RBI warned banks about risky growth in 2025 after noticing a sharp rise in unsecured lending and weak internal controls. While fast growth may look good, the central bank is concerned it could lead to a credit crisis. Let’s understand why this warning matters — and what it means for you.
Why RBI Warned Banks About Risky Growth in 2025: Key Triggers
In July 2025, RBI Deputy Governor Swaminathan J delivered a powerful message to Indian lenders. He warned them against chasing growth by cutting corners — like ignoring risk checks, misusing digital platforms, and making loans without strong evaluation. In simple words, RBI saw some banks growing “too fast, too carelessly.”
Even though India’s bad loans (called NPAs) were at a 13-year low of just 2.3% in March 2025, RBI still sensed trouble brewing beneath the surface. A major concern was the sharp rise in unsecured loans — especially personal loans and credit cards.
These loans look small but together create big risks. When people stop repaying them, losses add up quickly. So, RBI is afraid that while everything looks good on the outside, a credit crisis could be waiting just around the corner.
The facts behind the fear
RBI doesn’t make emotional decisions — they work with real data. Here’s what they saw:
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Unsecured credit doubled in recent years. Total credit card and personal loan defaults reached ₹33,800 crore by March 2025.
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Credit card growth slowed in June 2025. This means banks are now more careful in giving new cards — because of rising defaults.
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RBI’s stress tests showed that bad loans could rise to 5.3% or even 5.6% if the economy faces pressure. That’s more than double the current level.
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Retail credit (mainly for individuals) grew at 26% in 2024 but slowed to single-digit growth by mid-2025. This sudden shift shows tightening credit conditions.
So while banks were celebrating “record profits,” RBI saw cracks underneath. That’s why they had to step in.
What RBI wants banks to do
RBI didn’t just give a warning — they also gave guidance. Swaminathan J spoke about ethics, responsibility, and inner strength using ideas from Thirukkural, an ancient Tamil book on wisdom.
He asked banks to ask themselves 5 questions before chasing growth:
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Do you have the right people and systems?
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Are your risk and audit teams strong enough?
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Is this the right time to grow?
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Are your actions fair and responsible?
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Do you understand the bigger impact on society?
He also reminded banks not to let technology control the show. Many fintech apps and digital lenders now give instant loans with just a few clicks. But without proper checks, this can lead to fraud, over-lending, and massive unpaid loans.
The emotional side of the story
This isn’t just about numbers. Behind every loan that goes bad is a person struggling to pay bills. Many people borrowed too much after the pandemic — to pay medical bills, school fees, or just survive.
Banks saw it as an opportunity to grow. But now, repayment is getting harder. It’s like giving someone a credit card when they already have no money — it feels good for a while but becomes a trap.
RBI understands this emotion. Their warning isn’t just to protect banks — it’s to protect you, the customer, from falling into debt and stress.
Why should this matter to you?
You may think this issue only affects banks or businessmen. But no — it affects everyone.
If banks give loans carelessly and people don’t repay, the entire system gets weaker. In the end:
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Banks reduce loan offers to genuine borrowers
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Interest rates go higher to cover losses
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Trust in the financial system falls
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Common people suffer the most
RBI is trying to prevent that. They want banks to grow safely and steadily, not fast and blindly.
What experts are saying
Many financial experts and economists support RBI’s warning. Here’s what they believe:
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Prudent lending is better than aggressive growth
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Digital lending must have strong checks
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Ethics and internal control must come first
This shows RBI’s guidance is not a roadblock — it’s a steering wheel. It helps banks drive in the right direction.
What can happen next?
We can expect a few things in the coming months:
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Stricter lending rules for personal loans and credit cards
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More checks before you get approved for loans
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Banks may focus more on secured lending like home or car loans
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RBI may start auditing banks and NBFCs more closely
If all goes well, India can maintain strong growth without falling into a debt crisis.
Final Thoughts – Slow, Safe, Strong
This is not the first time RBI has warned lenders. But in 2025, the timing is important. India is growing fast. Banks want to join the party. But if they forget their foundations — ethics, safety, and responsibility — it can all fall apart.
As someone who runs FinanceGyan, I feel this topic is more than just banking news. It is about how trust is built in the financial world. RBI is doing its job well — being strict when needed, guiding when required.
If you’re a customer, this is also a good reminder:
Don’t take loans without thinking. Don’t chase credit cards for rewards. Build credit slowly and smartly.
Let the banks grow. But let them grow wisely.
FAQs
1. Why did RBI warn banks in 2025?
RBI warned banks because they were growing too fast by offering unsecured loans without proper checks. This kind of growth can lead to defaults and damage the financial system.
2. What kind of loans are considered risky?
Unsecured loans like credit cards and personal loans are riskier because they don’t require any collateral. Defaults in these loans are rising in India.
3. What is the current NPA rate in India?
As of March 2025, India’s gross NPA rate is at 2.3%, the lowest in 13 years. However, this may rise if banks continue giving risky loans.
4. What steps has RBI taken to control risky lending?
RBI has issued ethical and regulatory guidelines for banks, including strengthening internal audits, improving digital lending control, and avoiding shortcuts in credit growth.
5. What happens if banks don’t follow RBI guidance?
Banks could face higher NPAs, penalties from RBI, and loss of public trust. RBI may also conduct stricter audits or restrict their lending powers.
6. How does risky lending affect common people?
If risky lending leads to defaults, interest rates may go up, banks may stop giving loans to honest borrowers, and overall trust in the system goes down.
7. What is the role of digital lending in this issue?
Many banks and NBFCs use digital apps to give instant loans. RBI warned them to use proper checks and not just rely on fast approvals.
8. What is Thirukkural and why did RBI mention it?
Thirukkural is an ancient Tamil book on ethics. RBI used its principles to ask banks to grow responsibly with the right timing, tools, and mindset.
9. Will this warning slow down the economy?
There may be a short-term slowdown in personal credit growth, but in the long run, responsible lending helps maintain economic stability and consumer confidence.
10. How can borrowers protect themselves?
People should borrow only when needed, avoid too many credit cards or apps, and always read terms and interest rates before taking any loan.
