Credit Pulse — Scheduled Commercial Banks
Bank credit growth trends, sectoral breakdown, credit-deposit dynamics, and credit penetration ratios
Source: RBI Appendix Table 4 · Table II.4.1
17.1%
Bank Credit Growth (FY26)
↑ vs 11.0% in FY25
81.4%
Credit-Deposit Ratio
↑ New high (FY19: 76.4%)
61.8%
Credit-GDP Ratio
↑ From 57.4% in FY25
33.1%
Micro & Small Credit Growth
↑ Mar 2026 Y-o-Y
Bank Credit vs Deposit Growth
Year-on-year % change · FY18 to FY26
Credit-Deposit & Credit-GDP Ratios
Structural penetration trends · FY18 to FY26
Sectoral Credit Growth — FY 2025-26 Monthly Trajectory
Y-o-Y % change by month · Non-food credit, Agriculture, Industry, Micro & Small
Analyst Take — Credit
Acceleration in H2 FY26 is the story. After a subdued H1 (credit stuck at 9-10% y-o-y), momentum surged to 15.9% by March 2026 — driven by a sharp revival in NBFC borrowing from October onwards and sustained buoyancy in personal loans and services. PSBs outgrew PVBs for the second consecutive year, reversing the post-COVID private bank dominance narrative. The credit-GDP ratio at 61.8% is a 9-year high — India is deepening credit intermediation, but a C/D ratio of 81.4% means deposit mobilisation remains the systemic constraint banks must solve for in FY27.
📖 Key Terms & Methodology 7 Terms
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Bank Credit Growth Core Metric
Year-on-year % change in total outstanding loans and advances by all Scheduled Commercial Banks (SCBs) — food and non-food combined.
= (Credit outstanding now − Credit one year ago) ÷ Credit one year ago × 100. Published monthly by RBI in Table II.4.1 of the Annual Report.
Non-Food Credit Core Metric
Bank credit to all sectors excluding loans to the Food Corporation of India (FCI) and state food-procurement agencies. The headline gauge of productive lending — typically ~98–99% of total bank credit.
= Total Bank Credit minus food credit. Agriculture, industry, services, and personal loans all sit inside non-food credit. The key indicator for economic credit demand.
Credit-Deposit (C/D) Ratio Structural
Proportion of aggregate deposits deployed as loans. A C/D of 81.4% means ₹81.40 lent per ₹100 of deposits. Above 80% signals deposit-mobilisation stress — banks have limited room to grow loans without raising fresh deposits.
= (Outstanding bank credit ÷ Aggregate deposits) × 100. Computed at system level using end-period balances. No regulatory ceiling, but RBI may issue guidance to banks with high C/D ratios.
Credit-GDP Ratio Penetration
How deeply credit has penetrated the economy. India at 61.8% is well below China (~185%) and USA (~200%) — significant room for credit deepening as formalisation of the economy increases.
= (Outstanding bank credit at year-end ÷ Nominal GDP at current prices) × 100. Uses RBI credit data and NSO GDP estimates. An all-time high for India in FY26.
Scheduled Commercial Banks (SCBs) Entity
Banks listed in the Second Schedule of the RBI Act, 1934. Covers: Public Sector Banks (12), Private Sector Banks (22), Foreign Banks (45), Small Finance Banks (12), and Regional Rural Banks (43). Payment Banks are excluded from SCB credit aggregates.
SCBs maintain CRR balances with RBI. Their combined data forms India's banking system aggregate, published weekly in the RBI's Weekly Statistical Supplement (WSS).
Micro & Small Credit Segment
Credit to Micro (investment ≤₹1 Cr, turnover ≤₹5 Cr) and Small (investment ≤₹10 Cr, turnover ≤₹50 Cr) enterprises per the MSMED Act 2020 classification. At 33.1% YoY growth, this was the fastest-growing credit segment in FY26.
Data from RBI's BSR-1 return (Basic Statistical Return on credit by SCBs), collected at account level every March and September from all SCBs. See Table IV.3.
PSBs vs PVBs Trend
Public Sector Banks (government-owned: SBI + 11 nationalised banks) vs Private Sector Banks (HDFC Bank, ICICI, Axis, Kotak, IndusInd, etc.). PSBs held ~59% of total SCB credit in FY26 and outgrew PVBs for the second straight year — reversing the FY20–FY23 private-bank dominance cycle.
Derived from bank-group-wise BSR data. PSB credit share = PSB outstanding ÷ Total SCB credit × 100. The reversal reflects successful PSB NPA resolution and capital recapitalisation by GoI.
Digital Payments — Ecosystem Overview
Payment instrument volumes, value flows, and three-year trend across all major rails
Source: RBI Table IX.1 · Payment System Indicators
2,416 Cr
UPI Transactions FY26
↑ 30% volume growth
₹314 L Cr
UPI Value FY26
↑ 20.6% value growth
60,238 L
Credit Card Txns FY26
↑ 26.2% Y-o-Y
12,802 L
Debit Card Txns FY26
↓ 20.6% Y-o-Y
Retail Payment Volume Share — FY26
UPI dominance in transaction count (in lakh)
Key Payment Rails — 3-Year Value Trend
₹ Lakh crore · FY24, FY25, FY26
Cards — Credit vs Debit Volume Divergence
Transaction volumes in lakh · FY24, FY25, FY26
Analyst Take — Payments
UPI is no longer a payment product — it is Indian financial infrastructure. At 86% of all retail transactions and ₹314 lakh crore in FY26 value, it has structurally displaced debit cards (down 21% in volume). Credit cards are the next battleground — 26% volume growth signals consumers using credit for everyday spend, not just big tickets. For fintechs: the PPIs surge to 98,699 lakh transactions (up 40%) after two years of decline is worth watching. NACH (direct debit) growing at 9% volume and 22% value tells you EMI-based lending is expanding — a leading indicator for NBFC and BNPL growth.
📖 Key Terms & Methodology 9 Terms
▾
UPI (Unified Payments Interface) Rail
NPCI's real-time interbank payment system operating 24×7 via Virtual Payment Addresses (VPAs like abc@bank). A single UPI ID links to one or more bank accounts. Enables P2P and P2M transfers instantly with no transaction fees for users.
Volume = total number of individual UPI transactions processed. Value = aggregate ₹ amount transferred. Settlement happens in real time via IMPS rails, with NPCI acting as the clearing switch. FY26: 2,416 crore transactions, ₹314 lakh crore.
RTGS (Real Time Gross Settlement) Rail
RBI-operated system for high-value interbank fund transfers (minimum ₹2 lakh). Each transaction is settled individually, immediately, and irrevocably in central bank money (RBI reserves). No netting — every transfer is gross. Available 24×7 since December 2020.
