The Reserve Bank of India (RBI) has been the country’s central banking institution and controls the issuance and supply of the Indian rupee. The RBI Act of 1934 broadly classified the Indian banking sector into scheduled banks and non-scheduled banks. Scheduled banks are those that have a paid-up capital and collected funds of over five lakh rupees and are eligible for loans from the RBI at the bank rate. All other banks fall under the non-scheduled category. After most banks were nationalized at the end of the 1960s, a diversification of the banking landscape took place during the 1990s, when several private and foreign banks were licensed along with the economic liberalization reforms. In recent years, the banking sector received a digital facelift, when the importance of digital payments increased in line with the economic development of the country. Innovative concepts of NBFCs led to vivid competition and an active FinTech environment.
As of 2021, there were nearly 100 thousand scheduled banks in India, including around 98 thousand comparatively small rural and urban cooperative banks. The 22 private sector banks had assets worth over 800 billion U.S. dollars, whereas twelve public sector banks had assets worth over 1.5 trillion U.S. dollars. India’s leading bank based on market capitalization was a private sector bank, HDFC Bank, followed by public sector bank State Bank of India.
Although the total value of gross non-performing assets (GNPA) decreased from 2019 to 2020, a high share in NPAs brought some Indian banks into trouble. NPAs are loans or advances that cannot be paid back or are delayed. In March 2020, RBI ordered a consortium of the State Bank of India, some private banks, and private trusts to take over troubled Yes Bank.
Many government offices and economic sectors in India face the challenge to provide inclusive services and reach out to rural areas. Therefore, financial inclusion was one of the core targets in recent years, combining financial inclusion with advancing digitalization. One of the biggest national schemes in recent years, the Pradhan Mantri Jan Dhan Yojana, made many financial services more accessible and affordable. The bank account penetration reached around 75 percent, whereas the online banking penetration was expected to reach 50 percent by 2025.