India's Non-Banking Financial Sector Becomes Third Largest Globally, Says SBI Report
India’s non-banking financial sector has ascended to become the third largest in the world, following only the United States and the United Kingdom, according to a recent report by the State Bank of India (SBI). This surge underscores the growing strength and resilience of India’s financial sector, which has shown remarkable adaptability in the face of various economic challenges over the past decade.
Unlike traditional banks, non-banking financial institutions (NBFIs) do not hold full banking licenses and are restricted from accepting public deposits. Instead, they focus on providing loans to consumers and businesses, playing a pivotal role in fueling economic growth. The report highlights that the Indian banking system’s ability to overcome domestic and international economic challenges has been crucial to this sector's growth.
Key factors contributing to this success include improvements in asset quality and robust macroeconomic fundamentals. The Indian government and regulatory authorities have implemented numerous initiatives to create a level playing field for financial institutions. These efforts include merging banks to form stronger entities, infusing capital, enhancing governance practices, and broadening the reach and quality of financial services. The expansion of digital banking has also been a significant contributor to the sector's growth.
During the COVID-19 pandemic, the Indian government’s proactive stance in maintaining the stability of the financial sector was evident through substantial capital and liquidity buffers. The Reserve Bank of India (RBI) played a critical role by enforcing regulatory measures to ensure the sector's resilience against economic shocks. These measures have not only preserved stability but have also fostered growth and innovation within the sector.
The SBI report further emphasizes that recent advancements in India’s digital banking landscape have been instrumental in the sector's expansion. The transition to digital platforms has significantly broadened access to financial services, making them more inclusive and efficient. This digital shift has been supported by the government's commitment to customer protection, ensuring that public interests are safeguarded amid the sector's rapid digital transformation.
