Banking Sector: A Pillar of India’s Economic Growth

For Prelims: Scheduled Commercial Banks, Non-Performing Assets, Unified Payments Interface, Initial Public Offerings, FREE-AI

For Mains: Role of banking sector in inclusive growth and economic development, Role of banks in implementing welfare schemes

Source: TH

Why in News? 

President Droupadi Murmu highlighted India’s banking sector role in fostering economic growth, supporting Micro, Small, and Medium Enterprises, boosting the rural economy, and driving financial inclusion.

What is the Contribution of India's Banking System to its Economic Growth?

• Credit Growth & Economic Activity: Bank credit disbursal by Scheduled Commercial Banks (SCBs) reached Rs 164.3 lakh crore by March 2024, up 20.2% YoY (compared to 15% in FY23).
  • Agricultural credit grew from Rs 13.3 lakh crore in FY21 to Rs 20.7 lakh crore in FY24, supported by over 7.4 crore operative Kisan Credit Card accounts.
  • Banks channel credit strategically to sectors driving economic growth and job creation.
• Financial Stability & Asset Quality: Gross Non-Performing Assets (GNPA) of SCBs fell to a 12-year low of 2.8% in March 2024 from 11.2% in FY18, reflecting improved borrower selection and recovery mechanisms.
  • Top 10 Indian banks have loans constituting over 50% of total assets, ensuring resilience to rising interest rates.
• MSMEs & Entrepreneurship Support: Banks act as enablers of entrepreneurship and inclusive development. Banks facilitated low-cost credit to MSMEs and industrial sectors, boosting employment, innovation, and industrial growth.
  • India has the second-largest market globally, after China, in terms of borrowing customers.
  • Industrial credit growth accelerated to 8.5% in FY24 from 5.2% (FY23).
• Digital Transformation & Financial Inclusion: Over 77% of adults now have accounts in formal financial institutions, reducing the income and gender access gap.
  • Unified Payments Interface (UPI) transactions surged from Rs 0.07 lakh crore in FY17 to Rs 200 lakh crore in FY24.
  • India has 116.5 crore smartphone subscribers as of March 2024, facilitating digital banking access.
• Capital Market Development: Primary market fund mobilisation reached Rs 10.9 lakh crore in FY24. Initial Public Offerings (IPOs) increased from 164 in FY23 to 272 in FY24. Corporate bond issuances rose to Rs 8.6 lakh crore in FY24, the highest so far.
  • Banks link capital markets and investors, supporting corporate funding and long-term growth.
• Social & Welfare Programs Implementation: Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts exceed 56 crore, with 67% in rural/semi-urban areas and 56% held by women.
  • Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana generated 34.2 crore health cards, 49.3% held by females.
  • National Pension System and Atal Pension Yojana saw 735.6 lakh total subscribers, up 18% YoY, with female participation rising to 48.5%.

What are the Key Challenges Facing India’s Banking Sector?

• Credit-Deposit Balance and Liquidity Risks: Credit growth has outpaced deposit mobilisation, creating potential structural liquidity pressures.
  • Households are increasingly moving savings to mutual funds, insurance, and pension schemes, reducing banks’ traditional low-cost deposit base.
  • Banks are bridging this gap via short-term borrowings and Certificates of Deposit, increasing sensitivity to interest rate fluctuations.
• Cybersecurity and Third-Party Risks: Growing digitalisation has increased exposure to cyber attacks, system failures, and risks from outsourced operations.
  • Weak management in these areas can lead to operational disruption, financial losses, and reputational damage.
  • Rise in social engineering attacks and use of mule accounts exposes banks to financial and reputational risks.
• Retail Credit and Unsecured Lending: Rapid expansion of retail, unsecured, and private credit increases exposure to defaults, leverage risks, and systemic vulnerabilities, requiring banks to strengthen risk assessment, monitoring, and governance frameworks.

What Measures can Strengthen India's Banking Sector to Drive Economic Growth?

