India’s banking sector has cleaned up legacy bad loans, yet challenges of credit growth, deposit mobilisation and governance persist. Comment on the unfinished reform agenda.
Subtopic: Economy · Banking
How to structure your answer
Introduction: Gross NPAs of scheduled commercial banks fell to a 12-year low of 2.6% in March 2025 (RBI Financial Stability Report, June 2025); credit growth at ~13.7% outpacing deposit growth ~10.8%.
Body: 1) IBC 2016 and 4R framework (Recognition, Resolution, Recapitalisation, Reforms). 2) Credit-deposit gap and reliance on certificates of deposit. 3) Governance — PSB Reform Agenda EASE, RBI PCA framework.
Way forward: Strengthen IBC resolution timelines (Section 12), expand digital deposits via UPI-linked products, complete privatisation roadmap per NITI Aayog.
Written within the word limit
132 words · target 150 words · 9 min
Introduction: RBI's Financial Stability Report December 2025 places gross NPAs at a 12-year low of 2.6% and net NPAs at 0.6%, yet the credit-deposit growth gap widened to 350 bps, exposing the unfinished reform agenda.
Body: The Insolvency and Bankruptcy Code 2016 has resolved ₹3.55 lakh crore through 1,068 cases (IBBI March 2025), and the 4R framework injected ₹3.1 lakh crore into PSBs. Deposit mobilisation lags — mutual fund SIP inflows of ₹26,400 crore monthly (AMFI April 2026), small-savings competition (PPF 7.1%) and demographic dis-saving have squeezed banks. Governance gaps persist: PSB boards under FSIB remain under-staffed, NARCL has acquired only ₹1.3 lakh crore against the ₹2 lakh crore target, and corporate-bond market depth at 18% of GDP lags Korea's 80%.
Way forward: The Department of Financial Services should operationalise the Banks Investment Company holding model by FY27, complete the IDBI-Bank stake sale, and notify BR Amendment Act 2024 changes.
What an examiner expects to see
- Gross NPA ratio 2.6% March 2025 (RBI FSR June 2025)
- Credit growth 13.7%, deposit growth 10.8%
- Insolvency and Bankruptcy Code 2016 — 540-day cap
- RBI Prompt Corrective Action framework
- EASE PSB Reforms Agenda by DFS
- Bank merger 2019-20 — 10 PSBs into 4
Concrete cases, schemes and judgments
- Essar Steel resolution under IBC
- Yes Bank reconstruction 2020
- Bharat Bill Payment System
- Bank Investment Company concept (NITI Aayog)