Shaktikanta Das pitches for bigger banks, deeper corporate bond market

India must build banks and financial institutions with the scale, resilience, and international presence to compete with the world’s leading lenders, Shaktikanta Das, Principal Secretary 2 to the Prime Minister, said on Tuesday at the Business Standard BFSI Insight Summit in Mumbai, signalling the need for further consolidation among public-sector banks (PSBs).  

“The consolidation of PSBs over the past decade has laid an important foundation. The next frontier is the creation of institutions with the scale, resilience, and international presence to compete alongside the world’s leading banking entities. Larger financial institutions are better positioned to underwrite complex projects and absorb shocks in an increasingly volatile environment,” he said in his keynote address, titled ‘The BFSI Sector: Securing India’s Aspirations’. 

Modi, in his 80th Independence Day speech this year, set the goal of having an Indian bank among the world’s top five. “We often hear about the Fortune 500. Why shouldn't our goal be that, within the next decade, 50 of the Fortune 500 companies should be from Bharat? Today, our banking sector is flourishing. Why shouldn’t an Indian bank’s flag fly among the world’s top banks? We should have an Indian bank among the world’s top five banks,” he had said. 

Finance Minister Nirmala Sitharaman, in her 2026-27 (FY27) Budget speech, announced the constitution of a high-level committee on banking for Viksit Bharat. The proposed committee is expected to examine the future direction of the banking sector, including issues relating to public-sector banks and their ability to meet the financing requirements of a growing economy. 

Das placed the need for larger banks within a broader agenda to expand credit, mobilise long-term savings, and improve the flow of finance to infrastructure, advanced manufacturing and other productive sectors. He outlined five priorities for the financial sector: building institutions with greater scale, deepening the corporate bond market, strengthening municipal (muni) bonds, widening insurance coverage and extending pension coverage. 

The call for larger institutions comes at a time when the banking system’s asset quality and capital position have improved. Das said the banking system had shaken off the hangover of high bad loans. The gross non-performing asset (GNPA) ratio of scheduled commercial banks fell to a multi-decade low of 1.8 per cent in March, while the net NPA ratio declined to 0.4 per cent.

Das recalled that the Reserve Bank of India’s July 2020 Financial Stability Report had estimated that the GNPA ratio could rise from 8.5 per cent in March 2020 to as high as 14.7 per cent by March 2021 under a very severe stress scenario.  

Instead, the ratio declined to 7.5 per cent in September 2020 and further to 7.3 per cent by March 2021. The subsequent improvement in asset quality, he said, reflected the banking system’s resilience during and after the pandemic.

Banks had also strengthened their capital positions. The capital-to-risk-weighted-assets ratio of scheduled commercial banks stood at 17.7 per cent at the end of March 2026, while the common equity Tier-I ratio was 15.3 per cent. Profitability indicators remained healthy, and stress tests and sensitivity analyses suggested that banks were resilient to macroeconomic shocks.

Non-banking financial companies, including housing finance companies, accounted for around 14 per cent of outstanding credit to the commercial sector. Credit growth among these institutions remained steady at 16.6 per cent, driven mainly by the retail and services sectors. Their asset quality, profitability and regulatory capital ratios also remained healthy, Das said.

Outlining the macroeconomic landscape, Das observed that the Indian economy had demonstrated resilience despite persistent geopolitical uncertainties, supply-chain disruptions, and weaponised economic fragmentation.

“Prolonged geopolitical conflicts pose downside risks to supply chains, energy and commodity markets and even to overall economic activity and financial stability. The nature of geopolitical events has itself changed dramatically. What used to be short-lived, mean-reverting shocks have now become unending disruptions. Each day brings another exercise in brinkmanship, dispelling any glimmer of truce or normalcy that seemed so much in sight the previous day,” he said.

At the same time, Das said technological transformation, particularly investments in artificial intelligence, machine learning, Cloud computing, and distributed ledger technology, was reshaping economic growth and living standards, although the benefits remained concentrated in certain economies.

The International Monetary Fund (IMF) projected global growth to moderate to 3.1 per cent in 2026 before recovering to 3.4 per cent in 2027. Das said energy-importing economies outside the technology value chain faced a particularly difficult outlook amid the conflict in West Asia and its implications for energy prices.

The Indian economy grew 7.8 per cent in April-June (Q1) of the current financial year despite external headwinds arising from the conflict in West Asia. The IMF subsequently raised its growth projection for India to 7 per cent in FY27, from its earlier estimate of 6.4 per cent.

