India - Financial Sector Assessment

Overview & Synopsis

Since the last FSAP, India’s financial system has become more resilient, diversified, and inclusive, with the State still playing a prevalent role. Financial sector reforms helped recover from episodes of distress in the late 2010s and withstand the pandemic. Total financial sector assets reached 187 percent of GDP, with Non-Banking Financial Institutions (NBFIs) and market financing growing at a much faster pace than banks, accounting for 44 percent of financial sector assets in 2024 (compared to 35 percent in 2017). Account ownership is high and access to credit, insurance and pensions has improved, supported by the public digital infrastructure and government programs. However, account usage remains low when compared with peers. State-Owned Financial Institutions (SOFIs) including Public Sector Banks (PSBs), Development Financial Institutions (DFIs), Rural Regional Banks (RRBs), state-owned Non-Banking Financial Companies (NBFCs) and public insurers, play a significant albeit declining role. Besides SOFIs’ interventions, public credit support programs such as Priority Sector Lending (PSL), also influence credit allocation. Stress tests suggest that credit institutions are broadly resilient to macro-financial shocks, despite some weak tails. Achieving India’s vision for 2047 to become a USD 30 trillion economy requires further modernization of the financial sector involving comprehensive reform to boost private capital mobilization. Achieving India’s growth ambitions will require more effective intermediation of both foreign and domestic savings toward productive investments, while reducing regional and social disparities. This calls for a comprehensive agenda to deepen financial markets, attract sustained foreign investment into government securities and greenfield infrastructure, and foster financial innovation—including the expansion of digital lending channels to better serve small enterprises. The State would need to redefine its role in the financial sector, reducing its footprint to increase efficiency and mobilize private capital. To preserve financial sector soundness, the authorities will need to continue strengthening the legal and oversight framework that spans prudential issues, market conduct, and financial safety net to manage risks arising from the increasing size and complexity of the financial system.