Small Finance Banks (SFBs) have emerged as significant job creators within India's banking sector during FY25. Net hiring by these banks reached a five-year high of 26,736, driven by ambitious growth plans and expansion strategies, particularly in semi-urban and rural areas. This surge in hiring contrasts with a decline in staff numbers at private sector banks, highlighting a notable shift in the banking employment landscape.
RBI data indicates that while private banks reduced their workforce, Public Sector Banks (PSBs) saw a modest increase in employee numbers. However, the overall increase in the banking system's workforce was primarily fueled by the hiring spree at SFBs. The total workforce in the Indian banking system increased to 18.08 lakh in FY25, up from 17.87 lakh the previous year, with SFBs adding approximately 16,000 employees. This brought the total workforce at SFBs to 1.77 lakh.
This hiring trend is attributed to SFBs' focus on expanding their balance sheets and distribution networks as they strategically position themselves for potential conversion into universal banks. Many SFBs are relatively new entities with an expansion strategy that involves establishing a presence in underserved areas, necessitating the recruitment of staff. In August 2025, AU Small Finance Bank received in-principle approval from the RBI for conversion into a universal bank, driven by its scale, asset quality and diversified lending portfolio.
Among SFBs, AU Small Finance Bank stands out as the largest employer, with 50,946 staff members. According to ICRA, SFBs witnessed strong growth momentum in FY23 and FY24, driven by credit demand and improved product offerings. However, the credit rating agency expects this growth to moderate to 18-20% in FY25, before picking up again in FY26.
The rise of SFBs reflects their increasing role in retail lending and financial inclusion. These banks are focused on serving underserved segments, including small borrowers, farmers, and informal workers, making formal banking accessible to a wider population. This focus requires a workforce that can connect with and serve these communities effectively.
While SFBs are driving job creation, private sector banks are taking a more cautious approach to hiring, with some even reducing their employee base. This is partly due to a greater emphasis on operational efficiency and the increasing adoption of digital automation. For example, ICICI Bank saw a significant reduction in its staff strength, decreasing from 141,009 employees in FY24 to 130,957 in FY25. In contrast, HDFC Bank reported only a marginal increase in its employee base.
The Reserve Bank of India introduced clear norms in FY25 to enable eligible SFBs to convert into universal banks. The aim is to encourage those who have matured in risk management, asset quality, and scale to transition into broader banking, with reduced regulatory burdens and expanded business opportunities.
While SFBs have shown impressive growth, they also face challenges. ICRA expects stress in microfinance loans to weigh on asset quality indicators in FY25, with elevated risk of stress spilling over to other asset classes. Furthermore, increasing the share of CASA deposits will be a challenge for SFBs. ICRA projects that SFBs' margins will witness compression as the cost of funds remains elevated and the share of secured loans goes up.