At ₹2,273 lakh crore in FY26, RTGS carries the bulk of India's financial-system value (wholesale payments, government, capital markets). High per-transaction value (~₹65 Cr average) vs UPI (~₹1,300 average).
NEFT (National Electronic Funds Transfer) Rail
RBI-operated batch-based fund transfer system with no minimum or maximum limit. Transactions settle in half-hourly batches, 24×7 (since December 2019). While UPI dominates for retail, NEFT handles a large share of mid-value bill payments, payroll, and vendor payments.
FY26: 100,996 lakh transactions at ₹502 lakh crore. Unlike RTGS (gross settlement), NEFT nets positions and settles in batches — lower RBI reserve usage per transaction.
IMPS (Immediate Payment Service) Rail
NPCI's 24×7 instant interbank transfer service (since 2010), capped at ₹5 lakh per transaction. Accessible via mobile banking and internet banking. UPI is built on IMPS rails — most UPI transactions settle via IMPS under the hood.
FY26: 49,431 lakh transactions (declining as UPI absorbs P2P flows). IMPS volume decline doesn't indicate system weakness — it reflects UPI cannibalisation of the same use case through a simpler interface.
NACH (National Automated Clearing House) Rail
NPCI's bulk/batch payment system for recurring transactions. NACH Credit = outward credits (salary disbursals, dividends, govt benefits). NACH Debit = inward debits (EMI collections, insurance premiums, utility bills via standing instructions/mandates).
NACH Debit growing at 22% value tells you the EMI-based lending economy is expanding — every NACH Debit mandate represents a loan EMI being collected. A leading indicator for NBFC/bank loan book growth. FY26: 21,614 lakh debit transactions, ₹26.9 lakh crore.
PPIs (Prepaid Payment Instruments) Instrument
Stored-value wallets and cards — mobile wallets (Paytm, PhonePe wallet), prepaid cards, gift cards, meal vouchers (Sodexo). Issued by RBI-authorised PPI issuers (both banks and non-banks). PPIs are interoperable with UPI since 2023, boosting their volume.
FY26: 98,699 lakh transactions (up 40% after two years of decline). The surge follows UPI-PPI interoperability — wallet holders can now send/receive via UPI. Maximum load limit: ₹2 lakh (full KYC PPI), ₹10,000 (minimum-detail PPI).
Credit Cards vs Debit Cards Divergence
Credit cards (post-paid, ~₹3,925 cards in circulation FY26) are growing at 26% volume — driven by rewards programs, EMI offers, and UPI-credit card linkage. Debit cards (prepaid, ~1 billion cards) are declining 21% — UPI has absorbed virtually all debit-card use cases.
Transaction volumes in lakh. Credit card value (₹23.6 L Cr FY26) reflects spend on large-ticket items and revolving credit. Debit card decline is structural, not cyclical — this shift will not reverse.
APBS (Aadhaar Payment Bridge System) DBT Rail
Government's Direct Benefit Transfer (DBT) backbone — routes subsidy/welfare payments using the recipient's Aadhaar number as the payment address, mapped to their bank account via NPCI's Aadhaar Mapper. Used for PM-KISAN, MGNREGS, scholarships, LPG subsidies.
A credit-only system (outgoing from government, incoming to citizen). NPCI maintains the Aadhaar–Account mapper. Payments route via banks and reach accounts directly, eliminating middlemen in govt disbursals.
AePS (Aadhaar-enabled Payment System) Inclusion Rail
Allows banking transactions (cash withdrawal, balance inquiry, mini-statement, Aadhaar-to-Aadhaar transfers) using only Aadhaar number + fingerprint/iris biometric at Business Correspondent micro-ATMs. Primary banking channel for rural India with no smartphone needed.
Serves unbanked/low-literacy populations at BC points. Transaction authenticated via UIDAI biometric match in real time. RBI tightened AePS fraud controls in FY26 by mandating daily transaction limits and introducing additional authentication layers.
Flow of Financial Resources to Commercial Sector
Bank vs non-bank credit, NBFC flows, HFC, AIFIs, equity markets, and foreign capital
Source: RBI Appendix Table 5
₹47.0 L Cr
Total Resource Flow FY26P
↑ 30% (FY25: ₹36.2 L Cr)
₹4.43 L Cr
NBFC Net Credit FY26P
↓ from ₹6.34 L Cr in FY25
₹3.22 L Cr
Corporate Bond Issuances
↑ 63% (FY25: ₹1.98 L Cr)
₹5.19 L Cr
Foreign Capital Flows
↑ 60% (FY25: ₹3.25 L Cr)
Financial Resource Flow — Stacked by Source
₹ Lakh crore · FY24, FY25, FY26 (Provisional)
Outstanding Credit — Bank vs Non-Bank
₹ Lakh crore · End of year outstanding
Analyst Take — NBFC & Resource Flow
NBFC deleveraging is the clearest risk signal in this report. NBFC net credit contracted from ₹6.34L Cr (FY25) to ₹4.43L Cr (FY26) — a 30% decline — as banks tightened wholesale lending to NBFCs through FY25-26 H1, forcing a credit consolidation. Banks backfilled directly (₹29.2L Cr in FY26 vs ₹18.1L Cr in FY25). HFCs have almost disappeared as a standalone credit channel (₹13K Cr vs ₹1.42L Cr two years ago — largely the HDFC Bank merger effect). The upside: corporate bond markets grew 63%, signalling deepening capital markets as an alternative to bank/NBFC credit for larger corporates.
📖 Key Terms & Methodology 8 Terms
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Flow of Financial Resources Framework
RBI's annual compilation of total financial resources channelled to the commercial sector from all sources — banks, NBFCs, HFCs, capital markets, and foreign capital. Provides a comprehensive picture of how the real economy is funded beyond just bank credit.
Presented on a net basis = fresh disbursements minus repayments during the year. A declining NBFC flow (₹6.34L Cr → ₹4.43L Cr) means repayments exceeded fresh lending. Source: RBI Appendix Table 5, compiled annually as a provisional estimate (P).
NBFCs (Non-Banking Financial Companies) Entity
Financial institutions registered with RBI that provide credit but cannot accept demand deposits (savings/current accounts). Key types: NBFC-ICC (Investment & Credit), NBFC-MFI (Microfinance), NBFC-P2P (Peer to Peer), NBFC-Factors. Includes large lenders like Bajaj Finance, Muthoot, Shriram, Tata Capital.
NBFC credit flows tracked via RBI's supervisory returns (DNBS returns). The FY26 contraction (−30%) reflects banks pulling wholesale lines to NBFCs through H1 FY26, forcing deleveraging. NBFCs with ≥₹500 Cr asset size are supervised directly by RBI.
