Indian financial system steadily maturing, as it moves away from banks, says RBI Governor Shaktikanta Das

• While banks have been the primary channels of credit in the economy, recent trends suggest an increasing role of non-banking channels, said RBI Governor Shaktikanta Das.
• India’s financial system matured from being bank-led to a hybrid one.
• Even as the pandemic has created enormous challenges, Das said, it also acts as an inflection point to alter the course of development.

The Reserve Bank of India Governor Shaktikanta Das, in an address at the 48th convention of All India Management Association, said that India’s financial landscape is becoming more dynamic and resilient as assets of non-banks and mutual funds have been growing.

India’s financial system, he said, has transformed rapidly to support the growing needs of the economy. “While banks have been the primary channels of credit in the economy, recent trends suggest an increasing role of non-banking channels.”

The growth of assets of non-banking financial intermediaries, including non-bank lenders and mutual funds, along with higher funding via corporate bonds has helped India’s financial system to move away from being bank-led.

“This is a sign of a steadily maturing financial system moving from a bank-dominated financial system to a hybrid one,” he added.

This comes as the balance sheet of non-banking financial companies (NBFC) recorded a double-digit year-on-year growth in the quarter of 13% and 12%, respectively, in the three-months ended September and December last year. As of December 2020, the total assets of NBFCs in the country stood at ₹2.43 lakh crore.

“However, this double-digit growth in an adverse macroeconomic environment points to the resilience of NBFCs, which were able to cushion the impact of the pandemic on their balance sheets through quick adoption of technology, policy support and reasonably strong fundamentals,” the RBI said in its May bulletin.

Despite the impact of the pandemic’s second wave, ICRA in a July note said that about 42% of the 65 non-banks surveyed by the rating agency, expected a growth of over 15% in their asset under management (AUM) in fiscal 2021-22.

Further, Das also pointed to the progress made in strengthening the cybersecurity capabilities of the financial sector. “Substantial progress has been made to fortify the internal defence mechanism of financial institutions to identify, measure and mitigate the risks. This is a continuous process and efforts by all stakeholders will have to be sustained,” he said.

On financial inclusion

Das also highlighted the impact of the COVID-19 pandemic on poor and vulnerable sections of the society. This, as daily wage earners, service and informal sector workers were badly hit during the pandemic as their employment and income opportunities were curtailed.

“The lasting damage inflicted by the pandemic on these segments is of serious concern for inclusive growth. In the medium to long-run, both efficiency and equity will greatly matter for sustainable growth and macroeconomic performance,” he said.

Further, Das said that financial inclusion also faces a challenge from growing automation during the pandemic. “Such a scenario calls for significant skilling/training of our workforce. We also need to guard against any emergence of ‘digital divide’ as digitisation gains speed after the pandemic,” he said.

Even as the pandemic has created enormous challenges, Das said, it also acts as an inflection point to alter the course of development. “Income and job creation with digitalisation and innovation can bring about a new age of prosperity for a large number of people,” he said.

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