Das reiterated that India was within “striking distance” of achieving 8 per cent annual economic growth, powered by the "triple engines" of macroeconomic stability, continuing structural reforms and efforts to build domestic capacity in areas where the country was largely import-dependent.

India recorded average annual real gross domestic product (GDP) growth of 7.9 per cent between 2021-22 and 2025-26 (FY26), according to Das. He said the country was projected to remain the fastest-growing major economy over the next five years, supported by favourable demographics, an expanding domestic market, and the continued benefits of structural reforms.

The corporate sector was also in good health, Das said. Bank credit to industry grew by around 20 per cent year-on-year in July, which he described as an early indication of a revival in the private corporate investment cycle. Sales growth among listed private non-financial companies accelerated to 19.4 per cent in Q1 of FY27.

Das credited the improvement to stronger corporate balance sheets and the financial repair undertaken by companies during and after the pandemic. The interest coverage ratio, which measures companies’ ability to service their interest expenses from operating earnings, rose to 6.5 in January-March (Q4) of FY26, supported by an increase in gross profits relative to interest costs. Corporate leverage had also improved, he said.

Das said the financial sector would need to build on these conditions to support investment in large infrastructure projects and new-age manufacturing. “The BFSI sector has to take the lead in financing large infrastructure and new-age manufacturing to support massive public and private asset creation. It must pivot from simple corporate lending to long-term capital formation,” he said.

This would involve financing a significant portion of the requirements of the National Infrastructure Pipeline through structured consortia and expanding the corporate bond market, he said. Financial institutions would also need to support strategic sectors such as semiconductor, advanced electronics, and defence production to strengthen domestic manufacturing capabilities, he added.

Green and transition finance was another priority. Das called for support for digital carbon markets, sovereign green bond issuance, and competitive financing products for green hydrogen and renewable energy infrastructure.

Das said India must also expand the size and scale of its credit market. “India’s credit intensity, as measured by the private credit-to-GDP ratio, needs to grow in a sustained manner. To achieve this, the credit footprint needs to be expanded further in tier-II and tier-III cities, as well as in rural areas,” he said.

This would require financial institutions to adopt a greater but measured risk appetite and develop the capacity to fund small-business loans, including those for agribusinesses, while also financing large projects involving next-generation infrastructure corridors, energy transitions, advanced manufacturing hubs, and rapid urbanisation, he said.

“The seeds of our future and long-term growth are being sown today,” Das said, referring to the role of macroeconomic stability, structural reforms, and policy initiatives in building domestic capacity in sectors where India remained heavily dependent on imports.

Beyond increasing the volume of credit, the financial system would need to improve capital allocation across sectors and broaden access to financing. Das identified smaller businesses and farmers as important beneficiaries of this expansion, with technology expected to play a central role in improving access to formal credit.

He said lenders should increasingly rely on alternative digital footprint, including goods and services tax records and account aggregation, to enable faster, algorithm-based credit underwriting. A full-scale rollout of the RBI’s Unified Lending Interface (ULI), he said, could be a game changer in expanding access to credit.

The expansion of agricultural value chains would also require financing for technology-driven precision farming, automated warehouses and sustainable supply chains, which could help improve farm productivity and farmer incomes.

Das also called for a shift in the approach to financial inclusion, from providing basic access to financial services to improving financial well-being.

“It should focus on deepening the financialisation of savings by increasingly redirecting India’s domestic wealth from physical assets, such as gold and real estate, into productive financial assets through micro-investment and mutual fund products,” he added.

The emphasis on financialisation also reflected the importance Das placed on mobilising household savings for productive investment. He pointed to growing ownership of equities, retirement funds and small savings as signs of changing household financial behaviour.

Das said the banking, financial services, and insurance (BFSI) sector would also have to support the next generation of digital public infrastructure, including the global expansion of the Unified Payments Interface, real-time cross-border payment linkages, and wider adoption of central bank digital currency. Such linkages could reduce remittance costs and friction in international trade settlements, he added.

On households, Das said financial networth remained above 90 per cent of GDP even as liabilities rose to 45.9 per cent of GDP at the end of March.

Household borrowing for consumption and investment had expanded at double-digit rates over the past decade, he said. Despite the growth in credit, indicators such as the share of NPAs and special-mention accounts had improved relative to the pre-pandemic period. Credit bureau data also suggested a general improvement in borrower risk profiles.

