The Reserve Bank of India released its Report on Trend and Progress of Banking in India 2024-25, highlighting exceptional performance by scheduled commercial banks with combined net profit rising 14.8% year-on-year to ₹4.01 lakh crore during FY25. The comprehensive assessment reveals that banks have achieved historic milestones in both profitability and asset quality while maintaining strong capital reserves and operational resilience.

Record Profitability and Historic Asset Quality Achievements

The banking sector demonstrated exceptional resilience in FY25, with scheduled commercial banks posting robust profit growth despite a moderation from the previous year's 32.8% increase when profits reached ₹3.50 lakh crore in FY24. The sector maintained double-digit expansion in balance sheets, with deposits and credit growth continuing in double digits, reflecting sustained momentum in core banking operations.

Asset quality continued to improve significantly, with the gross non-performing assets ratio declining to a multi-decadal low of 2.2% by end-March 2025, and further to 2.1% by end-September 2025. This achievement reflects sustained stress resolution efforts and enhanced credit underwriting practices across the banking system.

Strong Capital Buffers and Robust Profitability Metrics

Capital buffers remained exceptionally strong throughout FY25, with the capital to risk-weighted assets ratio of scheduled commercial banks standing at 17.4% by end-March 2025, marginally easing to 17.2% by end-September 2025. These levels remain well above regulatory requirements, providing substantial cushions for future growth and potential stress scenarios.

Profitability metrics demonstrated the sector's improved earnings profile, with return on assets at 1.4% and return on equity at 13.5% in FY25. During the first half of FY26, RoA and RoE stood at 1.3% and 12.5% respectively, indicating continued strong performance.

Broader Financial System Shows Steady Improvement

The RBI report highlighted steady improvement across other segments of the financial system beyond commercial banks. Urban co-operative banks recorded higher balance sheet growth in FY25 compared to FY24, while their asset quality improved for the fourth consecutive year, indicating sustained recovery in this segment.

Non-banking financial companies continued to post double-digit credit growth, supported by robust capital buffers. The NBFC sector's asset quality also improved during the year, contributing to the overall strength of India's financial ecosystem.

Financial System Resilience and Strategic Outlook

The RBI emphasized that strong banking sector fundamentals provide a buffer against risks, which together with prudent regulation create conditions for sustained credit flow. The combination of record profitability, multi-decadal low NPAs, and strong capital reserves across banks and NBFCs creates a robust foundation for supporting India's economic growth while maintaining high prudential standards and operational security.

RBI official Kumar has reportedly advocated for implementing demand stimulus measures to support economic growth. The central bank official's position emphasizes the potential need for proactive monetary policy measures.

Monetary Policy Considerations

Kumar is said to support a potential 25 basis points reduction in the repo rate as part of a stimulus approach. This consideration comes alongside a suggestion to maintain the current monetary policy stance, indicating a measured approach to policy adjustments.

Growth Strategy Focus

The emphasis on demand stimulus reflects concerns about maintaining economic momentum. Kumar's reported recommendations suggest a forward-looking approach to monetary policy planning.

The balanced approach of considering a rate cut while maintaining the current stance suggests a cautious view of economic conditions. This position indicates support for growth-oriented measures while potentially retaining the existing policy framework that has guided recent monetary decisions.