Banking resilience, fintech innovation, and insurance expansion drive the financial ecosystem to new heights amid global headwinds

India's Banking, Financial Services, and Insurance (BFSI) sector demonstrated remarkable resilience and growth during FY2024-25, establishing itself as a cornerstone of the nation's economic transformation. The sector's performance was characterized by robust banking profitability, explosive fintech growth, and expanding insurance penetration, all underpinned by revolutionary digital infrastructure that has positioned India as a global leader in financial innovation.
The year marked a watershed moment as India's financial sector not only weathered global economic uncertainties but also strengthened its position through technological advancement, regulatory innovation, and strategic consolidation. From record-breaking digital payment volumes to unprecedented banking profits and fintech unicorn valuations, FY2024-25 showcased the sector's evolution from a traditional service provider to a technology-driven ecosystem.

Banking Sector : Unprecedented Profitability and Digital Leadership

Stellar Financial Performance
India's banking sector achieved its best-ever performance in FY2024-25, with profitability reaching new heights across both public and private sector banks. Banks' profitability rose for the sixth consecutive year in 2023-24 and continued to rise in H1:2024-25 with the return on assets (RoA) at 1.4 per cent and return on equity (RoE) at 14.6 per cent.
The sector's robust performance was reflected in impressive profit growth metrics. In Q1 FY2024, banks earned Rs. 0.74 lakh crore. This figure marks a 69% increase compared to last year. Public Sector Banks (PSBs) saw their profits double from Rs. 0.15 to 0.34 lakh crore. This dramatic improvement demonstrated the successful turnaround of public sector banks, which had historically lagged behind their private counterparts.
The banking sector's asset quality continued its remarkable improvement trajectory. At a system level, the gross non-performing advances (GNPAs) and net non-performing advances (NNPAs) are at 4.0% and 1.0%, respectively, representing one of the cleanest balance sheets in the sector's recent history.

Leading Bank Performance Analysis

State Bank of India (SBI) recorded the highest earnings among Indian banks at $8.4 billion in FY2024, with HDFC Bank close behind at $7.9 billion, and ICICI Bank rounding up the top three with $5.5 billion. The competitive landscape showed clear differentiation in operational metrics. Kotak Mahindra Bank reports the highest return on assets (ROA) at 2.7%, surpassing ICICI Bank's 2.2% and HDFC Bank's 1.9%. However, ICICI Bank demonstrates superior operational efficiency with the lowest CIR at 43%.

Digital Banking Revolution
India's banking sector led the global digital transformation, with the country's payment infrastructure setting new benchmarks. The digital payments system in India has evolved the most among 25 countries with India's Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments Innovation Index (FPII).
The Unified Payments Interface (UPI) continued its exponential growth trajectory. UPI transactions surged to a record 16.73 billion in December 2024, value at Rs. 23,25,000 (US$ 271.96 billion). This represents a remarkable evolution from a nascent payment system to the world's most successful real-time payment platform.

Credit Growth and Asset Quality
The banking sector maintained healthy credit growth while preserving asset quality. The state-run bank's gross loans grew 14.9% on-year in the September quarter while deposits rose 9.1%. The lender expects a loan growth of 14%-16% for the fiscal year.
However, the sector faced challenges with credit-deposit imbalances. Loans given by Indian banks have been growing at double-digit percentages since April 2022, boosted by a spike in consumer spending, but the rise in deposits has lagged for the most part. This has pushed lenders to raise interest rates or to slow loan growth, hurting margins.

Fintech Sector : Innovation Engine Driving Financial Inclusion

Market Size and Growth Trajectory
India's fintech sector experienced explosive growth in FY2024-25, establishing the country as a global fintech powerhouse. India Fintech Market is expected to witness a CAGR of 16.85% during the forecast period FY2025-FY2032, growing from USD 64.18 billion in FY2024 to USD 223.06 billion in FY2032.
The sector's remarkable expansion was driven by multiple factors including digital adoption, regulatory support, and innovative business models. 
Government initiatives aimed at fostering the FinTech ecosystem, along with the emergent wave of FinTech startups, are principal factors envisioned to propel the expansion of the India FinTech sector into 2028, reaching a projected size of USD 143 billion at a CAGR of 17.1%.