On household savings, Das pointed to the rising ownership of equities, retirement funds, and small savings. “Are we witnessing a greater willingness of households to take risks, diversify portfolios, and become financially mature? The answer is, perhaps, yes,” he said. He cautioned, however, that consumption-related borrowing “requires careful and consistent monitoring”.

The corporate bond market accounted for around 15-16 per cent of GDP, with outstanding issuances of about ₹53.6 trillion in 2024-25. Das said issuance remained dominated by private placements and highly rated borrowers, while liquidity and investor participation remained limited.

“Expanding the public issue route would encourage greater retail and institutional engagement, improve price discovery, and create a more diversified investor base…. A deep and liquid corporate bond market can provide an additional investment avenue for households,” Das said, pointing to households’ growing willingness to take risks and diversify their financial assets.

Das also called for a stronger muni bond market to finance urban infrastructure, noting that the needs of a rapidly urbanising economy could not be met through internal accruals and government transfers alone. Urban local bodies, however, needed to improve their governance, accounting practices and institutional capacity, he said.

“A deep and vibrant muni bond market would be critical to building sustainable, inclusive and future-ready cities,” Das said.

On insurance, Das backed the vision of Insurance for All by 2047, which seeks to make insurance a universal social safety net. He said this would require sustained efforts to improve affordability, deepen distribution and strengthen awareness.

The objective, he said, was to ensure that every citizen had access to adequate life, health and property insurance, while enterprises had appropriate risk protection. Despite the expansion of the insurance sector, its reach and depth needed to increase further.

On pensions, he said the next phase must focus not merely on increasing assets under management but also on broader retirement security, with coverage extending beyond the formal sector.

Das said India’s pension system had evolved from a largely government-funded model into a more diversified architecture centred on the Employees’ Provident Fund, the National Pension System (NPS), and the Atal Pension Yojana. Pension funds, including those managed by the NPS and the Employees’ Provident Fund Organisation, were valued at around ₹35 trillion.

As the population ages, expanding pension coverage and ensuring the sustainability of the pension system must become policy priorities, he said. A wider pension base could also increase the pool of long-term savings available to the financial system.

“The next phase of pension penetration must, therefore, focus not merely on increasing assets under management, but on achieving broader retirement security and financial inclusion,” Das said.

Das also called on regulators and financial institutions to foster innovation with appropriate safeguards, including through vibrant regulatory sandbox frameworks across the BFSI sector.

He said individual financial institutions should focus on innovative products to strengthen their competitive positions and emerge as market leaders. Regulatory sandboxes could provide a framework for testing new financial products and services while maintaining appropriate safeguards.

Quoting Kautilya’s 2,300-year-old Arthashastra, Das said: “All undertakings depend upon finance…. Just as elephants are needed to catch elephants, so does one need wealth to capture more wealth.”

Das said India’s progress towards Viksit Bharat, despite continuing global turbulence, would depend on a sound, efficient and profitable BFSI sector.

“When the economic history of the current period is written, it will be remembered as one that weathered periods of deep crises and marched on with strength and confidence,” he added.

The GNPA ratio declined to 7.5 per cent in September 2020 and further to 7.3 per cent by March 2021. The subsequent improvement in asset quality reflected the banking  system’s resilience during and after the pandemic, Shaktikanta Das, 

Principal Secretary-2 to Prime Minister Narendra Modi, said on Tuesday at Business Standard’s BFSI Insight Summit in Mumbai. 

In his keynote address, titled ‘The BFSI Sector: Securing India’s Aspirations’, Das said banks had also strengthened their capital positions. The capital-to-risk-weighted asset ratio of scheduled commercial banks stood at 17.7 per cent at the end of March 2026, while the common equity Tier-I ratio was 15.3 per cent. Profitability indicators remained healthy, and stress tests and sensitivity analyses suggested that banks were resilient to macroeconomic shocks. 

Non-banking financial companies, including housing finance companies, accounted for around 14 per cent of outstanding credit to the commercial sector. Credit growth among these institutions remained steady at 16.6 per cent, driven mainly by the retail and services sectors. Their asset quality, profitability and regulatory capital ratios also remained healthy, Das said. 

Outlining the macroeconomic landscape, Das observed that the Indian economy had demonstrated resilience despite persistent geopolitical uncertainties, supply-chain disruptions, and weaponised economic fragmentation. 