HFCs (Housing Finance Companies) Entity
NBFCs specialising in home loans, registered with the National Housing Bank (NHB) until 2021, now regulated by RBI. Includes LIC HFL, PNB Housing, Can Fin Homes, Aavas, Home First, etc. HFC credit flows collapsed in FY26 (₹0.13L Cr vs ₹1.42L Cr in FY24) due to HDFC Ltd's merger into HDFC Bank in July 2023.
The HDFC Bank-HDFC Ltd merger converted India's largest HFC (₹7 lakh crore loan book) into bank credit — mechanically removing it from the HFC flow category. The data shift is accounting, not a collapse in housing credit.
AIFIs (All-India Financial Institutions) Entity
Apex development finance institutions mandated to funnel credit into specific sectors: NABARD (agriculture, rural infrastructure, cooperative banks), NHB (housing, HFCs), SIDBI (MSMEs, MFIs), EXIM Bank (trade finance), NaBFID (infrastructure). They borrow from markets and on-lend to banks/NBFCs.
AIFI credit flows in FY26: ₹0.88L Cr (disbursements net of repayments to commercial sector). NABARD's refinance to banks supports Priority Sector Lending. SIDBI's lines support MFIs and MSME-focused NBFCs. Tracked in RBI's Appendix Table 5.
Corporate Bonds Capital Market
Debt securities issued by Indian companies to raise funds directly from markets, bypassing banks. Includes debentures (NCD/OCD), commercial paper (CP), and bonds. The 63% surge in FY26 (₹1.98L Cr → ₹3.22L Cr) reflects corporate India's increasing use of capital markets as bank credit tightened in H1 FY26.
Data sourced from SEBI's corporate bond issuance records and RBI's financial flows compilation. Captures new issuances (primary market). Does not include secondary market trades. Major issuers: large corporates, infrastructure companies, financial intermediaries.
ECBs (External Commercial Borrowings) Foreign Capital
Loans raised by Indian entities from foreign lenders (international banks, foreign bondholders, NRI deposits, export credit agencies). Governed by RBI's ECB Policy with end-use restrictions (cannot be used for real estate or stock market investment). Includes Rupee-denominated bonds (Masala Bonds).
RBI approves ECBs under Automatic Route (below specified limits) or Approval Route (above limits). Data tracked via Form ECB returns filed with RBI's DSIM. FY26 foreign capital flows totalled ₹5.19L Cr (+60%), driven by FDI and ECB surge.
Equity Flows (Primary Market) Capital Market
Funds raised by Indian companies through equity issuances: IPOs, FPOs (Follow-on Public Offers), Rights Issues, and Qualified Institutional Placements (QIPs). FY26: ₹3.62L Cr, a slight moderation from FY25's ₹3.81L Cr despite a record IPO pipeline.
Tracked by SEBI. Primary market equity flows represent fresh capital raised (dilution of existing shareholders or new shares). Does not include secondary market trades. Includes PE/VC investments to extent captured in SEBI/DPIIT data.
Outstanding Credit (Stock vs Flow) Concept
Flow = new lending net of repayments during the year (what Appendix Table 5 measures). Stock/Outstanding = cumulative loans outstanding at year-end (what the chart shows: bank ₹212.9L Cr, non-bank ₹101.1L Cr). A falling flow can coexist with rising stock if old loans are still outstanding.
NBFC net flow was negative in H1 FY26 (repayments > fresh lending) but the outstanding stock still rose modestly because multi-year loans from prior years remained on books. The distinction is critical for interpreting NBFC stress correctly.
MSME & Priority Sector Credit
MSME lending by enterprise tier, PSL achievement by bank group, KCC scheme
Source: RBI Priority Sector Returns · Tables IV.1, IV.3
₹36.8 L Cr
Total MSME Credit (Dec 25)
↑ 23% vs Dec 2024
45.0%
PSL as % of ANBC (FY26)
↑ All bank groups met 40% target
₹75.7 L Cr
Total PSL Outstanding FY26P
↑ from ₹67.3 L Cr in FY25
-8.6%
KCC Operative Accounts
↓ 11.7% count decline YoY
MSME Credit — Amount Outstanding by Segment
₹ Lakh crore · FY24, FY25, Dec FY26
PSL Achievement by Bank Group — FY26
% of ANBC / CEOBSE · Target: 40%
MSME Account Count vs Credit Outstanding Divergence
Number of accounts (lakh, left) vs Amount (₹ L Cr, right) · Shows consolidation trend
Analyst Take — MSME & Priority Sector
Consolidation, not contraction, is the MSME credit story. Total account count is down 9% (257L to 234L) while credit outstanding is up 35% (₹27.3L Cr to ₹36.8L Cr) — average ticket size per account is rising sharply. This suggests formalisation of credit (smaller, informal borrowers exiting) and surviving enterprises borrowing more. The Micro & Small industry credit grew 33.1% y-o-y in March 2026 — the fastest growing segment in all of bank credit. SFBs, surprisingly, achieved 78.8% PSL ratio against a 40% target, indicating their core franchise remains deep in priority segments.
📖 Key Terms & Methodology 7 Terms
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MSME Classification (2020) Definition
India revised MSME definitions under the MSMED Amendment 2020, switching to a dual criteria of investment in plant & machinery AND annual turnover: Micro ≤₹1 Cr investment + ≤₹5 Cr turnover; Small ≤₹10 Cr + ≤₹50 Cr; Medium ≤₹50 Cr + ≤₹250 Cr. Previously only investment criteria applied.
The 2020 reclassification significantly expanded the MSME universe — many enterprises that were previously 'medium' or 'small' moved up, and the turnover criterion brought in more service-sector businesses. The classification determines PSL eligibility and subsidy access.
PSL (Priority Sector Lending) Mandate
RBI's directed lending mandate requiring banks to deploy a specified percentage of credit to priority sectors: agriculture, MSMEs, education, housing (affordable), social infrastructure, renewable energy, weaker sections, and export credit. Overall PSL target: 40% of ANBC for Domestic SCBs; 75% for SFBs; 40% for Foreign Banks (≥20 branches).
Achievement measured as of March 31 every year. Shortfall is parked in RIDF (Rural Infrastructure Development Fund) with NABARD, SIDBI, or NHB at below-market rates — effectively a penalty. Surplus can be on-lent to deficit banks via the PSL trading platform (PSL Certificates/PSLCs).
ANBC (Adjusted Net Bank Credit) PSL Base
The denominator for calculating PSL targets. Starts with Net Bank Credit (gross credit minus bills rediscounted) and adjusts for off-balance sheet items. PSL targets are expressed as % of ANBC or CEOBSE (Credit Equivalent of Off-Balance Sheet Exposure), whichever is higher.
