The Reserve Bank on Wednesday asked non-bank finance companies to broad-base their fundraising to limit reliance on banks as it called for strengthening balance sheets and guarding against frauds and data breaches.

According to the report ‘Trend and Progress of Banking in India 2022-23’ released by the RBI, the Indian banking system and NBFCs remain sound and resilient, backed by high capital ratios, strengthening asset quality and robust earnings growth.

The consolidated balance sheet of scheduled commercial banks (SCBs) in 2022-23 expanded by 12.2 per cent, driven by credit to retail and services sectors. Deposit growth also picked up, although it trailed credit growth, it said. Looking ahead, it said, “Given the increasing interconnectedness between banks and NBFCs, the latter should focus on broadbasing their funding sources and reduce overdependence on bank funding. Banks and non-banks both, need to bring in greater empathy in their customer services”.

The concerted efforts are needed by all stakeholders to protect the banking and payments system from the risks of fraud and data breaches emanating from cyber threats, the report added.

“Overall, banks and NBFCs need to further strengthen their balance sheets through robust governance and risk management practices to meet the growing aspirations of the Indian economy,” it said.

As per the report, the improvement in asset quality of banks that began in 2018-19 continued during 2022-23, and even in the first half (April-September) of 2023-24, the gross non-performing assets (GNPA) ratio stood at 3.2 per cent.

Higher net interest income and lower provisioning boosted net interest margin (NIM) and profitability in 2022-23, it said.