• Strengthening Capital and Risk Management: India must align with Basel III guidelines and Narasimham Committee recommendations (1991) by ensuring adequate capital buffers and strengthening risk management. 
  • Banks should adopt advanced risk-based assessment models for retail and unsecured lending to enhance capital adequacy and reduce delinquencies. These measures will foster a more resilient and sustainable banking sector.
• Digital Transformation and Cybersecurity: In line with Reserve Bank of India (RBI) Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI), banks should encourage fintech partnerships, and AI-driven risk analytics to boost reach and efficiency.
  • Initiatives like the MuleHunter AI, and Account Aggregator framework foster innovation while ensuring security and compliance.
• Governance and Fair Conduct: Enforcing consumer protection norms, transparent loan contracts, and fair pricing mechanisms especially in microfinance can build trust.
• Promoting Financial Inclusion and Deepening Credit: Expansion of priority sector lending, co-lending models, and innovative digital credit platforms can bring underserved populations into the formal financial system.
  • Schemes like PMJDY, PM-Surya Ghar, and PM-KUSUM integrate banking with social and infrastructure development, boosting inclusive growth.
• Climate and Transition Financing: Integrating sustainability and climate risk assessment into lending is crucial for long-term financial stability.
  • Initiatives like Sovereign Green Bonds, green deposits, and the RBI draft climate disclosure framework encourage banks to provide transition financing while mitigating greenwashing risks.
• Regulatory and Policy Measures: Strengthening regulatory frameworks through prompt corrective action (PCA), enhanced supervision, and risk-based audits improves resilience.

Narasimham Committee

• Dr Manmohan Singh set up the Narasimham Committee in 1991 to analyse India’s banking sector and recommend reforms. It was followed by the 1998 Committee which is known as the Narasimham Committee II.

Narasimham Committee- I Recommendations:

• A 4-tier hierarchy for the Indian banking system with 3 or 4 major public sector banks at the top and rural development banks for agricultural activities at the bottom.
• A quasi-autonomous body under RBI for supervising banks and financial institutions.
• Reduction in statutory liquidity ratio
• Reaching of 8% capital adequacy ratio
• Setting up Asset Reconstruction fund

 Narasimham Committee- II Recommendations:

• The Committee recommended the merger of major public sector banks to boost international trade. However, the Committee warned against merging stronger banks with weaker banks.
• The Committee also recommended reforms in the role of the RBI in the banking sector. The Committee felt that RBI being the regulator, should not have ownership in any bank.
• It also recommended the formation of Asset Reconstruction Funds or Asset Reconstruction Companies. 

Conclusion

By adopting transition financing, climate-aware lending, and digital credit expansion, banks can simultaneously promote sustainability and economic growth. The sector’s stability also boosts investor confidence, domestic savings mobilization, and integration with global financial markets.

Drishti Mains Question:

Q. Analyse the role of India’s banking sector in driving credit growth and financial inclusion while maintaining financial stability.

UPSC Civil Services Examination, Previous Year Question (PYQ)

Prelims:

Q1. With reference to ‘Urban Cooperative Banks’ in India, consider the following statements: (2021)

1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an  Amendment in 1966.

Which of the statements given above is/are correct?

(a) 1 only 
(b) 2 and 3 only
(c) 1 and 3 only 
(d) 1, 2 and 3

Ans: (b)

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Q. Which one of the following links all the ATMs in India? (2018)

(a) Indian Banks’ Association
(b) National Securities Depository Limited
(c) National Payments Corporation of India
(d) Reserve Bank of India

Ans: (c)

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Mains:

Q. Pradhan Mantri Jan Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poorer section of the Indian society? Give arguments to justify your opinion. (2016)

WHO’s World Mental Health Report

Source: BS

Why in News? 

The World Health Organisation (WHO) has released two key reports World Mental Health Today and Mental Health Atlas 2024, the reports reveal that over a billion people globally live with mental health conditions and that suicide accounts for 1 in 100 deaths.

• For India, where stigma and mental health access gaps remain huge, this data raises not just a health policy concern but an ethical responsibility.

