India’s financial system has undergone a structural transformation
While bank credit expansion during FY25, non-banking sources, both domestic and foreign, played an important role in bridging the financing gap for the commercial sector in India, according to an article in the last monthly Bulletin of RBI.
The Increase in Funding from Non-Bank Sources During Fy25 was Largely Driven by Equity Issuances Amidst Buoyancy in the Domestic Equity Market, Credit by Non-Banking Financial Companions (NBFCS), and a Rebound in Short-Termerm Abhinandan Borad, Pawan Kumar, John v Guria and Vishal Raina in the article “Flow of Financial Resources to Commercial sector in India in 2024-25.”
They were of the opinion that the use of non-banking sources by the commercial sector, amid a degree in bank credit, reflects the adaptability of the financial system in complying with the developing financing needs of the economy.
Credit moderated
According to the assessment of the authors, at an aggregated level, moderated the flow of non-food bank credit moderated by £ 3.4 Lakh Crore during 24-25.
An increase in streams of £ 4.5 Lakh Crore from non-banking sources (both domestic and foreign) during 24-25 more than compensating in the stream of bank credit, resulting in an increase in the total flow of financial resources to the commercial sector with £ 1.1 Lakh Crore.
The streams of non-banking domestic sources rose during 24-25 by £ 3.7 Lakh Crore, mainly due to an increase in the issues of shares in the midst of buoyancy in the domestic stock market and an increase in credit by NBFCs.
The flows of non-banking foreign sources increased in the same period by £ 0.8 Lakh Crore, mainly as a result of an increase in short-term credit from abroad, which reflects a rebound in the import of merchandise in India.
Commercial sector
The officials emphasized that financing the banking system remains the most important source, although the flow of financial resources from non-banking sources to the commercial sector has increased in the recent period.
At the end of March 2025, the outstanding non-food bank credit rose as a percent on the gross domestic product (GDP) to 55.1 percent of 54.5 percent at the end of March 2024.
In general, the outstanding credit of banks and non-banking sources as a percentage rose to GDP to 81.9 percent against the end of 2025 of 80.2 percent at the end of March 2024.
Structural transformation
“The financial system of India, which is traditionally characterized by bank-oriented mediation for the provision of credit, has undergone a structural transformation that is characterized by the rising significance of non-bank financial intermediaries (NBFIS) and the growing use of market-based instruments for compliance with the financing.
Accordingly, the use of market -based financing instruments such as corporate bonds and share issues, as well as external sources such as direct foreign investments (DBI), external commercial loans (ECBs) and short -term trade credit in recent years, although the financing of the banking system remains the most important source.
Published on September 25, 2025
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