ANBC = Outstanding credit − Bills rediscounted with RBI/SIDBI/EXIM Bank + bonds/debentures in lieu of advances for FIs. CEOBSE = sum of credit-equivalent exposures for funded and non-funded contingent items (L/Cs, guarantees etc). Formula set in RBI's Master Direction on PSL.
PSL Sub-Targets Detail
Within the 40% overall PSL target, banks must also meet specific sub-targets: Agriculture — 18% of ANBC (of which 10% for Small & Marginal Farmers); Micro Enterprises — 7.5%; Weaker Sections — 12%; SFB-specific: 75% overall, with dedicated weaker-section and agriculture sub-targets.
Sub-target shortfalls are treated the same as overall shortfall — parked in RIDF. Banks can buy PSLCs to cover specific sub-target shortfalls: four certificate types exist (PSLC-Agriculture, PSLC-Small & Marginal Farmers, PSLC-Micro Enterprises, PSLC-General).
KCC (Kisan Credit Card) Product
Single-window revolving credit facility for farmers covering: crop cultivation expenses, post-harvest requirements, farm maintenance, allied activities (animal husbandry, fisheries), and farmer family consumption needs. No collateral for loans up to ₹1.6 lakh (covered under CGTMSE/KCC guarantee). Interest subvention available: 3% p.a. on timely repayment, capped at 7% p.a. effective.
Credit limit based on land holding, crop, and income. Sanctioned as a working capital limit — farmer draws and repays in line with seasonal cash flows. FY26 saw a −8.6% decline in operative accounts (11.7% count fall) vs +9.4% rise in outstanding amount — same consolidation trend as MSMEs.
SFBs (Small Finance Banks) Bank Type
RBI-licensed niche banks (12 in FY26) designed to serve unbanked and underbanked segments — microfinance customers, small farmers, unorganised sector workers. Higher PSL target of 75% vs 40% for regular SCBs. Examples: AU SFB, Equitas SFB, Jana SFB, ESAF SFB, Ujjivan SFB.
SFBs achieved 78.8% PSL ratio in FY26 (vs 40% target), indicating their core franchise is deeply embedded in priority segments. Required to deploy 75% of ANBC to PSL, with sub-targets for agriculture and microenterprises. Originated from MFIs converting to banks post-2015 RBI licensing.
PSLCs (Priority Sector Lending Certificates) Trading
Tradeable certificates that allow PSL surplus banks to sell their excess PSL achievement to deficit banks. The buyer counts the purchased PSLC toward its own PSL target without the underlying loans transferring. Traded on RBI's e-Kuber platform. Creates a market mechanism for PSL compliance.
PSLC price = market-determined premium (positive when demand for PSL compliance exceeds supply of surplus banks). Four categories: PSLC-Agriculture, PSLC-SF&MF, PSLC-Micro Enterprises, PSLC-General. Foreign banks and urban cooperative banks are active buyers; SFBs and RRBs are active sellers.
Financial Inclusion — Access, Usage & Quality
FI-Index trends, banking infrastructure expansion, BSBDA accounts, and BC network
Source: RBI FI-Index · MPFI Return · Table IV.4
67.0
FI-Index (Mar 2025)
↑ All-time high (Mar 2024: 64.2)
11.75 L
BC Outlets (Dec 2025)
↑ 7× bank branch count
7.30 Cr
BSBDA Accounts
↑ from 7.20 Cr (Dec 2024)
₹11.9 L Cr
BC Transaction Value FY26
↑ Core rural transaction engine
Financial Inclusion Index — 9-Year Trend
Composite FI-Index (access + usage + quality) · 2017 to 2025
Banking Infrastructure — Branches vs BC Outlets
Count as of December 2025 · Rural vs Urban split
Analyst Take — Financial Inclusion
India's inclusion journey is quietly one of the world's most impressive. The FI-Index at 67.0 — up from 43.4 in 2017 — represents a 54% structural improvement in 8 years, driven by JAM trinity, UPI, and the BC network. The 11.75 lakh BC outlets outNumber bank branches 6.9 to 1, making BCs India's true last-mile banking layer. For fintechs and banks: the BSBDA base of 7.3 crore accounts is the upgrade opportunity — converting zero-balance accounts into active, product-holding customers is the next frontier. The RBI's NSFI 2025-30 now focuses on usage and quality dimensions over mere account opening.
📖 Key Terms & Methodology 7 Terms
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FI-Index (Financial Inclusion Index) Key Metric
RBI's composite index measuring the extent of financial inclusion in India on a scale of 0 (total exclusion) to 100 (full inclusion). Published annually as of March. At 67.0 in March 2025, up from 43.4 in 2017, it reflects 54% structural improvement in 8 years.
Three dimensions, each comprising multiple parameters: Access (35% weight) — banking penetration, ATMs, branches, BC outlets; Usage (45% weight) — deposit accounts, credit uptake, insurance, pension enrolment; Quality (20% weight) — financial literacy, consumer protection, ease of account access. FI-Index = √(F_access² + F_usage² + F_quality²) normalised to 0–100 scale.
BSBDA (Basic Savings Bank Deposit Account) Product
Zero-balance accounts with no minimum balance requirement and basic banking services (4 cash withdrawals/month free, ATM card, online access). Introduced by RBI in 2012 to extend formal banking access. A bank holder can have only one BSBDA per bank. The Jan Dhan accounts (PMJDY) are a special variant of BSBDA with additional features (overdraft, insurance, RuPay card).
As of December 2025: 7.30 crore active BSBDAs with deposits. PMJDY accounts (government's version): 53.1 crore accounts (as of Feb 2025). Zero-balance accounts are a concern — PMJDY had ~8–9% zero-balance rate in FY26 vs ~25% three years ago. The next challenge is converting accounts to active use.
BC (Business Correspondent) Channel
Bank-appointed agents authorised to deliver banking services at the last mile — in villages, small towns, and underserved areas where branches don't exist. BCs can: open accounts, accept deposits/withdrawals, collect loan repayments, conduct Aadhaar-based KYC, facilitate govt benefit disbursals. As of December 2025: 11.75 lakh BC outlets — 7× the bank branch count.
Fixed-point BCs are permanent service points; Mobile BCs travel to villages. BC transactions: 155 crore in FY26 (count), ₹11.9 lakh crore (value). Average transaction: ~₹770. BCs are compensated by banks via revenue-sharing on transactions. Supervised under RBI's Master Direction on BC Framework (2023).
JAM Trinity Framework
The three-pillar digital public infrastructure enabling financial inclusion at scale: Jan Dhan (bank accounts for the unbanked); Aadhaar (biometric digital ID, 1.4 billion enrollments); Mobile (ubiquitous cheap smartphone/feature phone + Jio-driven data access). Together they enable account opening, KYC, authentication, and digital payments for even the poorest citizen.
