Banks to face rising competition from non-bank lenders in commercial sector funding, says RBI report

Reserve Bank of India

Indian banks are likely to face increasing competition from non-bank sources in meeting the funding requirements of the commercial sector in the period ahead, even as the banking system remains well-capitalised and asset quality stays strong, according to the Reserve Bank of India’s (RBI) Trend and Progress of Banking in India 2024-25.

Furthermore, rapidly changing technology and digitalisation could change the way people transact with banks for their savings and credit needs, while also exposing the banking system to newer risks including cyber risk, report said.

Strengthening risk assessment and improving operational efficiency through responsible technology adoption remain essential, with continued emphasis on financial inclusion, consumer education and protection. Robust corporate governance with strong risk management practices remains critical for banks’ long-term success, report added.

The consolidated balance sheet of scheduled commercial banks (SCBs) (excluding RRBs) increased by 11.2 per cent during 2024-25 as compared with 15.5 per cent during 2023-24.

On the assets side, bank credit and investments increased by 11.5 per cent and 9.2 per cent, respectively, in 2024-25. On the liabilities side, deposits increased by 11.1 per cent in 2024-25.

Excluding the impact of merger, the growth in bank credit and investments was 12.5 per cent and 9.9 per cent, respectively, during 2024-25 as compared with 16.0 per cent and 11.6 per cent, respectively, in 2023-24. Deposit growth, excluding the impact of merger, was 11.4 per cent in 2024-25 as compared with 13.4 per cent a year ago.

Deposit growth of SCBs moderated in 2024-25, led by private and foreign banks. Component-wise, the moderation was mainly driven by a slowdown in growth of term deposits. The weighted average term deposit rate of SCBs increased by 259 basis points (bps) against the cumulative increase in policy repo rate by 250 bps during the tightening phase (May 2022-January 2025).

In the subsequent easing phase, weighted average term deposit rate of SCBs declined by 105 bps (up to October 2025) following a 100 bps cut in the policy repo rate (February-June 2025).

Public sector banks exhibited relatively higher transmission to deposit rates than private sector banks.