Banking System Stability and Economic Growth in India: An Empirical Investigation (2000–2024)

This study empirically examines the intricate relationship between banking system stability and economic growth in India over the period 2000 to 2024. It explores how critical indicators such as Non-Performing Assets (NPAs), Capital Adequacy Ratio (CAR), Credit-to-GDP ratio, and the Z-score influence macroeconomic performance in the context of post-liberalization reforms, monetary policy interventions, and digital transformation. Utilizing advanced econometric techniques including the ARDL bounds testing approach and Granger causality analysis, the research finds a significant negative correlation between NPAs and GDP growth, while indicators of financial resilience—such as capital adequacy and banking sector Z-scores—positively impact economic expansion. The study also underscores the evolving role of regulatory oversight by the Reserve Bank of India (RBI), financial inclusion policies, and digital banking initiatives in reinforcing systemic stability. Findings suggest that while India’s banking sector has made notable strides in strengthening its risk buffers and operational efficiency, structural challenges such as asset quality deterioration and governance inefficiencies persist. The study concludes with policy recommendations aimed at enhancing prudential norms, promoting responsible credit expansion, and aligning financial innovation with macroeconomic stability to support sustainable and inclusive economic growth.