Impact: DBT via JAM has saved ~₹2.73 lakh crore in subsidy leakage since 2013 (GoI estimate). PMJDY opened 53+ crore accounts in 10 years; Aadhaar enables instant e-KYC in seconds; Mobile penetration ~85% (1.15 billion subscribers). The three together are the backbone of India's DPI advantage.
NSFI 2025-30 (National Strategy for Financial Inclusion) Policy
RBI's 5-year roadmap for financial inclusion (2025–2030) jointly with GoI and financial regulators. Key pivot: shifts focus from access (account opening) — already largely achieved — to usage and quality dimensions. Priorities: making inactive accounts active, credit for agriculture/MSMEs, insurance penetration, and digital literacy.
Progress tracked via FI-Index annual readings. The Index is now calibrated to reward usage and quality improvements, not just access metrics. Baseline: FI-Index 64.2 (March 2024); Target trajectory to be set in upcoming NSFI progress reports.
ICT-BC Transactions Metric
Banking transactions conducted through Information & Communication Technology-enabled Business Correspondent agents using micro-ATMs, handheld devices, or mobile phones — as opposed to physical branch transactions. Captures the volume and value of banking activity happening at the last-mile agent layer.
Reported by banks in the MPFI (Monthly Progress Financial Inclusion) return to RBI. Key metric: transactions per BC outlet per month (a low number signals inactive BCs; RBI targets viability threshold of ~4–5 transactions/day per BC). AePS-based withdrawals form the bulk of ICT-BC transaction volume.
Credit-to-GDP Deepening (Rural) Concept
Unlike aggregate credit-GDP, this measures formal credit penetration specifically for rural/agriculture households. India's rural formal credit as % of agricultural GDP remains low (~40%) compared to formal sector credit. SHG-Bank linkage programme, KCC, and PM Mudra Yojana are the primary channels for rural credit access.
Tracked via RBI's MPFI and NABARD data. The FI-Index's usage sub-index captures this — credit penetration in underserved segments is a key differentiator between a 64 and 80 score on the FI-Index. Increasing this metric is the central challenge for India's financial inclusion agenda to FY30.
Macro Context — Economy, Money & Markets
GDP, inflation, money supply, interest rates, and credit penetration in one frame
Source: RBI Appendix Tables 1, 4 · NSO
7.6%
Real GDP Growth FY26
↑ from 7.1% in FY25
2.1%
CPI Inflation FY26
↓ Multi-decade low (FY25: 4.6%)
6.5%
10-Year G-Sec Yield
↓ from 6.9% in FY25
5.4%
Call Money Rate (avg)
↓ from 6.5% in FY25
M3 Money Supply vs Bank Credit Growth
Y-o-Y % change · FY18 to FY26
Interest Rate Landscape
Key benchmark rates (%) · FY24, FY25, FY26
Reserve Money Growth & Money Multiplier
Reserve money growth (%) and money multiplier ratio · FY18 to FY26
Analyst Take — Macro
FY26 delivered the rare combination of high growth and low inflation. GDP at 7.6% with CPI at 2.1% is a macro sweet spot India hasn't seen in decades — driven by food deflation and softening global commodities. The M3 surge to 15.3% (from 9.4% in FY25) is notable: this reflects both credit expansion and RBI's liquidity injection via OMOs. The money multiplier rising to 6.1 from 5.7 signals improving credit transmission. Rates are in a clear softening cycle — 10yr G-sec down 40bps, call money down 110bps. For banks and NBFCs, this means NIM pressure but also cost-of-funds relief and improved borrower affordability heading into FY27.
📖 Key Terms & Methodology 9 Terms
▾
Broad Money (M3) Key Metric
The most commonly used measure of money supply in India — captures both liquid money and term deposits. An M3 growth of 15.3% in FY26 (from 9.4% in FY25) reflects both the credit expansion and RBI's liquidity injection. M3 is the closest proxy for "money in the economy."
M3 = Currency with Public + Demand Deposits with Banks + Time Deposits with Banks + Other Deposits with RBI. Equivalently: M3 = M1 + Time Deposits. Published weekly in RBI's Monetary & Credit Aggregates release. Base date: last Friday of each fortnight.
Narrow Money (M1) Money Supply
The most liquid form of money — cash in hand and instantly accessible deposits. M1 growth tracks actual spending power in the economy more directly than M3. A large M1-M3 gap indicates high time-deposit accumulation (households saving more, or corporate treasury build-up).
M1 = Currency with Public + Demand Deposits with Banks + Other Deposits with RBI. M2 = M1 + Savings Deposits of Post Office Savings Banks. M3 = M1 + Time Deposits (fixed deposits & recurring deposits). M4 = M3 + All Deposits with Post Office Savings Banks.
Reserve Money (M0) Monetary Base
The "high-powered money" or monetary base — the foundation from which the banking system creates credit. Also called Currency in Circulation + Bankers' Deposits with RBI. RBI controls Reserve Money through Open Market Operations (OMOs), repo/reverse-repo, CRR, SLR, and forex operations. FY26 RM growth: 6.0% (from 4.3% in FY25).
Reserve Money = Net RBI Credit to GoI + RBI Credit to Banks + RBI's Claims on Commercial Sector + Net Foreign Assets − Non-monetary Liabilities. Or: Currency in Circulation + Bankers' Deposits with RBI + Other Deposits with RBI. Tracked weekly in RBI's monetary statement.
Money Multiplier Concept
Shows how much broad money (M3) the banking system creates per unit of Reserve Money (M0). A multiplier of 6.1 in FY26 (up from 5.7 in FY25) means every ₹1 of RBI-created base money supports ₹6.10 of M3. A rising multiplier indicates improving credit transmission — banks are deploying more credit per unit of reserves.
Money Multiplier = M3 ÷ Reserve Money (M0). In a simple model: Multiplier = 1 ÷ (CRR + (1 − CRR) × cash-drain ratio). In practice, it depends on the CRR ratio (currently 4%), excess reserves held by banks, and the public's currency-to-deposit ratio.
Repo Rate & Monetary Policy Policy Rate
The rate at which RBI lends money to commercial banks overnight against government securities collateral. It is the MPC's primary policy instrument — raising the repo rate tightens monetary conditions; cutting it eases them. FY26 saw the MPC cut rates twice (total 50bps), moving from 6.5% to 6.0%, signalling a rate-easing cycle.
The repo rate anchors the interest rate corridor: MSF Rate (Marginal Standing Facility) = Repo + 25bps (ceiling); SDF Rate (Standing Deposit Facility) = Repo − 25bps (floor). The WACR (Weighted Average Call Rate) — RBI's operating target — is guided to stay within this corridor.
