While developments such as an increase in the share of consumer credit in overall bank credit, a rise in non-bank financing options and the growing popularity of equity-based financing herald a new era for the Indian financial sector, they also introduce potential risks from a regulatory standpoint, cautioned the Economic Survey (ES) for 2024-25.

“The rise in consumer debt, the expansion of unsecured lending, and the growing number of young investors underscore the need for balancing growth and stability. Such regulation should encourage financial sector growth while ensuring stability and resilience,” the Survey said.

The ES emphasised that the financial sector is currently undergoing a transformative period marked by several emerging trends. Notably, the share of consumer credit in overall bank credit is increasing, and non-bank financing options are rising.

Additionally, equity-based financing has gained popularity, with the number of initial public offerings (IPOs) increasing six-fold between FY13 and FY24.

Indian financial sector: currently at a pivotal moment

Noting that the Indian financial sector is currently at a pivotal moment, the ES observed that the traditional dominance of banks in providing credit is beginning to decline, and other participants and products in the financial sector are increasingly filling this role.

“This shift is a long awaited and positive development for a country that aims to become a developed nation by 2047. Various financial innovations such as UPI, Open Credit Enablement Network (OCEN) and T+1 settlement have significantly eased access to credit in India.

“A recent initiative by the RBI, the Unified Lending Interface (ULI), can potentially be a game changer in MSME financing,” per the ES.