The central bank’s latest statement places a spotlight on ethical gaps, risk oversight in digital lending, and rising unsecured loan stress.

Have banks and NBFCs begun to chase growth at any cost? That is the question raised after the Reserve Bank of India (RBI) issued a reminder to lenders this week. On July 30, 2025, Deputy Governor Swaminathan J. addressed industry leaders and warned them not to ignore internal controls and compliance in the race for higher profits.

On the surface, asset quality looks strong. Gross non-performing assets (NPAs) have dropped to a 13‑year low of 2.5% by September 2024, according to the latest Trend and Progress report. But beneath the calm, new risks are rising, credit card defaults have almost doubled since 2023.

Swaminathan also noted that the RBI is stepping up action against lenders that bend the rules. He pointed to signs of creative accounting, loose credit approvals, and overreliance on digital tools, all of which have triggered closer regulatory scrutiny.

Governance and Ethics Framework Draws Attention

The Deputy Governor’s message went beyond typical compliance reminders. He asked lenders to evaluate their decisions through a five‑point ethical lens inspired by the ancient Tamil text Thirukkural.

Here are the five points:

Resources – Check if you have the right people, funds, and capabilities to take on the new business safely.
Tools – Ensure proper systems, processes, and technology are in place to manage the risks.
Timing – Evaluate whether the market conditions and internal readiness make it the right moment to act.
Action – Consider whether the specific steps or strategies you are taking are responsible and ethical.
Context – Assess the broader impact on customers, the institution, and the financial system before moving ahead.

The call is particularly relevant for digital lending, where apps and online approvals often skip traditional risk checks. Swaminathan reminded boards that risk teams must not be sidelined just to roll out flashy digital products faster.

What stood out most was his focus on culture and integrity at the top. The RBI stressed that long-term growth depends on putting ethics at the heart of banking operations.

Pressure Points in Retail Credit

The latest lending figures show why the RBI is uneasy. Retail loans, which were growing at 15–26% in 2024, slowed to single‑digit growth by May 2025. This slowdown followed the RBI’s tighter rules on unsecured loans in late 2023 and 2024.

Mounting defaults add to the pressure. Credit card dues overdue for over 90 days hit ₹338 billion in March 2025, almost double March 2023 levels. In response, several banks have raised credit score cut‑offs and shifted towards secured loans like home or car finance to reduce risk.

Before looking at individual loan stress, here’s a snapshot of how overall asset quality changed in 2024:

Asset Quality Trends

Metric	March 2024	September 2024
Gross NPAs	2.70%	2.50%
Net NPAs	0.62%	0.57%

Even though NPAs hit a 13‑year low, the RBI says these numbers hide early signs of stress in unsecured retail loans.

Supervisory Actions Intensify

The RBI has not hesitated to act against lenders where internal checks looked weak. In March 2025, it capped funding for select NBFCs after spotting risky lending patterns. A few months later, in June 2025, new digital lending rules came into force, requiring full clarity on loan terms and central reporting of all fintech tie‑ups.

In its July 30 statement, the RBI said that boardrooms and audit committees will now face tighter scrutiny. Any bank or NBFC that ignores early warning signs or brushes aside ethical lapses will face direct action from the regulator.

Here’s a quick look at the key steps the RBI has taken recently:

Regulatory Measures by RBI

Date	Measure	Objective
Late 2023	Tightened norms on unsecured lending	Lower the amount of unsecured retail lending
Mar 2025	Caps on NBFC funding	Control exposure to weak entities
Jun 2025	Digital lending transparency guidelines	Ensure fair customer treatment

These measures show the RBI’s shift from caution to active intervention in the face of rising retail credit risk.

Conclusion

Experts say the next few months will be a real test. People are still borrowing for travel, shopping, and weddings, but rising loan defaults could slow down growth. For smaller lenders, even a small jump in credit card defaults can wipe out profits.

The RBI also reminded banks that low NPA numbers don’t mean everything is safe. A bank can look fine on paper but still be in trouble if it ignores ethics, weakens internal checks, or takes big risks in digital lending. Today, the real sign of a strong bank is honest governance, safe digital practices, and strict risk control.

For banks and NBFCs, the message is clear: quick profits can lead to big problems later. On July 30, the RBI said it plainly, growth at any cost is no longer allowed.

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