 "Rajiv Sabharwal, MD & CEO, Tata Capital")
In 2024, India’s financial sector demonstrated immense resilience and achieved remarkable growth despite facing a complex global environment. As the world struggled with escalating geopolitical tensions and inflation, the Indian economy remained strong with GDP growth remaining robust at around 6.5 per cent. Healthy domestic demand for retail and SME loans kept bank lending robust. Disbursements by non-banking financial companies (NBFC) continued to grow, indicating their increasing reach into under-penetrated markets. Though the Indian economy faced inflationary pressures, with CPI inflation averaging about 5.5 per cent and repo rates steady at 6.5 per cent, banks continued to show low non-performing assets (NPAs) and higher credit growth. RBI’s early advisory on retail unsecured loans was timely. As 2024 ends, some stress is visible on retail unsecured and MFI portfolios.
As 2025 approaches, optimism reigns albeit with caution. Banks are well-capitalised, supported by stronger balance sheets and digital transformation initiatives. NBFCs are expected to grow well as they will continue to provide customised financing solutions, making them indispensable in driving financial inclusion, particularly in rural and semi-urban areas.
Global and domestic economic landscape
The global economy is anticipated to rise moderately in 2025, propelled by a slow rebound in both developed and emerging nations. Consistent monetary policy and a reduction in supply chain pressures are expected to help stabilise inflation in major economies. However, ongoing geopolitical unrest and resulting oil price volatility will pose a threat to economic stability and have an effect on investment and trade flows.
In this context, India is a shining example of opportunity. The nation is becoming a sought-after location for international investment because of its strong economic fundamentals and policy-driven reforms. With the support of initiatives like ‘Make in India’ and ‘Production Linked Incentives (PLI)’, industries including manufacturing, digital technology and green energy are drawing in foreign investors. Significant government investments, centred on infrastructure development, are supporting domestic growth.
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Economic activity is expected to increase as a result of significant government investments in smart cities, renewable energy projects and transportation networks. A favourable fiscal environment characterised by stable interest rates and credit-friendly regulations will bolster credit growth. India is well-positioned to overcome obstacles and take advantage of opportunities arising out of its ongoing reforms and rich demographic dividend.
Bank trends and priorities for 2025
In 2025, banks will continue to rely on digital transformation, embracing cutting-edge technology like machine learning and artificial intelligence (AI). Generating enhanced customer insights, these solutions will improve service delivery and operational efficiency while enabling tailored products. Banks will place a higher priority on smooth client interaction through cutting-edge platforms as digital solutions gain traction.
As banks will continue to include environmental, social, and governance (ESG) factors into lending choices, sustainable financing will become more prominent. Green money, which supports international sustainability initiatives and is in line with India’s national climate goals, will become increasingly important.
The MSME and retail industries will be major development engines. In addition to meeting specific client needs, customised goods and services for these markets will promote financial inclusion. These industries will be vital in fuelling credit demand as the economy grows, offering banks substantial prospects for expansion.
Risk management will be a top focus in the face of global uncertainty. Banks will improve their resilience against market swings by fortifying their frameworks to adapt to changes in the economy and geopolitics. By concentrating on these areas, banks in 2025 will strike a balance between innovation and stability, promoting growth and satisfying the changing demands of stakeholders and consumers.
Outlook for NBFCs in 2025
Managing funding and liquidity will assume priority for mid and small NBFCs, as the central bank has been increasing risk weights to bank lending towards the segment. Finance companies have been looking into alternate funding options, including bond markets and securitisation.
Microfinance and rural expansion will also open doors for these companies in 2025 since digital tools allow NBFCs to better serve underserved regions.
NBFC operations will be centered on a digital-first strategy, with robust underwriting techniques and partnerships in digital lending simplifying client engagement. Sustainable growth, however, will continue to depend on adjusting to regulatory compliance, particularly in areas like unsecured lending.
The following are important trends for the industry in 2025:
• Strengthening rural penetration: By utilising technology, NBFCs will increase their presence in rural and semi-urban regions, catering to the credit requirements of small enterprises, independent contractors and farmers.
• Digital-first approach: NBFCs will improve client convenience and credit accessibility as digital lending platforms become more widely used. The integration of AI and ML in credit assessment will further reduce turnaround times and improve risk management.
• Diversification of product offerings: To meet changing customer demands, NBFCs will expand their product offerings to cover specialised markets like microloans, healthcare financing and education loans.
2025: A year of balance and growth
The year ahead will focus on balancing growth with sustainability. Innovation in lending, digital- first approaches and collaboration with fintech will enhance financial reach. Emphasising ESG practices will align institutions with global standards, fostering responsible growth.
The year 2025 promises to be a transformative period for India’s financial sector, marked by growth, innovation and resilience. Banks and NBFCs, armed with stronger fundamentals and a digital-first approach, are well-equipped to capitalise on emerging opportunities. As they navigate a dynamic environment, their ability to adapt, innovate and collaborate will be critical in shaping a vibrant and inclusive financial ecosystem.
India’s financial sector stands at the cusp of a new era, ready to play a pivotal role in the nation’s journey toward sustainable and inclusive growth. With the right blend of policy support, technological advancements and customer-centric strategies, 2025 could very well be a landmark year for India’s banks and NBFCs.
(The writer is the MD & CEO, Tata Capital Ltd) Disclaimer: These are the personal opinions of the writers. They do not necessarily reflect the views of www.business-standard.com or the Business Standard newspaper
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