“Prolonged geopolitical conflicts pose downside risks to supply chains, energy and commodity markets and even to overall economic activity and financial stability. The nature of geopolitical events has itself changed dramatically. What used to be short-lived, mean-reverting shocks have now become unending disruptions. Each day brings another exercise in brinkmanship, dispelling any glimmer of truce or normalcy that seemed so much in sight the previous day,” he said. 

At the same time, Das said technological transformation, particularly investments in artificial intelligence, machine learning, Cloud computing, and distributed ledger technology, was reshaping economic growth and living standards, although the benefits remained concentrated in certain economies. 

The International Monetary Fund (IMF) projected global growth to moderate to 3.1 per cent in 2026 before recovering to 3.4 per cent in 2027.  

Das said energy-importing economies outside the technology value chain faced a particularly difficult outlook amid the conflict in West Asia and its implications for energy prices. 

The Indian economy grew 7.8 per cent in April-June (Q1) of the current financial year despite external headwinds arising from the conflict in West Asia. The IMF subsequently raised its growth projection for India to 7 per cent in FY27, from its earlier estimate of 6.4 per cent.Das reiterated that India was within “striking distance” of achieving annual economic growth of 8 per cent, powered by macroeconomic stability, continuing structural reforms, and efforts to build domestic capacity in areas where the country remained largely import-dependent. 

India recorded average annual real gross domestic product (GDP) growth of 7.9 per cent between 2021-22 and 2025-26 (FY26), according to Das. He said the country was projected to remain the fastest-growing major economy over the next five years, supported by favourable demographics, an expanding domestic market, and the continued benefits of structural reforms. 

The corporate sector was also in good health, Das said. Bank credit to industry grew by around 20 per cent year-on-year in July, which he described as an early indication of a revival in the private corporate investment cycle. Sales growth among listed private non-financial companies accelerated to 19.4 per cent in Q1 of FY27. 

Das credited the improvement to stronger corporate balance sheets and the financial repair undertaken by companies during and after the pandemic. The interest coverage ratio, which measures companies’ ability to service their interest expenses from operating earnings, rose to 6.5 in January-March (Q4) of FY26, supported by an increase in gross profits relative to interest costs. Corporate leverage had also improved, he said. 

Das said the financial sector would need to build on these conditions to support investment in large infrastructure projects and new-age manufacturing. “The BFSI sector has to take the lead in financing large infrastructure and new-age manufacturing to support massive public and private asset creation. It must pivot from simple corporate lending to long-term capital formation,” he said. 

This would involve financing a significant portion of the requirements of the National Infrastructure Pipeline through structured consortia and expanding the corporate bond market, he said. Financial institutions would also need to support strategic sectors such as semiconductor, advanced electronics, and defence production to strengthen domestic manufacturing capabilities, he added. 

Green and transition finance was another priority. Das called for support for digital carbon markets, sovereign green bond issuance, and competitive financing products for green hydrogen and renewable energy infrastructure. 

Das said India must also expand the size and scale of its credit market. “India’s credit intensity, as measured by the private credit-to-GDP ratio, needs to grow in a sustained manner. To achieve this, the credit footprint needs to be expanded further in tier-II and tier-III cities, as well as in rural areas,” he said. 

This would require financial institutions to adopt a greater but measured risk appetite and develop the capacity to fund small-business loans, including those for agribusinesses, while also financing large projects involving next-generation infrastructure corridors, energy transitions, advanced manufacturing hubs, and rapid urbanisation, he said. 

“The seeds of our future and long-term growth are being sown today,” Das said, referring to the role of macroeconomic stability, structural reforms, and policy initiatives in building domestic capacity in sectors where India remained heavily dependent on imports. 

Beyond increasing the volume of credit, the financial system would need to improve capital allocation across sectors and broaden access to financing. Das identified smaller businesses and farmers as important beneficiaries of this expansion, with technology expected to play a central role in improving access to formal credit. 

He said lenders should increasingly rely on alternative digital footprint, including goods and services tax records and account aggregation, to enable faster, algorithm-based credit underwriting. A full-scale rollout of the RBI’s Unified Lending Interface (ULI), he said, could be a game changer in expanding access to credit.

The expansion of agricultural value chains would also require financing for technology-driven precision farming, automated warehouses and sustainable supply chains, which could help improve farm productivity and farmer incomes. 