What are the Key Findings of WHO’s Reports on World Mental Health?

• Global Burden: 13.6% of the world’s population currently has a mental disorder (age-standardized prevalence). Prevalence has risen faster than global population growth between 2011–2021.
• Most Common Disorders: Anxiety and depressive disorders together account for over two-thirds of all cases.
  • Anxiety disorders usually start earlier (childhood/adolescence), while depression becomes more common after 40 years and peaks between 50–69 years.
• Demographic Trends: Young adults (20–29 years) have seen the highest rise (1.8%) in the prevalence of mental disorders since 2011.
  • Globally, males have higher rates of attention-deficit/hyperactivity disorder (ADHD), autism spectrum disorders, and intellectual disabilities.
  • Females have higher rates of anxiety, depressive, and eating disorders.
• Suicide: 1 in every 100 deaths globally is due to suicide. Suicide is the leading cause of death among young people worldwide.
• SDG Concern: At the current pace, suicide mortality is projected to decline by only 12% by 2030, which falls far short of the United Nations Sustainable Development Goal (SDG) target of a one-third reduction.

Mental Health in India

• Prevalence: National Mental Health Survey (NMHS) 2015-16 found that about 10.6% of Indian adults suffer from mental disorders, with urban prevalence (13.5%) higher than rural (6.9%). 
• Treatment Gap: 70–92% do not receive proper treatment due to stigma, lack of awareness, and shortage of professionals.
  • India has 0.75 psychiatrists per 100,000 people (WHO recommends 3 per 100,000).

Mental Health Infrastructure

• National Mental Health Programme (NMHP, 1982): Integrates mental healthcare into general healthcare.
• Ayushman Bharat: Sub Health Centres and Primary Health Centres upgraded to provide mental health services.
• NIMHANS Act, 2012: National Institute of Mental Health and Neurosciences declared an Institute of National Importance; expanded training and research.
• RPwD Act, 2016: Recognizes mental illness as a disability; strengthens legal protection and aligns with United Nations Convention on the Rights of Persons with Disabilities (UNCRPD), 2006
• Mental Healthcare Act, 2017: Guarantees right to mental healthcare, decriminalizes suicide, and protects dignity.
• National Health Policy, 2017: Integrates mental health into primary care and strengthens human resources.
• National Suicide Prevention Strategy (NSPS, 2022): Aims to reduce suicide mortality by 10% by 2030.  Focuses on early intervention, crisis management, and mental health promotion. Targets high-risk populations like students, farmers, and young adults.
• Digital Initiatives:
  • iGOT-Diksha (2020): Trains healthcare professionals and community workers in mental health.
  • National Tele Mental Health Programme (Tele MANAS), 2022: Provides free 24/7 mental health support via a toll-free helpline in 20 languages.

Why is Mental Health an Ethical Issue?

• Equitable Mental Health Access: Mental health is an essential part of the right to life under Article 21. Neglecting it undermines human dignity and the ability to live a meaningful life.
  • Access to mental health care is often uneven, with rural areas receiving the least support. Ethical responsibility demands equitable distribution of resources to protect the well-being of all, especially the most vulnerable.
• Autonomy and Freedom of Choice: Stigma, discrimination, and social exclusion prevent individuals from seeking care or making informed decisions. 
  • An ethical approach ensures people can exercise autonomy and access support without fear or prejudice.
• Duty to Prevent Harm: Workplaces, schools, and governments have a moral obligation to reduce harmful stressors and prevent avoidable suffering, such as suicides or work-related mental distress. Ignoring these responsibilities is ethically wrong.
• Compassion and Empathy: Everyday acts of respect, inclusion, and kindness are moral duties that directly impact mental well-being. 
  • Recognizing and responding to the suffering of others is central to an ethical society.
• Collective Good: Untreated mental health issues affect productivity, social cohesion, and public safety. Addressing them is not just charity but a social obligation.

