India’s monetary and financial sectors have shown remarkable performance in the first nine months of the Financial Year 2024-25. The gross Non-Performing Assets (NPAs) of banks have plummeted to a 12-year low of 2.6% by the end of September 2024. This improvement in asset quality has been accompanied by a surge in profitability, with banks’ profit after tax increasing by 22.2% year-on-year during the first half of FY25.
Bank credit has grown steadily, while deposits continue to exhibit double-digit growth. As of November 2024, the year-on-year growth in aggregate deposits of scheduled commercial banks stood at 11.1%. Sector-wise, agriculture credit grew by 5.1% as of November 29, 2024, while industrial credit growth picked up to 4.4%, higher than the 3.2% recorded a year ago. Notably, bank credit to micro, small, and medium enterprises (MSMEs) has been growing faster than credit disbursal to large enterprises, with MSME credit registering a year-on-year growth of 13% as of November 2024, compared to 6.1% for large enterprises.
Rural Financial Institutions (RFIs) have also shown lower NPAs and better credit off-take. The consolidated net profit of Regional Rural Banks (RRBs) increased from $497.4 million in FY23 to $757.1 million in FY24. The consolidated Capital to Risk (Weighted) Assets Ratio (CRAR) rose from 13.4% in March 2023 to an all-time high of 14.2% by March 31, 2024. The credit to deposit ratio of RRBs grew from 67.5% in March 2023 to 71.2% in March 2024.
During the first nine months of FY25 (April 2024-December 2024), the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the policy repo rate unchanged at 6.5% to balance the twin requirements of maintaining growth and keeping inflation within acceptable limits. The Economic Survey points out that system liquidity, represented by the net position under the Liquidity Adjustment Facility, remained in surplus during October-November 2024.
The Survey also highlights significant progress in financial inclusion, with the Financial Inclusion Index of the RBI increasing from 53.9 in March 2021 to 64.2 at the end of March 2024. RFIs have played a crucial role in facilitating India’s financial inclusion journey, while Development Financial Institutions (DFIs) have contributed significantly to the country’s economic progress by financing infrastructure development projects.
