruction company (NARCL) will take over, 15 non-performing loans (NPLs) worth Rs. 50,000 crores (US$ 6.70 billion) from the banks.
National payments corporation India (NPCI) has plans to launch UPI lite this will provide offline UPI services for digital payments. Payments of upto Rs. 200 (US$ 2.67) can be made using this.
In the Union budget of 2022-23 India has announced plans for a central bank digital currency (CBDC) which will be possibly know as Digital Rupee.
National Asset reconstruction company (NARCL) will take over, 15 Non performing loans (NPLs) worth Rs. 50,000 crores (US$ 6.70 billion) from the banks.
In November 2021, RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to increase retail participation in government securities.
The RBI introduced new auto debit rules with a mandatory additional factor of authentication (AFA), effective from October 01, 2021, to improve the safety and security of card transactions, as part of its risk mitigation measures.
In September 2021, Central Banks of India and Singapore announced to link their digital payment systems by July 2022 to initiate instant and low-cost fund transfers.
In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and purpose-specific digital payment solution. e-RUPI is a QR code or SMS string-based e-voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment mechanism will be able to redeem the voucher at the service provider without the usage of a card, digital payments app, or internet banking access.
As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatise two public sector banks.
Government smoothly carried out consolidation, reducing the number of Public Sector Banks by eight.
In May 2022, Unified Payments Interface (UPI) recorded 5.95 billion transactions worth Rs. 10.41 trillion (US$ 133.46 billion).
According to the RBI, India’s foreign exchange reserves reached US$ 630.19 billion as of February 18, 2022.
The number of transactions through immediate payment service (IMPS) reached 430.67 million and amounted to Rs. 3.70 trillion (US$ 49.75 billion) in October 2021.

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. 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.

In recent years India has experienced a rise in fintech and microfinancing. India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in digital disbursements. The Indian fintech market has attracted $29 billion in funding over 2,084 deals so far (January 2017-July 2022), accounting for 14% of global funding and ranking second in terms of deal volume. By 2025, India's fintech market is expected to reach Rs. 6.2 trillion (US$ 83.48 billion).