Related Keywords for Mains

• “Silence is the Real Stigma”: Breaking barriers to treatment
• “Tele Care, Anywhere”: Digital solutions like Tele MANAS for rural and urban India.
• “Community Heals”: Local, inclusive, and collective mental health care.
• “Save Minds, Save Lives”: Suicide prevention as a national mission.
• “Train, Treat, Transform”: Capacity-building for mental health professionals.

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Mains

Q. We can never obtain peace in the outer world until and unless we obtain peace within ourselves. (2021)

Q. In order to enhance the prospects of social development, sound and adequate health care policies are needed particularly in the fields of geriatric and maternal health care.Discuss. (2020)

Immigration and Foreigners Act, 2025

Source: BS

Why in News?

The Immigration and Foreigners Act, 2025 came into effect on 1st September 2025, consolidating India’s immigration laws, imposing stricter penalties for forged documents, and strengthening reporting and monitoring of foreigners.

• It repeals four outdated laws: the Passport (Entry into India) Act, 1920, the Registration of Foreigners Act, 1939, the Foreigners Act, 1946, and the Immigration (Carriers’ Liability) Act, 2000.

What are the Key Provisions of the Immigration and Foreigners Act, 2025?

• Tougher Penalties for Forged Travel Documents: 2–7 years imprisonment and a fine of Rs 1–10 lakh for using or supplying forged passports, visas, or other travel documents.
  • Up to 5 years imprisonment or Rs 5 lakh fine for foreigners entering restricted areas without valid authorization.
• Mandatory Reporting of Foreigners’ Details: Hotels, universities, educational institutions, hospitals, and nursing homes must report information about foreign nationals staying or visiting.
  • International airlines and shipping companies are required to share advance passenger and crew data before arrival.
• Government Control Over Premises: Central government empowered to regulate or shut down premises frequently visited by foreigners if deemed necessary for security reasons.
• Bureau of Immigration: It grants statutory backing to the Bureau of Immigration (established in 1971 under the Intelligence Bureau) to identify, detain, and deport illegal foreigners.

Did You Know?

• US: Launched “Catch and Revoke” using Artificial Intelligence (AI) tools to identify and revoke visas of individuals linked to terrorist groups.
• Australia: Allows detention of non-citizens considered a security risk but prohibits indefinite detention of stateless persons unless deportation is possible.
• Gulf Countries: Saudi Arabia, Bahrain, and Kuwait have deported thousands of migrant workers on security grounds, often with limited avenues of appeal.

Read more: Refugee, Deportation and Related Issues in India

NIRF India Rankings 2025

Source: IE

The Ministry of Education released the National Institutional Ranking Framework (NIRF) India Rankings 2025, which reaffirmed Indian Institute of Technology Madras as the top institution in the Overall Category for the 7th consecutive year.

• NIRF 2025 covered 7,692 institutions, the highest ever, across 17 categories including a new Sustainable Development Goals (SDG) category to measure “green” practices, highlighting the government’s focus on sustainable and accountable higher education.
• National Institutional Ranking Framework (NIRF): Launched in September 2015 by the Ministry of Education, it ranks institutions on five parameters: Teaching, Learning & Resources (30%), Research & Professional Practice (30%), Graduation Outcomes (20%), and Outreach & Inclusivity and Peer Perception (10% each).

Read more: Building a Stronger Education System in India

Indian Navy’s First Training Squadron in Seychelles

Source: TH

The Indian Navy’s First Training Squadron ( INS Tir, INS Shardul, and ICGS Sarathi) arrived at Port Victoria, Seychelles during a long-range training mission in the South West Indian Ocean Region.

• The deployment part of India’s MAHASAGAR vision (Mutual and Holistic Advancement for Security and Growth Across Regions).

Seychelles

• The Seychelles is an island nation located northeast of Madagascar off the east coast of continental Africa.
• It is the smallest nation in Africa in both land area and population.
• It is an archipelago of 155 islands located in the western Indian Ocean. Mahe, the largest and most diverse island in the archipelago.
• The islands of Seychelles are situated on the Mascarene Plateau, an extensive submarine plateau in the Indian Ocean.

Read more: LAMITIYE-2024