Banking's dominance in credit diminishing in country: Economic Survey FY24

Capital markets' rise in role a 'welcome development' but comes with its challenges, says survey

Banking’s dominance in credit is diminishing and the role of capital markets is increasing in the country, said the Economic Survey for FY24 on Monday.

“For a country that aspires to be a developed nation by 2047, this is a long-awaited and welcome development. Being reliant on and exposed to the capital market, however, comes with its challenges and trade-offs. As India’s financial sector undergoes this critical transformation, it must also brace for likely vulnerabilities and prepare itself with regulatory and government policy levers to intervene and hedge, as required,” it said.

India's financial industry has progressed and as a result domestic credit to the private sector as a per cent of gross domestic product (GDP) rose from 50.6 per cent in 2010 to 54.7 per cent in 2021. The gross and net non-performing assets of scheduled commercial banks (SCBs) is declining.

SCBs’ gross non-performing assets (GNPA) reached a 12-year low of 2.8 per cent at the end of March 2024 from its peak of 11.2 per cent in FY18, according to the survey.

By using reserves from higher profits and raising fresh funds, SCBs raised their Capital to Risk (Weighted) Assets Ratio (CRAR) to 16.8 per cent at the end of March 2024. Credit disbursal by SCBs stood at Rs 164.3 trillion, growing by 20.2 per cent at the end of March 2024, compared to 15 per cent growth at the end of March 2023.

The survey noted that even as banks, non-banks and corporates tackled balance-sheet excesses, the consequences of the credit boom of the first decade of the new millennium, and the bust that followed in the second decade, the broad industry kept advancing the cause of financial inclusion and financial deepening.

“As India embarks on the vision to become a developed country by 2047, it is imperative that financial intermediation costs decline globally. India has made significant strides in this regard, which may be one reason for its resilient post-Covid economic recovery. However, much work could be done to make it a global financial leader,” it said.