Various measures taken to improve financial soundness of banks including issues related to credit discipline, responsible lending and adoption of technology

The overall credit disbursement to priority sectors including Agriculture, MSME and Social Infrastructure by banks in 2019 was ₹23,01,567 crores, which has risen to ₹42,73,161 crores in 2024, recording an increase of 85% over the six-year period. 

Within priority sector lending, the overall credit disbursement to the agriculture sector has seen steady and positive growth from 2019 to 2024. In 2019, the total disbursement to the sector was ₹8,86,791 crore, and by 2024, it has significantly increased to ₹18,27,666 crore (Data for Agriculture includes credit disbursement towards agriculture infrastructure by banks). The overall credit disbursement to the MSME sector has also increased steadily from ₹10,99,055 crore in 2019 to ₹21,73,679 crore in 2024.

 As the financial landscape continues to evolve and to enhance quality of banking services for customers, banks have been collaborating with FinTechs for provisioning of various services to the customers. Some of the major areas where FinTechs are further augmenting Banking products / services with seamless delivery thereby enhancing customer experience are:

• Openings of savings account through e-KYC, V-KYC processes leveraging Artificial Intelligence (AI) technology for Face recognition and Name match etc.
• Digital Loan journeys such as account statement analysis, leveraging alternate data in Underwriting etc. for quick credit assessment and real-time decision making.
• Development of innovative products for customers using APIs of banks.

The Reserve Bank of India (RBI) has informed that compliance to its guidelines issued is examined on sample basis during the Supervisory Assessment and any non-compliance observed are taken up with the concerned supervised entities for rectification apart from initiating supervisory/ enforcement action, as deemed fit. As regards financial stability, in terms of the mandate given by the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934, the regulatory and supervisory framework of RBI is guided towards the overarching principles of safeguarding customers interest and preservation of financial stability, among others. Further, the regulatory and supervisory frameworks for the regulated entities have been designed on the principle of proportionality consistent with their risk profiles. RBI has taken several measures to strengthen supervisory approach to make it more forward looking, risk-oriented and analytical, which is aimed at identifying vulnerable sectors, borrowers as well as supervised entities.

Government and RBI have taken various measures to improve financial soundness of banks and to address the issues related to credit discipline, responsible lending and improved governance, adoption of technology, recovery and reduction of NPAs. These measures include, inter alia, the following:

1. Public Sector Banks have set-up specialized stressed assets management verticals and branches for effective monitoring and focused follow-up of NPA accounts, which facilitates quicker and improved resolution/ recoveries. Deployment of Business correspondents and adoption of Feet-on-street model have also boosted the recovery trajectory of NPAs in banks.
2. Prudential Framework for resolution of stressed assets was issued by RBI to provide a framework for early recognition, reporting and time bound resolution of stressed assets, with a build-in incentive to lenders for early adoption of a resolution plan.
3. Minimum provisioning requirements have been prescribed for both standard and non-performing advances.
4. Credit discipline was instilled through the enactment of the Insolvency and bankruptcy Code, set up of the Central Repository of Information on Large Credits and systematic checking of high-value accounts for wilful default and fraud.
5. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 and the Recovery of Debt and Bankruptcy Act have been amended to make it more effective. vi. Institution of comprehensive, automated Early Warning Systems in banks to proactively detect stress and reduce slippage into NPAs.
6. A Reform Agenda of PSBs through a unique Enhanced Access & Service Excellence (EASE) Reforms has been initiated. It has enabled objective and benchmarked progress on all key areas in PSBs viz., governance, prudential lending, risk management, technology, data-driven banking and outcome-centric HR.
7. The amalgamation of banks, the efficacy and effectiveness of the banking sector has been enhanced by leveraging economies of scale and synergies.

This information was given by Union Minister of Finance, Nirmala Sitharaman in a written reply to a question in Lok Sabha

RBI supervisory framework strengthens bank oversight, boosting priority sector credit and resolution mechanisms with FinTech collaboration enhancing delivery. Priority sector credit expansion has been matched by a forward looking, risk oriented RBI supervisory framework and bank reforms to preserve financial stability. Banks' collaborations with FinTechs (e KYC, AI face recognition, alternate data underwriting, APIs) support faster credit assessment and service delivery. Regulatory measures include the Prudential Framework for resolution of stressed assets, mandatory provisioning norms, strengthened recovery laws and systems, stressed asset management units, automated Early Warning Systems, and the EASE reform agenda to promote early recognition and time bound resolution of stressed assets.