From financial access to financial well-being Das also called for a shift in the approach to financial inclusion, from providing basic access to financial services to improving financial well-being. 

“It should focus on deepening the financialisation of savings by increasingly redirecting India’s domestic wealth from physical assets, such as gold and real estate, into productive financial assets through micro-investment and mutual fund products,” he added. 

The emphasis on financialisation also reflected the importance Das placed on mobilising household savings for productive investment. He pointed to growing ownership of equities, retirement funds and small savings as signs of changing household financial behaviour. 

Das said the banking, financial services, and insurance (BFSI) sector would also have to support the next generation of digital public infrastructure, including the global expansion of the Unified Payments Interface, real-time cross-border payment linkages, and wider adoption of central bank digital currency. Such linkages could reduce remittance costs and friction in international trade settlements, he added. 

Household wealth holds up as borrowing grows On households, Das said financial  networth remained above 90 per cent 

of GDP even as liabilities rose to 45.9 per cent of GDP at the end of March. 

Household borrowing for consumption and investment had expanded at double-digit rates over the past decade, he said. Despite the growth in credit, indicators such as the share of NPAs and special-mention accounts had improved relative to the pre-pandemic period. Credit bureau data also suggested a general improvement in borrower risk profiles. 

On household savings, Das pointed to the rising ownership of equities, retirement funds, and small savings.  “Are we witnessing a greater willingness of households to take risks, diversify portfolios, and become financially mature? The answer is, perhaps, yes,” he said. He cautioned, however, that consumption-related borrowing “requires careful and consistent monitoring”. 

The corporate bond market accounted for around 15-16 per cent of GDP, with outstanding issuances of about ₹53.6 trillion in 2024-25. Das said issuance remained dominated by private placements and highly rated borrowers, while liquidity and investor participation remained limited. 

“Expanding the public issue route would encourage greater retail and institutional engagement, improve price discovery, and create a more diversified investor base…. A deep and liquid corporate bond market can provide an additional investment avenue for households,” Das said, pointing to households’ growing willingness to take risks and diversify their financial assets. 

Das also called for a stronger muni bond market to finance urban infrastructure, noting that the needs of a rapidly urbanising economy could not be met through internal accruals and government transfers alone. Urban local bodies, however, needed to improve their governance, accounting practices and institutional capacity, he said. 

“A deep and vibrant muni bond market would be critical to building sustainable, inclusive and future-ready cities,” Das said. 

On insurance, Das backed the vision of Insurance for All by 2047, which seeks to make insurance a universal social safety net. He said this would require sustained efforts to improve affordability, deepen distribution and strengthen awareness.

The objective, he said, was to ensure that every citizen had access to adequate life, health and property insurance, while enterprises had appropriate risk protection. Despite the expansion of the insurance sector, its reach and depth needed to increase further. 

On pensions, he said the next phase must focus not merely on increasing assets under management but also on broader retirement security, with coverage extending beyond the formal sector. 

Das said India’s pension system had evolved from a largely government-funded model into a more diversified architecture centred on the Employees’ Provident Fund, the National Pension System (NPS), and the Atal Pension Yojana. Pension funds, including those managed by the NPS and the Employees’ Provident Fund Organisation, were valued at around ₹35 trillion.

As the population ages, expanding pension coverage and ensuring the sustainability of the pension system must become policy priorities, he said. A wider pension base could also increase the pool of long-term savings available to the financial system. “The next phase of pension penetration must, therefore, focus not merely on increasing assets under management, but on achieving broader retirement security and financial inclusion,” Das said. 

Das also called on regulators and financial institutions to foster innovation with appropriate safeguards, including through vibrant regulatory sandbox frameworks across the BFSI sector. 

He said individual financial institutions should focus on innovative products to strengthen their competitive positions and emerge as market leaders. Regulatory sandboxes could provide a framework for testing new financial products and services while maintaining appropriate safeguards. 

Quoting Kautilya’s 2,300-year-old Arthashastra, Das said: “All undertakings depend upon finance…. Just as elephants are needed to catch elephants, so does one need wealth to capture more wealth.” 

Das said India’s progress towards Viksit Bharat, despite continuing global turbulence, would depend on a sound, efficient and profitable BFSI sector. 

“When the economic history of the current period is written, it will be remembered as one that weathered periods of deep crises and marched on with strength and confidence,” he added.