10-Year G-Sec Yield Benchmark Rate
Yield on the benchmark 10-year Government of India bond — India's risk-free rate. All other borrowing costs (corporate bonds, housing loans, MCLR) are priced as a spread over this. At 6.5% in FY26 (down 40bps from FY25), it signals lower government borrowing costs and a broadly benign rate environment for corporates and households.
G-Sec yields move inversely to bond prices. Yield = (Annual coupon payment ÷ Current market price) × 100, adjusted for time to maturity. Influenced by: inflation expectations, RBI's repo rate, government fiscal deficit and borrowing program, and global rates (US Fed, DXY).
WACR (Weighted Average Call Rate) Operating Target
The overnight interbank lending rate — the rate at which banks lend surplus funds to each other overnight (unsecured). RBI's primary operating target for monetary policy: it aims to keep WACR within the interest rate corridor (SDF rate to MSF rate). WACR declined from avg 6.5% (FY25) to 5.4% (FY26) — a 110bps drop reflecting RBI's liquidity injections.
= Weighted average of all call money (overnight interbank) lending transactions for the day. Published by RBI's CCIL daily. A WACR at the lower end of the corridor = system liquidity surplus; at the upper end = liquidity deficit. FY26 shift from deficit to surplus mode is reflected in the sharp WACR decline.
CPI (Consumer Price Index) Inflation Inflation Gauge
India's headline retail inflation measure — tracks price changes in a representative basket of goods and services consumed by urban and rural households. RBI's MPC has a legal mandate to maintain CPI inflation at 4% (±2% band). CPI at 2.1% in FY26 is a multi-decade low, driven by vegetable/food deflation and softer global commodity prices.
= (Current period CPI index value ÷ Same period last year index value − 1) × 100. Base year: 2024=100 (revised from 2012=100 from January 2026 per CSO). Compiled by MoSPI monthly. Food & Beverages = 45.86% weight; Fuel & Light = 6.84%; Miscellaneous = 28.32%; Housing = 10.07%.
OMOs (Open Market Operations) RBI Tool
RBI's purchase or sale of government securities from/to banks to manage system liquidity and money supply. OMO purchases inject liquidity (RBI buys bonds, gives cash to banks → M0 rises). OMO sales absorb liquidity. In FY26, RBI conducted large-scale OMO purchases to ease the system from liquidity deficit, contributing to the M3 surge to 15.3%.
OMO auctions conducted via RBI's e-Kuber platform. Participation: SCBs, primary dealers (PDs). Each OMO purchase = RBI's balance sheet expands (assets: G-Sec; liabilities: bank reserves). Impact cascades: higher bank reserves → banks lend more → M3 multiplies. RBI also conducts Variable Rate Repo (VRR) for shorter-term liquidity management.
Fraud Radar — Banking Sector Risk
Fraud incidence and value by category; the structural shift from digital to advances fraud
Source: RBI Table VI.3 · Department of Supervision
9,371
Total Fraud Cases FY26
↓ 58% from FY24's 35K cases
₹41.8K Cr
Total Fraud Value FY26
↑ Despite fewer cases
85.5%
Fraud Cases in Advances
↑ From 11.5% in FY24
293
Digital/Card Fraud Cases
↓ From 28,836 in FY24
Fraud Cases by Category — 3-Year Shift
Number of cases · FY24, FY25, FY26
Fraud Value by Category — Where the Money Is
₹ Crore involved · FY24, FY25, FY26
Analyst Take — Fraud
The fraud risk locus has completely inverted in two years. In FY24, card/internet/digital frauds accounted for 80% of cases (28,836 incidents); by FY26, that has crashed to 293 cases — a 99% reduction. Credit where due: RBI's AFA mandates, tokenisation, and payment friction measures are working. But advance-related fraud has exploded — from ₹8,917 Cr (FY24) to ₹40,774 Cr (FY26), representing 85% of all fraud value. This is the high-stakes loan fraud / evergreening risk at the top of the system. For bank risk officers: loan approval, monitoring, and recovery processes — not cybersecurity — are now the primary fraud vector.
📖 Key Terms & Methodology 7 Terms
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Advance Fraud Fraud Category
Fraud committed in the context of loans and advances — where the fraud involves manipulation of the credit process. Includes: loan diversion (funds borrowed for one purpose used for another), fictitious borrowers/guarantors, false financials to obtain credit, round-tripping of funds, and evergreening of NPAs. These are the high-value frauds: ₹40,774 Cr in FY26 (85.5% of all fraud value).
Reported by banks to RBI via XBRL-based fraud reporting system (within 7 days of classification as fraud). A "fraud" in advances is declared when the bank suspects misrepresentation, willful deceit, or criminal breach of trust — not just default. Advance frauds are RBI-flagged to CBI/Enforcement Directorate automatically above ₹3 Cr (FY26 threshold).
Digital / Card / Internet Fraud Fraud Category
Unauthorised transactions via digital channels: card skimming, phishing, SIM swap, OTP fraud, account takeover, vishing (voice phishing), and online banking fraud. This category collapsed from 28,836 cases (FY24) to just 293 cases (FY26) — a 99% reduction driven by RBI's AFA mandates, tokenisation of card data, and improved transaction monitoring by banks and payment systems.
Reported under RBI's Fraud Reporting & Monitoring System (FRMS). Includes Card-not-present (CNP) fraud, card-present fraud, internet banking fraud, and UPI-related fraud. RBI's 2FA (two-factor authentication) mandate, tokenisation (replacing card numbers with tokens for online transactions), and UPI PIN requirements have dramatically reduced digital fraud incidence.
Evergreening Fraud Tactic
Practice of disguising NPA status by extending fresh loans to borrowers to enable them to repay existing loans — masking true asset quality. The original loan gets repaid using new loan proceeds, delaying NPA recognition. Considered a form of advance fraud when done intentionally to mislead about asset quality. RBI's asset quality review (AQR) in 2015-16 targeted this practice.
Difficult to detect from outside — requires forensic review of cash flows and loan utilisation. RBI's supervisory stance: banks must demonstrate end-use monitoring for loans above ₹5 Cr. Advance fraud surge (₹8,917 Cr FY24 → ₹40,774 Cr FY26) partly reflects better detection by supervisors using data analytics, not necessarily more fraud occurring.
AFA (Additional Factor of Authentication) Safeguard
RBI's mandatory second layer of verification for digital payments — the OTP, PIN, or biometric factor required beyond the basic credentials. AFA for card-not-present transactions (OTP to mobile), for UPI (UPI PIN), and for RTGS/NEFT (OTP + digital signature). This is the single most impactful regulatory intervention that caused digital fraud to collapse 99% in 3 years.
AFA implementation phased since 2009 (RBI's 2009 circular on online banking). 2021 extension: mandatory AFA for all recurring e-mandates above ₹15,000. 2023: tokenisation made mandatory for online card transactions. Combined effect: even if a criminal has card details, they cannot transact without the OTP delivered to the registered mobile.
