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India's banking sector thrives with digital growth and resilience
Sector is well-capitalised, profitable, ready for digital growth and support the country’s next stage of economic development
- PUBLISHED: Thu 5 Feb 2026, 12:47 PM
Bal Krishen, Chairman at Century Financial, said India’s banking sector changed significantly in the past five years and has now emerged as a stronger, more resilient, and better able to support the country’s long-term growth. For investors, this time marks a move from fixing balance sheets to focusing on steady growth.
“A key achievement has been the big improvement in asset quality. Gross NPAs for scheduled commercial banks dropped from about 8–9 per cent in FY19 to around 2.2 per cent by FY25, which is the lowest in decades. Net NPAs also fell to nearly 0.5 per cent. This shows that banks have dealt well with old problems through write-offs and recoveries, better lending practices, and stronger risk management. Provision coverage ratios stayed healthy at about 75–76 per cent, making banks more resilient and lowering risks,” Krishen told Khaleej Times.
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He noted that credit growth has picked up again. After slowing down due to IL&FS and Covid-19 pandemic, bank credit grew by 15–17 per cent during FY23–FY25, led by retail loans, Micro SMEs, services, real estate, agriculture, and infrastructure. By July 2025, he said bank credit was ₹189.3 lakh crore, and deposits were ₹238.2 lakh crore, allowing growth without too much borrowing. Household credit also went up, with household debt reaching about 41 per cent of GDP.
“Banks are now much stronger financially. The overall capital adequacy ratio went up from about 13 per cent in FY19 to around 17 per cent by FY25, which is well above what regulations require. This improvement came from government support, retained earnings, and raising new equity. RBI stress tests show that most banks would still have enough capital even in tough situations, highlighting the system’s stability,” he said.
Krishen said digitalisation has played a major role in these changes. In FY25, India processed 221.9 billion digital payment transactions, with UPI making up 83.7 per cent of them. This has lowered banks’ service costs. Financial inclusion grew quickly through Jan Dhan accounts, MUDRA loans, digital Kisan Credit Cards, and rural banking programs . At the same time, higher interest and fee income, along with strong NRI deposit inflows, improved banks’ earnings.
“In summary, India’s banking sector has gone from a period of stress to being well-capitalised, profitable, ready for digital growth, and set up to support the country’s next stage of economic development,” he said.
Banking Around You
Nanda Kumar, CEO and Founder at SunTec Business Solutions, said: “If you want a simple way to explain the last five years, it’s this: banking in India stopped being a place you go to and became something that happens around you.”
Aadhaar-led digital identity made “trust at scale” possible. One of the most consequential shifts has been the way Aadhaar-based authentication and eKYC reduced friction in onboarding and servicing. For banks, this wasn’t a small process improvement, it changed the economics of inclusion. What used to take days of paperwork could be completed in minutes, enabling mass acquisition and safer verification at a scale few countries have managed.
The UPI stack normalised instant, interoperable payments. You can see this in ordinary moments, namely small merchants, school fees, local transport, where digital payments are now default. But the real innovation is the stack: real-time rails, interoperability, and a design that lets banks and fintechs innovate on top of shared infrastructure. In December 2025 alone, UPI processed about 21.6 billion transactions, a scale that would have sounded implausible a few years ago.
India Stack industrialised end-to-end digital financial journeys. Aadhaar-enabled identity, eSign, and consent-led data sharing dramatically cut cost and complexity across the customer lifecycle – onboarding, activation, servicing, and increasingly credit journeys as well.
Inclusion moved from policy intent to operational reality. Jan Dhan accounts, mobile-first access, and digital onboarding together expanded formal banking access in rural and underserved regions, bringing new customers into the system in a sustainable way.
Credit and risk frameworks matured alongside growth. The system has strengthened underwriting discipline and governance, and balance sheets have improved, creating a healthier base for the next cycle of expansion.
India started exporting its payments playbook. What’s particularly noteworthy is that India is not just linking payment systems internationally; it is also helping other countries build UPI-like real-time rails. NPCI International has signed agreements to help develop domestic real-time payment systems in Peru and Namibia, and a similar platform for Trinidad & Tobago, a sign of how India’s DPI thinking is travelling.
Kalpesh Khakhria, Group Chairman at Klay Group, said policy initiatives such as the Pradhan Mantri Jan Dhan Yojana and demonetisation in 2016 accelerated the adoption of digital payment platforms including Unified Payments Interface (UPI), NEFT, and other electronic modes.
Subsequently, the onset of the Covid-19 pandemic and a heightened preference for liquidity among households led to a sharp increase in the share of financial savings, providing a structural boost to the banking sector.
“Regulatory and legislative reforms — such as the Insolvency and Bankruptcy Code (IBC), consolidation of public sector banks, new banking licenses for payment banks, small finance banks, and microfinance institutions, and the push toward formalisation through GST — have further strengthened the financial ecosystem.