Funding Landscape and Investment Trends
The fintech funding environment showed mixed signals during FY2024-25, reflecting global market conditions while maintaining India's position as a leading destination for fintech investment.

India's fintech sector attracted substantial funding in Q3 of 2024, securing US$778 million - a 66% increase compared to Q3 2023. This recovery demonstrated the sector's resilience and investor confidence despite global headwinds.
The fintech sector received a total funding of USD 795Mn in H1 2024, decreasing 11% on a YoY basis from USD 896 Mn in H1 2023, mainly due to global trends like funding winter and geopolitical issues.

Digital Payments Revolution
The payments segment remained the crown jewel of India's fintech ecosystem, with UPI leading the global digital payments revolution.

The journey of UPI (Unified Payments Interface) is nothing short of spectacular. From a modest 1 million transactions in 2016, UPI has crossed the landmark of 10 billion transactions, marking a seismic shift in how people transact digitally.
The report forecasts that the lending sector's book size will grow 6.6 times to US$300 billion within the next five to six years. Additionally, the insurtech sector is expected to reach US$15 billion in gross written premium, and assets under management by wealthtech platforms are likely to surge fourfold to US$237 billion.

Fintech Segment Performance

Regulatory Environment and Innovation
India's fintech success was underpinned by progressive regulatory frameworks and government initiatives. India Stack: A set of APIs that allows governments, businesses, startups and developers to utilise a unique digital infrastructure. One of the most important digital initiatives undertaken globally, aimed at putting up a public digital infrastructure based on open APIs to promote public and private digital initiatives.
The Account Aggregator framework represented a significant innovation in financial data sharing. Account Aggregator Framework (AA): AA is an advanced framework of sharing consent based financial information between Financial Information Providers (FIPs) and Financial Information Users (FIUs). With 23 Banks onboarded to the AA framework, more than 1.1 Bn bank accounts are eligible to share data on AA.

Insurance Sector : Expansion Amid Market Transformation

Market Size and Growth Dynamics
India's insurance sector demonstrated robust growth in FY2024-25, driven by increased awareness, product innovation, and regulatory support. India insurance sector growth pegged at 7.1% in 2024-28, reflecting sustained expansion across both life and non-life segments.
The sector's growth was particularly pronounced in specific segments. General insurance industry likely to grow 13% in FY26, indicating strong momentum in non-life insurance products.

Life Insurance Performance
The life insurance segment maintained its dominant position with strong premium growth across major players.

In the April-Jan period of FY25, the Life Insurance Corporation of India (LIC) recorded a 7.8% YoY increase in new business premium. From total insurance new business premium collection, LIC alone contributed over 56.96% to the total new business premium collection.
Among the private players, SBI Life, HDFC Life and ICICI Prudential Life led the industry in premium collection. SBI Life collected Rs. 29,530 crore (US$ 3.42 billion) premium, while HDFC Life and ICICI Prudential Life received Rs. 25,672 crore (US$ 2.98 billion) and Rs. 16,916 crore (US$ 1.96 billion), respectively.
 

Non-Life Insurance Growth
The non-life insurance sector showed impressive expansion, driven by health insurance and motor insurance demand.

In the financial year 2024, the non-life insurance sector in India was led by health insurance segment with a gross direct premium of 704.8 billion Indian rupees. Motor insurance followed closely with a premium of 579.28 billion Indian rupees.
The non-life insurance market in India reached Rs. 2,21,765 crore (US$ 25.7 billion) in FY24 (Until December 2023).
 

Digital Innovation in Insurance
The insurance sector embraced digital transformation, with insurtech companies leading innovation in product distribution and customer experience. India's insurtech sector is the second largest in the Asia-Pacific (APAC) region and is projected to grow 15-fold, reaching $88.4billion by 2030, positioning India as one of the world's fastest-growing insurance markets.