Off-Balance Sheet Fraud Fraud Category
Fraud in contingent liabilities — fraudulent issuance of Letters of Undertaking (LoUs), Letters of Credit (LCs), Bank Guarantees, and Bill Co-acceptances — often without adequate security or authorisation. The PNB fraud (Nirav Modi, 2018, ₹13,000 Cr+) was the most famous Indian case. These instruments don't appear on the balance sheet until called upon, enabling fraudsters to exploit audit gaps.
Reported separately under FRMS. RBI plugged the LoU-for-import-credit loophole in 2018. Current focus: unauthorised guarantee issuances and fraudulent LC discounting. FY26 off-balance sheet fraud: ~₹477 Cr (23 cases) — small but strategically important risk. Banks required to reconcile SWIFT messages with Core Banking System (CBS) in real time since 2018.
Wilful Default Legal Category
A borrower is classified as a "Wilful Defaulter" when they default on a loan despite having the capacity to repay, or divert/siphon funds away from the borrowing entity. Once declared a wilful defaulter, the promoter/guarantor is: barred from new bank credit for 5 years, barred from new companies, and the bank must file criminal complaint. This is distinct from fraud — wilful default is intentional non-payment, fraud involves misrepresentation to obtain credit.
Classification process: bank's review committee identifies willful default → approval by board-level committee → borrower given 15 days to represent → final declaration. Reported to CIBIL's Wilful Defaulters list (quarterly). Wilful defaults above ₹25 Cr are also reported to RBI. FY26: this category is embedded in advance fraud when misrepresentation is also proven.
Tokenisation Fraud Prevention
Replacing actual card numbers (Primary Account Numbers, PANs) with a unique "token" for online and contactless transactions. The merchant/payment aggregator never sees the real card number — they receive a token that is useless if stolen. Made mandatory by RBI for all card-on-file transactions from January 2022. Result: card-not-present (CNP) fraud has become structurally much harder to execute.
Token generated by card network (Visa, Mastercard, RuPay) for each device-merchant combination. The underlying card number is stored only by the card network and issuing bank. Tokens are device-specific — a token for a merchant on one device cannot be used on another. This is a key reason for the collapse in digital fraud cases from 28,836 (FY24) to 293 (FY26).
Regulatory Pulse — Key RBI Actions FY 2025-26
Major regulatory initiatives, frameworks issued, and forward agenda for FY27
Source: RBI Annual Report 2025-26 · Chapters IV–IX
244
Master Directions Post-Consolidation
↓ From 11,000+ circulars
9.6 Cr
ULI API Hits (Mar 2026)
117 lenders, 134 data services
90
PSO Onsite Inspections
Incl. CCIL, NPCI, 36 PPI issuers
23
New PA Authorisations
Total 68 non-bank PAs now
FY25-26 Regulatory Actions
Apr 2025
1
Lending
Co-Lending Draft Guidelines
Comprehensive co-lending framework for all REs issued for public comment. Final guidelines pending examination of feedback received.
May 2025
2
Governance
Payment Regulatory Board (PRB) Formed
Amendments to PSS Act 2007 came into force. PRB established as India's dedicated payments regulator within RBI.
Jul 2025
3
Benchmark
SORR Benchmark Launched
Secured Overnight Rupee Rate (SORR) — based on basket repo and triparty repo — authorised as official benchmark. FBIL began publication from July 7, 2025.
Sep 2025
4
Liquidity
Revised Liquidity Management Framework
New LMF effective September 30, 2025. Addresses surplus-to-deficit transition and improves transmission of monetary policy via WACR corridor.
Oct 2025
5
Payments
CTS Same-Day Settlement Live
Continuous clearing of cheques under CTS went live October 4, 2025. Cheque clearing cycle reduced from T+1 days to a few hours. Customer accounts credited within 1 hour of settlement.
Feb 2026
6
Consumer
Anti-Mis-Selling Directions Issued
Draft Amendment Directions on 'Advertising, Marketing and Sales of Financial Products' issued February 11, 2026 — targeting mis-selling by REs of both own and third-party products.
Mar 2026
7
Digital
Payments Vision 2028 Released
RBI's strategic roadmap for digital payments through December 2028. Focus on rural penetration, cross-border UPI expansion, and AI-based fraud prevention.
FY26-27 Regulatory Agenda (Forward Look)
Expected Completion
Expected Credit Loss (ECL) Framework
Final IFRS 9-aligned ECL provisioning norms for banks — biggest capital impact regulation in a decade. Banks must model through-the-cycle PDs and LGDs. Deferred multiple times; final issuance expected FY27.
Infrastructure
Unified Lending Interface (ULI) Scale-Up
ULI already at 9.6 crore API hits with 117 lenders. FY27 target: expand data services from 134 to broader GST, land records, and alternate data sets. Core DPI for MSME and agriculture credit.
Climate
Climate Risk Disclosure & Stress Testing
Suite of climate regulations at advanced stages: disclosure norms, RB-CRIS data repository, scenario analysis guidance, and principles for climate risk management — all targeted for FY27 finalization.
AI & Tech
AI/ML Model Risk Management Framework
Draft Directions on model risk management (for AI/ML models) at final stages. Applies to all REs using AI — credit scoring, fraud detection, pricing models. Aligned with FREE-AI Committee recommendations.
Infrastructure
Alternate Payment System (APS) Launch
IFTAS developing APS integrating NEFT, RTGS, and SFMS into a unified platform. Currently in functional and performance testing. Launch targeted FY27 — India's most significant payment infrastructure upgrade since RTGS.
Analyst Take — Regulatory
FY26 was a year of consolidation and infrastructure — FY27 will be a year of consequence. The 11,000-circular-to-244-Master-Direction consolidation is a foundational reform that reduces compliance cost for all REs. But the real watch items are: ECL provisioning (will reset capital planning for every Indian bank), the AI/ML model risk framework (will change how fintechs and banks deploy credit models), and the APS launch (India's payment backbone upgrade). ULI is the most underappreciated fintech initiative in India — 9.6 crore API hits and 134 data services is the plumbing for the next credit cycle. Boards and management teams should be briefing on all five agenda items now.
📖 Key Terms & Methodology 10 Terms
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Master Direction (MD) Regulatory Tool
Consolidated regulatory instructions issued by RBI on a specific topic — replacing the hundreds of individual circulars, notifications, and guidelines issued over decades. The FY26 exercise consolidated 11,000+ circulars issued since RBI's founding into 244 Master Directions. MDs are living documents — updated as new circulars are issued, keeping the regulatory landscape current.
