Strengthening India’s Banking Sector: A Path to Sustainable and Inclusive Growth

Context:

During the Financial Express Modern BFSI Summit (Mumbai, July 25), M. Nagaraju, Secretary, Department of Financial Services, outlined a comprehensive roadmap for enhancing the resilience, inclusiveness, and sustainability of India’s financial ecosystem.

 Need for Capital Augmentation and Lending Expansion

• Why Important:

  • To meet the rising credit demand of a fast-growing economy.

  • To maintain stronger capital adequacy ratios and comply with Basel III norms.

• Current Scenario:

  • PSBs raised ₹25,000 crore equity in FY24; expected to raise ₹30,000 crore more in FY25.

• Implications:

  • Enables higher lending capacity.

  • Supports sectors like MSMEs, agriculture, and infrastructure.

 Promoting Inclusive and Climate-Aligned Financial Growth

• Key Vision:

  • Building a future-ready financial system that is inclusive, environmentally conscious, and socially sustainable.

• Initiatives:

  • Incorporation of climate risk assessment in credit and investment decisions.

  • Push for green finance and patient capital in long-term development projects.

Revisiting Priority Sector Lending (PSL) Norms:

• Current Challenge:

  • PSL guidelines may not fully reflect emerging national priorities, such as sustainability and innovation.

• Reform Outlook:

  • Potential overhaul to align PSL with green sectors, renewable energy, and climate-resilient infrastructure.

• UPSC Relevance: Reflects dynamic nature of financial regulation adapting to developmental needs.

 Rising Profitability and Improved Asset Quality:

• Data Highlight:

  • GNPA (Gross Non-Performing Assets) of banks dropped to 2.8% in March 2024.

• Significance:

  • Indicates stronger risk management.

  • Enhances public confidence in the banking system.

• Policy Impact:

  • Allows more space for credit growth and private investment.

 Ethical Digital Lending and Governance Reforms:

• Concern:

  • Rapid growth in digital lending has led to consumer exploitation in some cases.

• Solution:

  • Promote ethical practices, transparency, and better regulatory oversight.

• Broader Goal:

  • Strengthen governance and trust in the financial sector.

 Expanding the Insurance Sector:

• Current Scenario:

  • Insurance penetration is improving but still lags behind global benchmarks.

• Focus Areas:

  • Customer-centric regulation, policyholder protection, and transparency.

• Potential Impact:

  • Greater social security and deeper financial inclusion.

 Why This Matters for India’s Economic Policy:

• Reinforces the Government’s commitment to a robust, transparent, and forward-looking financial system.

• Aligns with global priorities such as climate resilience, financial inclusion, and ethical fintech practices.

• Vital for achieving the targets of $5 trillion economy, SDGs, and climate commitments under the Paris Agreement.