Banks will have to play a critical role in providing best financial intermediation services to India’s population which is going to become the largest in the world next year, the Reserve Bank Deputy Governor Michael Patra said.
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He said the impetus for transformation has come calling as India – already the fifth largest economy of the world – prepares to be among the fastest growing economies and an engine of global growth.
By 2025- 26, India will match Germany and become the fourth largest economy of the world, and by 2027, it will surpass Japan and emerge as the third largest economy of the world, he said.
“India’s population will become the largest in the world next year and it’s youngest. It will demand the world’s best financial intermediation services. Banks will have a critical role in this transformation,” Patra said at a conference held last week.
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He was speaking on the topic – Fifty Years of Indian Banking Through the Lens of Basic Statistical Returns.
The deputy governor said the reach and spread of the banking network have improved the mobilisation of financial resources in the economy.
The number of deposit accounts per thousand population which used to be 43 in 1972 has increased to over 1,600 now. Households currently account for 63 per cent of total bank deposits and it is also reflected in the rise in the ratio of per capita bank deposits to income from 15.8 per cent to 71.2 per cent.
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The ratio of per capita credit to income has risen from 12.2 per cent to 51.3 per cent over the period from 1972 to 2022.
“Branches across rural, semi urban and urban areas have contributed to this mammoth financial intermediation,” he said.
According to Patra, there is a shift in the patterns of financial intermediation. Industry has been a major recipient of bank credit but its share in total credit has come down from 60 per cent to 27 per cent during 1972-2022, broadly equal to that of services and personal loans. In the personal loans segment, borrowings by individuals now account for over 40 per cent as compared with less than 10 per cent share in 2000.
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On the lending side, a feature that has impacted the banking system is the reduced role of term lending institutions and emergence of corporate treasuries with new avenues for short-term financing, Patra said adding that, it has resulted in increased reliance on banks for long-term funds and gradual reduction in the share of working capital in total loans.
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Banks’ asset portfolios have become elongated, with term loans accounting for 65 per cent of total loans, he added.