Published on RBI's website under "Regulations → Master Directions." Each MD has a unique RBI reference number and is version-controlled. Banks and NBFCs are expected to comply with MDs in totality; older individual circulars subsumed in MDs no longer have independent standing. The MD consolidation reduced compliance cost by enabling a single point of reference per topic.
ECL (Expected Credit Loss) Framework Upcoming
IFRS 9-aligned provisioning approach requiring banks to provision for expected losses over the life of a loan — a forward-looking model — vs the current incurred-loss model (provision only after a default occurs). ECL will require banks to estimate through-the-cycle Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) for every loan.
Three-stage classification: Stage 1 — performing loans (12-month ECL provision); Stage 2 — significant credit deterioration (lifetime ECL provision); Stage 3 — credit-impaired/NPA (lifetime ECL provision, similar to current). ECL will significantly increase upfront provisions for banks — estimates suggest system-wide capital requirement could rise ₹1–3 lakh crore. Expected final issuance: FY27.
ULI (Unified Lending Interface) DPI
RBI's open API platform for frictionless digital credit — described as "UPI for lending." Enables lenders to access real-time borrower data from diverse sources (land records, GST, milk cooperatives, state data lakes, CIBIL, NACH mandate data) via a single consent-based API call, dramatically reducing credit assessment time from weeks to minutes.
Architecture: Borrower gives consent → Lender queries ULI API → ULI fetches data from multiple source systems → Lender gets unified data view. As of March 2026: 9.6 crore API calls, 117 lenders live, 134 data services integrated. Developed by Reserve Bank Innovation Hub (RBIH). Target: expand data services to include more land registries, self-employment income data, and state DBT payment history.
SORR (Secured Overnight Rupee Rate) Benchmark
India's new overnight benchmark interest rate based on secured money market transactions — basket of TREP (Tri-Party Repo) + Repo (bilateral secured). Replaces MIBOR (Mumbai Interbank Offer Rate) for secured market pricing. More representative of actual market conditions than MIBOR, which was based on the unsecured call money market and prone to thin trading.
Computed as a volume-weighted average of TREP and repo transactions settled on a given day. Published by FBIL (Financial Benchmarks India Pvt Ltd) daily, with publication commencing July 7, 2025. Used as reference rate for floating-rate financial instruments, interest rate derivatives, and LIBOR-replacement contracts in India. Analogous to SOFR (USA) or SONIA (UK).
PRB (Payment Regulatory Board) Regulator
India's dedicated payments regulator — a statutory board established within RBI following amendments to the Payment and Settlement Systems (PSS) Act 2007, which came into force in May 2025. Chaired by the RBI Governor, with RBI Deputy Governor and external members. Has exclusive authority to regulate and supervise all payment and settlement systems in India.
PRB's mandate: regulate and supervise PSOs (Payment System Operators), authorise new payment systems, issue policy/framework for digital payments, impose penalties on non-compliant PSOs, and advise GoI on payment policy. Key decisions: Payments Vision 2028, PA (Payment Aggregator) regulatory framework, NETC expansion, and UPI global rollout. Operational since June 2025.
PSO (Payment System Operator) Entity
Any entity authorised to operate a payment system in India under the PSS Act. Includes: NPCI (UPI, RuPay, NACH, AePS, IMPS), card networks (Visa, Mastercard, AmEx, Diners), PPI issuers (Paytm, PhonePe wallet), Payment Aggregators (Razorpay, PayU, CCAvenue), RTGS/NEFT/CTS systems (RBI-owned), and CCIL (Clearing Corporation of India). As of FY26: 90 PSO onsite inspections conducted.
PSOs classified by RBI into: Systemically Important PSOs (SIPS — NPCI, CCIL, card networks) and other PSOs. SIPS face higher supervision, more frequent inspection, and stricter data storage requirements. All PSOs must store Indian payment data exclusively within India (RBI's data localisation norm, 2018).
PA (Payment Aggregator) Entity
Entities that facilitate online payment collection from customers on behalf of merchants — without being banks or card networks. They aggregate payment flows from multiple instruments (cards, UPI, wallets, net banking) and settle to merchants. Examples: Razorpay, PayU, CCAvenue, Cashfree, Juspay, Paytm PG. As of FY26: 68 non-bank PAs authorised by RBI (23 new authorisations in FY26).
PA regulation effective January 2023. Requirements: minimum net worth ₹25 Cr (₹15 Cr at application), escrow settlement accounts, merchant onboarding norms, data security (PCI-DSS), and restricted settlement timelines (T+1). Banks acting as PAs are subject to separate RBI directions. The 68-PA count is for non-bank entities; total PAs including banks is higher.
Co-lending Framework Lending Model
Arrangement where a bank and an NBFC jointly originate and hold a loan — the bank provides the lower-cost capital (typically 80%) and the NBFC provides credit assessment, origination, and servicing (and holds 20%). Allows NBFCs to scale lending without the full cost of capital, and banks to extend PSL credit through NBFC networks. Current framework (2020) covers only bank-NBFC; the FY26 draft expands to all Regulated Entities (REs).
Current: Bank holds ≥80% of loan on its books at own rate; NBFC holds remaining ≥20% at agreed rate; combined rate offered to borrower. Loans classified under the bank's books (PSL eligible). New draft framework (April 2025): expands to include bank-bank and NBFC-NBFC co-lending. Final guidelines expected FY27 after public comment review.
LMF (Liquidity Management Framework) Policy Tool
RBI's framework governing how it manages banking system liquidity — the daily surplus or deficit of funds in the overnight interbank market. Revised effective September 30, 2025, to address the structural transition from a surplus liquidity mode (FY21–FY24) to a deficit mode (FY25–H1 FY26). The new LMF improved the transmission of RBI's rate signals to market rates.
Key tools under LMF: SDF (Standing Deposit Facility, floor), MSF (Marginal Standing Facility, ceiling), VRR (Variable Rate Repo — auctions for injecting liquidity), VRRR (Variable Rate Reverse Repo — auctions for absorbing liquidity), and OMOs. The revised LMF introduced a new 14-day VRR as the main liquidity operation, replacing the previous overnight-focused framework.
CTS (Cheque Truncation System) Payment Rail
Electronic cheque clearing system where physical cheque movement is replaced by digital image and data transmission — cheques are scanned at the presenting bank branch and sent electronically to the paying bank. CTS has been in operation since 2008. The FY26 upgrade (from October 4, 2025): same-day (continuous) settlement — reducing the T+1 clearing cycle to just a few hours, with customer account credits within 1 hour of settlement.
FY26 cheque volume: 5,588 lakh transactions (₹89+ lakh crore in value). Despite declining transaction count (paper cheques losing to UPI), the value-per-transaction is high — cheques remain important for high-value business, property, and government payments. The continuous settlement upgrade aligns CTS with global best practice and improves working capital for corporates dependent on cheque-based B2B payments.