Shaktikanta Das: Turnaround of the Indian banking system

Keynote address by Mr Shaktikanta Das, Governor of the Reserve Bank of India, at the Mint BFSI summit, Mumbai, 11 January 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
23 January 2024

I am extremely delighted to be here this morning at the Mint BFSI Summit. I would like to thank the organisers, Mint, for inviting me to this event. Incidentally, I had also participated in a similar event - Mint Annual Banking Conclave - in February 2020.

Not very long ago, the Indian banking sector was beset with a host of issues. Indian banks were weighed down by high levels of non-performing assets (NPAs), while the returns on assets and equity were in negative zone. Eleven banks were under Prompt Corrective Action (PCA) as at end-June 2018. Failure of a major Non-Banking Financial Company (NBFC) stoked fear and risk aversion among market participants leading to increased costs of market borrowing, especially for those with perceived asset-liability mismatch concerns. Even as we were coping up with the stress in the financial sector, the COVID-19 pandemic in the beginning of the year 2020 came as a shocker, which led to major disruptions across all sectors.

During the last five years, the Reserve Bank took a series of initiatives on the regulatory and supervisory fronts, while banks themselves, to their credit, responded to the challenges by strengthening their internal defence mechanisms. As a result of these concerted efforts, there has been a gradual and consistent turnaround in the banking system, despite the multiple headwinds emanating from COVID-19, geo-political conflicts and sharp monetary policy tightening across the world. All key indicators of scheduled commercial banks (SCBs), namely, capital adequacy, asset quality and profitability have shown improvement in the last four years. The credit growth has now become broad-based and backed by the strong fundamentals of the financial institutions. The financial indicators of non-banking financial companies are also in line with that of the banking system as per the latest available data. On the whole, India's banking sector has emerged stronger from the unprecedented challenges of the recent years.

Questions are often raised as to how this turnaround in the banking sector took place. My short answer to this question is that it is the result of all the good work of various stakeholders in the system. In my address today, I have chosen to speak on the Reserve Bank's efforts to steady the economic ship amidst turbulent waters in the last few years. I have structured my talk in the following manner. First, I shall speak on our response to various crises starting with the non-banking finance companies (NBFC) stress that haunted us even before the pandemic. Next, I shall dwell upon the body of work we have undertaken in recent years to revamp our regulation and supervision.