Speaking at the 118th Annual General Meeting of the IMC Chamber of Commerce and Industry, Parekh, now chairman of HDFC Asset Management Company, said reforms in the banking sector should be undertaken when lenders are financially strong. “India’s banking sector needs new reforms and the time to do this is when the sun is shining or when the banks are at their strongest,” Parekh said. Reiterating the need for consolidation in the sector, he said India requires “few large banks rather than many small banks.”
“The public-sector banks have already consolidated, but there merits a case for further consolidation. The government has announced that it is working towards this,” he said.
Parekh also called for raising foreign direct investment limits in both public and private-sector banks to bring in additional capital. Calling for a stronger domestic bond market, Parekh said India must move beyond legacy policy frameworks to support the country’s investment needs.
While welcoming the government’s recent decision to exempt interest and capital gains tax on government securities held by foreign investors, he said India should adopt cross-border securitisation transactions, develop deeper credit default swap markets, expand credit enhancement mechanisms, build a thriving municipal bond market and diversify its investor base.“India needs to move out of its legacy policy frameworks,” he said.
Parekh added that the corporate bond markets need significant expansion. “India’s corporate bond markets need to double from 18 per cent of GDP currently to meet the country’s investment needs,” he said.
On equity markets, Parekh said the ongoing global reallocation of capital, driven by artificial intelligence and geopolitical developments, had resulted in sustained foreign selling, but described it as temporary. “Foreign portfolio investors have been relentless sellers over the past one and half years of nearly US$ 50 billion. This, I believe, is a temporary phase,” he said. Parekh said domestic institutional investors, particularly systematic investment plan (SIP) inflows into mutual funds of around ₹30,000 crore every month, had helped keep Indian equity markets resilient.
Parekh added that India’s diversified market capitalisation, robust IPO pipeline and ease of investor entry and exit supported long-term confidence. “We just have to ride out this current phase,” he said. Addressing India’s broader financial architecture, Parekh said the country’s funding requirements would be immense as manufacturing, technology, and research and development increasingly shifted towards indigenisation. “The funding needs are immense and India will need to rely on both domestic and more foreign capital to fund its future growth,” he said, adding that “geopolitics is the new macro-economics.”
Parekh said India remained on track to become the world’s third-largest economy, with rising per capita incomes creating a virtuous cycle of higher consumption, investment, and wealth creation.
Parekh said despite external geopolitical uncertainty, India’s macroeconomic fundamentals remained structurally intact.
He noted that gross non-performing loans of banks had fallen to under 2 per cent, capital buffers were adequate, and manufacturing capacity utilisation reflected an expansionary phase. He said India would also need to create jobs at a much faster pace while embracing artificial intelligence.
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Need to deepen debt markets and broaden sources of capital to finance long-term growth ambitions
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Calls for raising FDI limits in both public and private-sector banks
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India needs to move out of its legacy policy frameworks
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Corporate bond markets need to double from 18% of GDP currently to meet the country’s investment needs
 "Deepak Parekh, chairman of HDFC Life Insurance and HDFC Asset Management Company")