Indian banks far more mature than a decade ago: Malhotra Business News & Hub

’Owing to a series of regulatory measures aimed at ‘recognition, resolution and recapitalisation’ of the banking system, Indian banks today are far more mature than they were a decade ago, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Friday. 

He said today credit and deposits have expanded almost three times. Capital buffers have strengthened too – CRAR rose from 13.5% as on March 31, 2015 to 17.5% as on March 31, 2025 with CET-1 increasing from 10.43% to 14.73% during the same period. 

“Asset quality has also improved. GNPA and NNPA have reduced to 2.3% and 0.5% in March 2025 after rising to highs of 11.2% and 5.96% respectively in March 2018. Profitability of banks has enhanced significantly,” the Governor said while speaking at the SBI Banking & Economics Conclave.  

“Between FYs 2017-18 and 2024-25, Return on Assets increased from -0.24% to 1.37%, and Return on Equity jumped from -2% to 14%. Regulation cannot ignore this performance, these changed realities,” he emphasized. 

“This evolution implies that prudential rulebooks too should evolve in a calibrated manner as banks are now stronger and supervision more alert even as alternative risk-bearing pillars have deepened and market-based risk transfer mechanisms have become more effective,” he said.

Mr. Malhotra said regulatory measures such as Asset Quality Review (AQR) initiated in 2015, Prompt Corrective Action (PCA) framework, consolidation of 27 public sector banks into 12 by 2020, introduction of Insolvency & Bankruptcy Code (IBC in 2016, Project Finance Directions regulatory measures such as Capital Market Exposure (CME), Market Mechanism for Large Borrowers, Reduction in Risk Weights for Infrastructure exposures of NBFCs and External Commercial Borrowing (ECB) framework had been balanced and appropriate.

These were built on the bedrock of a banking system that has been systematically fortified over the last decade, with financial stability remaining the unwavering cornerstone of RBI’s policy architecture, he said. 

He emphasised that the RBI’s approach was calibrated: granting banks greater commercial leeway for growth, innovation and ease of doing business, while ensuring that risks were minimised and financial stability was maintained.

“We have set ourselves an ambitious goal of becoming an advanced economy by 2047. The financial sector has a large role to play in it. RBI remains steadfastly committed to this goal. We will ensure that our financial system evolves responsibly to support innovation, growth, and long-term economic resilience,” he concluded. 

Acquisition finance

Commenting on acquisition finance, he said “it is acknowledged as an integral element of an evolved financial system, that helps in better allocation of financial resources.”

“Recognising its need, non-bank players such as NBFCs and bond markets are already allowed to provide such funding. Removal of the restriction on banks will benefit the real economy,” he emphasized.

“The proposed guardrails like limiting bank funding to 70 per cent of deal value, limits on debt to equity ratio, aggregate exposure limits relative to Tier-1 capital, and eligibility criteria will contain concentration and credit risks, thereby ensuring safety while allowing banks and their stakeholders to reap benefits of additional business,” the governor said.