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Two key figures of India’s financial architecture—the Finance Minister, Smt. Nirmala Sitharaman, and the RBI Governor, Mr. Malhotra—have recently articulated their vision for building larger, stronger, and more scalable banks. While the Finance Minister spoke of creating many world-class banks, the RBI Governor emphasised the need for large-scale, carefully calibrated reforms to strengthen an already robust banking ecosystem.

Both were speaking at the recently concluded SBI Banking and Economic Conclave.

India’s banking sector has scaled new heights in the 21st century. In the aftermath of the 2007–08 Global Financial Crisis—which exposed overleveraged corporates, stressed bank balance sheets and external vulnerabilities—India was even placed among the “Fragile Five” emerging economies (Turkey, Indonesia, Brazil, South Africa, and India).

That phase marked the beginning of deep structural corrections.

From 2014 onwards, a comprehensive clean-up began, driven by regulatory measures focused on recognition, resolution, and recapitalisation. A crucial milestone was the 2015 Asset Quality Review (AQR), which forced banks to disclose the true extent of NPAs. The Prompt Corrective Action (PCA) framework helped restore the health of weak banks, while enhanced supervisory tools such as periodic stress tests ensured sustained discipline.

This was followed by consolidation—27 public sector banks were merged into 12 by 2020. A massive recapitalisation programme during the pandemic further strengthened capital buffers and helped banks revive healthy lending practices.

The introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 transformed India’s credit culture. Over the last nine years, cumulative debt recovery has reached approximately ₹48 lakh crore across more than 1,200 cases.

Parallel reforms strengthened monetary and macroeconomic stability: adoption of flexible inflation targeting, deepening of forex markets, and gradual capital account liberalisation. Simultaneously, the growth of NBFCs, MFIs and FinTechs has reshaped the financial landscape—they now play a major role in credit sourcing and distribution. Capital markets have matured, enabling credit risk transfer through securitisation. New Project Finance Directions have addressed risks linked to land and regulatory approvals. The upcoming Expected Credit Loss (ECL) regime is expected to ensure earlier and more accurate recognition of asset quality deterioration.

Over time, Indian banking has matured significantly and is now closer to global standards. As the RBI Governor noted, strong bank balance sheets have contributed to India’s remarkable resilience amid global headwinds—steering steady growth, maintaining stability, and attracting investment even as many economies slow.

The numbers reinforce this confidence. Credit and deposits have nearly tripled. CRAR has risen from 13.5% (March 2015) to 17.5% (March 2025). GNPA and NNPA ratios have declined to 2.3% and 0.5% respectively. Profitability has improved sharply—between FY 2017–18 and FY 2024–25, Return on Assets increased from –0.24% to 1.37%, while Return on Equity rose from –2% to 14%.

At this juncture, the Finance Minister’s vision appears both realistic and timely. She emphasised creating an ecosystem where more banks can grow and scale. With the number of state-run banks reduced from 27 to 12 through mergers in 2017 and 2019, her suggestion that the government and RBI are exploring multiple models—including fresh mergers and creation of new institutions—gains importance.

However, in an era when the government prioritises financial inclusion, technology becomes indispensable. The Finance Minister stressed India’s cautious approach to AI—encouraging innovation while ensuring national security and ethical safeguards through a “soft-touch” regulatory framework.

Yet, she also reminded public sector banks to retain the “human touch”—such as deploying staff who understand local languages and communities. While technology boosts efficiency, productivity and profitability, customer experience still depends on empathetic human engagement.

The broader strategy for banking expansion must therefore be calibrated: allowing banks commercial freedom to innovate and grow, while safeguarding against emerging risks to preserve financial stability.

As the RBI Governor concluded, “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.”