Year 2025 has been remarkable for the Indian economy, as demonstrated by several key indicators. India’s growth projection was upgraded to 6.8% by the Reserve Bank of India (RBI), highlighting economy’s robust performance led by strong domestic demand and effective public capital expenditure.
Inflation rates moderated to a historic low in a decade, creating room for policy flexibility while supporting credit growth and consumption. Despite tax cuts and GST rate reductions, India remains on track to achieve its fiscal deficit target for the year, aided by record RBI dividends and the government’s disinvestment plans. Rising gross FDI inflows particularly into manufacturing and services further reflect India’s relative macro stability at a time when geopolitical tensions, tariff disputes, and supply-chain realignments continue to challenge global growth.
Against this backdrop, the financial services 2025 has experienced a phase of transformation – balancing growth opportunities with regulatory reforms and continued focus on digitisation. While certain sub-segments such as MFIs and Smaller NBFCs faced profitability pressures amid macroeconomic constraints including interest volatility, inflation, the broader system demonstrated resilience. Credit growth accelerated, capital markets remained active, insurance reforms gathered pace, and digitisation continued to reshape financial intermediation. Here is a more detailed view of some of these key developments that shaped the sector during the year.
- From a macroeconomic standpoint, inflation management remained central to sustaining growth momentum. The RBI’s neutral monetary policy stance, with the repo rate held at 5.50%, reflected a careful balance between price stability and growth support. Inflation expectations have been broadly anchored, with the central bank signaling confidence that headline inflation will remain within or close to the target band in FY26. This macro stability has enabled credit expansion and improved risk appetite across financial institutions.
- System wide credit growth expanded nearly by 20% led by NBFCs which deepened their presence in retail lending, MSME finance and specialised segments such as gold and vehicle loans. Banks supported by stronger balance sheets, regulatory reforms and credit-guarantee schemes maintained steady growth in retail and MSME portfolios. From an economist’s perspective, this phase of credit expansion has been structurally healthier than previous cycles, although careful monitoring of asset quality particularly in unsecured retail credit remains essential.
- Policymakers and regulators have prioritised building a more efficient, inclusive and competitive financial ecosystem. Initiatives such as the Unified Lending Interface (ULI) of NPCI, expansion of Account Aggregator (AA) frameworks, public cloud infrastructure for financial institutions, and AI-led monitoring of mule accounts are reshaping credit delivery and risk governance. Efforts to scale the Open Network for Digital Commerce (ONDC) and promote digital claims processing, and embedded insurance model are improving access, transparency, and efficiency across the system.
- Regulatory reforms have also focused on enhancing ease of doing business while tightening governance and compliance standards. Key measures include amendments under the Banking Laws (Amendment) Act, 2025, simplified KYC norms, stronger authentication for digital payments effective April 2026, extension of Expected Credit Loss (ECL) frameworks to banks, and refinements to digital lending regulations across regulated entities. In Insurance sector, proposals such as composite licenses, GST rationalisation, increased foreign participation through 100% FDI signal a long-term push towards affordability, competition, and financial inclusion.
- There has been significant digital adoption across sectors as the focus continues to be on digitisation and digital transformation. Fintech firms and NBFCs are increasingly using AI and machine learning for credit assessment, fraud detection, and customer engagement, providing improved access for retail borrowers and small businesses, particularly in semi-urban and rural regions.
- Regulators have continued to advance reforms aimed at fostering sustainable and system-wide growth within financial services ecosystem. Several structural measures have been introduced or proposed, including extension of ECL modelling to banks to enhance transparency and strengthen risk management practices. In insurance, proposals such as composite licences allowing insurers to offer both life and non-life products under a unified regulatory framework along with GST rationalisation in life and health insurance, are expected to improve affordability, expand coverage, and support deeper financial inclusion.
As the Union Budget 2026 approaches, expectations from an economist’s standpoint are centered on continuity, credibility, and targeted reform rather than fiscal expansion. The emphasis is likely to remain on capital expenditure-led growth, particularly in infrastructure, energy transition, and urban development areas that have significant multiplier effects for banks, NBFCs, and capital markets. Measures to deepen bond markets, improve long-term savings mobilisation through insurance and pension products, and support MSME credit without increasing future fiscal risks will be closely monitored.
However, the key trade-off for policymakers lies in balancing fiscal consolidation with growth support. The optimal policy mix, therefore, lies in prioritising the quality of spending focusing on productivity enhancing investments and structural reforms while maintaining a credible medium-term fiscal consolidation path.
This article first appeared in the ET Edge Insights on 27 January 2026.
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