30 years of economic reforms | Private banks and rise of the Internet: How lending has changed in last three decades

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26 Aug, 2025 12:21

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The banking sector has come a long way since the opening of India’s economy in 1991. The years, soon after liberalisation, saw the licensing of new private banks, one of which -- HDFC Bank -- is now the second largest in the country by assets.

A larger number of people have been covered by bank credit with the rise of unsecured personal loans and other products that were unknown in the early 1990s.

With the expansion of private industry, credit to commercial borrowers has also expanded significantly.

Bank credit

At the end of 2020-21, the value of total outstanding bank credit stood at Rs 109.51 lakh crore - at the end of FY91, when the economic reforms were first unveiled, it was a modest Rs 1.44 lakh crore, according to data from the Reserve Bank of India's (RBI) Database on the Indian Economy (DBIE).

Deposits, too, swelled to Rs 151.13 lakh crore from Rs 2.32 lakh crore at the end of 1990-91.

Indian banks’ branch networks have grown with the entry of new players into the system and the government’s drive to open bank accounts for the entire population.

Number of branches

Though data on branches for FY91 is unavailable, between March 2006 and March 2021, their numbers shot up to 1.58 lakh from 72,274, as per RBI data.

A key outcome of the reforms process has been the burgeoning influence of the private sector in banking.

According to the latest available data on DBIE, in 2005, public sector banks accounted for 73 percent of banking system credit and 77 percent of deposits. Private banks only had a 20 percent share in credit and an 18 percent share in deposits.

Also Read: Bandhan Bank’s Chandra Shekhar Ghosh writes on 30 years of reforms: How India found opportunities in a crisis

By March 2020, the share of public sector banks had fallen to 59.6 percent in bank credit and to 63.4 percent in deposits. Private banks had increased their part in bank credit to over 36 percent and in deposits to over 31 percent.

Rapid digitisation

Over the last decade, rapid digitisation in the payments and lending space has emerged as a defining feature of banking.

With the RBI’s initiative, banks and other ecosystem players came together to set up the National Payments Corporation of India (NPCI) in 2008. The NPCI developed a range of payment channels, among which the Unified Payments Interface (UPI) became the star.

Since its launch in 2016, UPI transactions have grown from just 90,000 in the first month to 2.8 billion in June 2021, according to the NPCI.

The internet, which was unheard of for most Indians in 1991, is now an indispensable driver of the banking system in India.