New Age Risks in 2025: Bumpy Road Ahead for Indian Banking Sector

India's banking sector, one of the fastest-growing in the world, is witnessing rapid changes driven by technology, regulatory reforms, evolving customer demands, fintech fuel etc. As per the Reserve Bank of India (RBI) Annual Report 2024, India's banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world.

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India's banking sector, one of the fastest-growing in the world, is witnessing rapid changes driven by technology, regulatory reforms, evolving customer demands, fintech fuel, etc. As per the Reserve Bank of India (RBI) Annual Report 2024, India's banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. The studies related to three major risks, credit, market and liquidity, suggest that Indian banks are generally resilient and have sufficiently withstood the global downturn well as we have seen GFC 2007-2008, COVID-19 etc.

The banking sector has recently witnessed the rollout of innovative banking models like payments, small finance banks, neo banks etc. Government of India; through various government-initiated schemes like Pradhan Mantri Jan Dhan Yojana, PMJJBY, PMSBY etc.; is pressing very hard to make banking easily available to common public and underprivileged strata of the country. Schemes like these coupled with major banking sector reforms like digital payments, neo-banking, a rise of Indian NBFCs and fintech; have enhanced India's financial inclusion significantly and helped fuel the credit growth in the country.

However, with the growth comes the risk. These advancements bring a new set of challenges and risks that must be addressed to ensure resilience and sustainable growth.

In this article, we will be glancing through the new age threats which will welcome Indian Banks in the new year 2025.

Macroeconomic Uncertainty

India's banking sector is closely tied to the broader economy, which remains susceptible to global shocks and domestic challenges. In Q2-FY2025, India's GDP growth slowed to 5.4% due to various factors. Further, Additionally, the high burden of non-performing assets (NPAs), which stood at 5.3% of gross advances in March 2024, continues to strain the sector.