Sector-Wide Trends and Transformation Drivers

Digital Infrastructure Leadership
India's BFSI sector benefited from world-class digital infrastructure that enabled financial inclusion at scale. BCG predicts that the proportion of digital payments will grow to 65% by 2026, indicating continued digitalization momentum.
The Jan Dhan-Aadhaar-Mobile (JAM) trinity continued to drive financial inclusion. As of May 2024, the Jan Dhan Yojana scheme has banked 52.30 crore beneficiaries, with a total amount of Rs. 2,28,057 crore (US$ 27.32 billion).

Regulatory Innovation and Support
The regulatory environment remained supportive of innovation while maintaining financial stability. Key initiatives included:
Central Bank Digital Currency (CBDC): In November 2022, RBI launched a pilot project on Central Bank Digital Currency (CBDC).
Digital KYC: Simplified know-your-customer processes using risk-based approaches
Fintech Sandbox: Continued support for fintech innovation within regulatory boundaries

Mergers and Acquisitions Activity
The sector witnessed significant consolidation activity as companies sought scale and capability enhancement. M&A activity with an India angle hit a record Rs. 14,81,373 crore (US$ 171 billion) in 2022, demonstrating active corporate restructuring.
Notable transactions included strategic acquisitions by major banks to enhance their digital capabilities and market reach, particularly in the fintech space.

Challenges and Risk Factors

Credit-Deposit Imbalance
The banking sector faced structural challenges with credit growth outpacing deposit growth. This has pushed lenders to raise interest rates or to slow loan growth, hurting margins, creating pressure on net interest margins across the sector.

Cybersecurity and Digital Risks
With increased digitalization came heightened cybersecurity concerns. The Digital Threat Report 2024, launched collaboratively by CERT-In, CSIRT-Fin, and SISA, provides a comprehensive analysis of the cybersecurity landscape for India's Banking, Financial Services, and Insurance (BFSI) sector.

Regulatory Compliance
Constant regulatory and compliance-related challenges pose hurdles for fintech startups in India. Fintechs fall under the realm of various governing bodies like SEBI, RBI, IRDAI, and National Payments Corporation of India.

Future Outlook and Growth Projections

Short-term Prospects (FY2025-26)
The BFSI sector is positioned for continued growth, supported by several positive factors:
Banking Sector: Continued profitability improvement with expected margin stabilization
Fintech: slight uptick in discretionary spend by customers in the banking, financial services & insurance (BFSI) and retail sectors in some markets and investments in Generative AI (GenAI) initiatives translating into new order inflows
Insurance: Projected 13% growth in general insurance driven by health insurance demand

Medium-term Vision (2026-2030)

Technology Integration and AI
The sector is embracing artificial intelligence and machine learning technologies. Leading Indian IT services companies have trained a sizeable portion of their employee base in GenAI skills and have already started ramping up their capabilities and service offerings, to deliver GenAI-based solutions to their clients.
The healthcare and BFSI sectors remain the early adopters of AI/GenAI capabilities and continue to invest in the same, positioning these sectors at the forefront of technological innovation.

Global Recognition and Competitiveness
India's BFSI sector gained international recognition for its innovation and performance. India is among the three Asian countries in the global ranking of banking sectors' net profits, holding a 3.3% share of the total profits generated by banks globally. India has advanced from sixth to fourth place in net profit share, overtaking France.
The fintech sector's global positioning also strengthened significantly. India now ranks fourth in all-time fintech funding, trailing the US, China, and the UK. However, in Q3 2024, India's ranking jumped to second place.

Conclusion: A Sector Transformed
FY2024-25 marked a transformative year for India's BFSI sector, characterized by record-breaking performance across banking, explosive growth in fintech, and expanding insurance penetration. The sector's success was built on a foundation of digital innovation, regulatory support, and strong economic fundamentals.
The banking sector's achievement of six consecutive years of profit growth, combined with the world's most advanced digital payments infrastructure and a rapidly expanding fintech ecosystem, positions India as a global leader in financial services innovation. 
The insurance sector's steady growth and digital transformation further strengthened the overall BFSI ecosystem.
Looking ahead, the sector is well-positioned to capitalize on India's economic growth, demographic dividend, and technology leadership. With projected growth rates significantly above global averages and continued innovation in digital financial services, India's BFSI sector is set to play a crucial role in the country's journey toward becoming a developed economy.