India's non-banking financial sector has grown to become the third largest in the world, next only to the United States and the United Kingdom, according to an SBI report that highlights the growing strength of the country’s financial sector.

Non-banking financial institutions do not possess a full banking licence and thus, cannot accept public deposits. These entities focus on giving loans to consumers and businesses which play a key role in driving up economic growth.

Over the past decade, the Indian banking system has demonstrated remarkable resilience, overcoming numerous challenges posed by both domestic and international economic environments, the report states.

It said that the improvement in asset quality and the strong macroeconomic fundamentals have played a crucial role in improving the Indian banking sector.

It highlighted that the Indian government and regulatory bodies have focused on creating a level playing field for financial institutions. This has involved initiatives such as the creation of strong banks through mergers and capital infusion, improving governance practices, expanding the reach and quality of financial services, and enhancing the adoption of digital banking.

During the pandemic, the government maintained the financial sector's stability through substantial capital and liquidity buffers. This resilience is credited to the proactive measures taken by the Reserve Bank of India (RBI).

The report also points out that the RBI's efforts in strengthening the financial system included enforcing the regulatory measures that ensured the sector remained well-cushioned against economic shocks. These measures have not only helped in maintaining stability but also in fostering growth and innovation within the sector.

Recently India's digital banking landscape has also seen significant advancements. The push towards digital banking has been a major contributor to the sector's growth. This transition to digital platforms has expanded access to financial services, making them more inclusive and efficient.

The report also highlights that the government and regulatory bodies have prioritised customer protection, ensuring that the interests of the public are safeguarded amidst the digital transformation.