As India’s banking and non-banking system enters 2026, headline metrics suggest robustness. Yet the Reserve Bank of India’s latest “Report on Trend and Progress of Banking in India 2024-25” reads less like a performance review and more like a strategic risk playbook for corporate treasuries and BFSI leadership. Growth, digitisation and financial inclusion are reframed through the lens of resilience, with clear signals that risk management standards will tighten, interconnected exposures will be scrutinised more rigorously, and boards will be held accountable for technology, model and climate-related risks.
System Resilience and Emerging Fault Lines
The RBI judges banks and NBFCs to be broadly resilient, supported by strong capital buffers, high provision coverage, and improving asset quality. Scheduled commercial banks (SCBs) report comfortable capital-to-risk-weighted assets ratios, stable leverage, and declining NPAs, while NBFCs maintain an aggregate CRAR of 25.9 per cent and provision coverage at 66.6 per cent. Credit growth and financial inclusion continue at pace, reflecting the underlying health of the system.
This apparent strength is, however, set against a more fragile global backdrop. The report notes slowing global GDP growth, elevated trade and geopolitical uncertainty, and vulnerabilities in non-bank financial intermediaries (NBFIs), particularly regarding leverage, liquidity mismatches, and cross-border spillovers. In India, monetary easing in 2025 including cumulative repo rate cuts of 125 bps and a 100 bps CRR reduction has supported liquidity. Yet the RBI’s revised liquidity management framework, including tighter Liquidity Coverage Ratio (LCR) rules from April 2026, underscores that “easy liquidity” will not translate to lax short-term risk controls.
Off-balance sheet exposures, international claims, and sectoral concentrations particularly in capital markets, real estate, and commodities are receiving heightened attention. The RBI also flagged NBFC reliance on bank funding as a risk driver, temporarily increasing risk weights before normalisation, signalling that concentrated exposures in shadow segments remain a core supervisory concern.
Regulatory and Supervisory Reset
For risk practitioners, the report’s most critical insight lies in regulatory recalibration. Domestic standards are being aligned with the final Basel III framework, while over 9,000 legacy circulars have been consolidated into 244 Master Directions across 11 regulated entity classes. This simplification enhances compliance clarity while shrinking regulatory arbitrage opportunities.
Quantitative risk frameworks are being upgraded. Counterparty credit risk assessment will move from the current exposure method to the standardised SA CCR approach, recognising netting, collateral and margined positions more accurately. Credit valuation adjustments (CVA) are being overhauled, and capital rules for corporates, MSMEs and real estate are being refined with granular risk weights.
Two further changes will reshape provisioning and pricing. SCBs (excluding SFBs, PBs, and RRBs) are set to adopt the Expected Credit Loss (ECL) model from April 2027, curbing delayed loss recognition and procyclicality inherent in the incurred loss model. Meanwhile, risk weights on consumer credit and microfinance have been recalibrated, penalising riskier unsecured lending models and prompting banks and NBFCs to reassess return expectations.
Governance reforms extend across banks, co-operatives, and NBFCs. Assurance functions including risk management, compliance and internal audit are being harmonised, while related party lending is being subjected to stricter disclosure and board approval requirements. Professional management, enhanced permissions and supervisory scrutiny for co-operative banks, along with a discussion on licensing new UCBs, signal cautious expansion paired with tighter oversight.
Technology, Digital Risk and Model Governance
Digital and AI-driven innovation is framed primarily through operational, cyber, model, and conduct risks. The RBI’s “soft touch” approach to fintech and digital payments is being layered with explicit risk expectations. Wider access to RTGS/NEFT for select non-bank entities, internationalisation of UPI and RuPay, and digital lending standardisation are tied to stricter governance, transparency and risk controls.
AI is recognised as both an opportunity and a potential risk vector. While it can improve credit assessment, fraud detection, and customer personalisation, the RBI flags concerns over model explainability, data drift, algorithmic bias, and automation complacency. Comprehensive Model Risk Management Guidelines are expected, making model governance a mainstream regulatory requirement.
Digital fraud is being treated as a systemic threat. Tools such as MuleHunter.ai and the Digital Payments Intelligence Platform (DPIP) underscore the RBI’s push for shared fraud intelligence, reinforcing accountability and reducing reliance on quiet settlements. For corporate risk leaders, this signals that AI-enabled products and digital initiatives will be judged as much on control design and explainability as on commercial performance.
Consumer Protection and Safety Net Risk
Consumer protection is integrated into system stability. The Integrated Ombudsman Scheme is being overhauled, Internal Ombudsman frameworks strengthened and grievance resolution streamlined through Complaint Management System 2.0. Deposit insurance is moving from a flat-rate premium to a risk-based framework, linking premiums to banks’ risk profiles. These reforms mean that poor conduct, mis-selling, and weak cyber controls now carry compounded regulatory, financial, reputational and funding risks.
NBFCs, NBFIs and Climate Risk
NBFCs remain key credit channels but are under tighter supervision. Larger, interconnected NBFCs are subject to higher capital, governance and concentration norms, while infrastructure lending risk weights are being recalibrated. Global NBFI vulnerabilities, including leverage and liquidity gaps, imply that cross-border exposures will attract more scrutiny.
Climate risk has evolved from ESG narrative to prudential priority. The RBI Climate Risk Information System (RB CRIS) and related disclosures aim to integrate climate considerations into ICAAP, stress testing and product design. Corporate and BFSI leaders must now embed climate resilience into strategy, capital planning and lending decisions, particularly in transition-sensitive sectors.
The RBI’s 2024-25 trends report is not merely a health check; it is a forward-looking map of regulatory expectations. For corporate India and BFSI, resilience now spans capital, liquidity, models, conduct, technology and climate. Growth in the coming decade will depend not on headline metrics alone, but on how effectively institutions upgrade risk architectures, governance and digital capabilities in an increasingly complex financial ecosystem.
