Banks alone can’t fund Viksit Bharat; bond market must step up: Crisil | Banking

India’s banking system will not be able to single-handedly fund the country’s ambition of becoming a $30-trillion-plus economy by 2047, making a rapid expansion of the debt capital market imperative, according to a Crisil report.

The ratings agency estimates India’s non-sovereign debt will rise from around 84 per cent of gross domestic product (GDP) now to nearly 150 per cent by 2047, implying that corporate bonds, securitisation and municipal bonds will have to play a much larger role in financing economic growth.

India Inc alone is expected to require Rs 130-140 trillion of debt funding during FY27-31, around 1.7 times the amount raised in the previous five years.

According to Crisil, gross bank credit already stands at around 62 per cent of GDP compared with the debt capital market’s 22 per cent, underscoring the need to diversify funding sources.

“The debt capital market capable of financing Viksit Bharat will require a broader issuer base, deeper investor participation across the ratings spectrum, and a more vibrant secondary market trading ecosystem to strengthen price discovery,” said Miren Lodha, senior director, Crisil Intelligence.

The report said India’s corporate bond market remains narrow despite policy reforms. Outstanding corporate bonds have grown at an annual rate of around 11 per cent over the past decade to Rs 59 trillion, but they still account for just 22 per cent of the domestic debt capital market, while government securities account for 74 per cent.

Corporate bond issuances also eased marginally to Rs 10.9 trillion in FY26 from a record Rs 11 trillion a year earlier.

Market participation is equally concentrated. More than 80 per cent of outstanding corporate bonds are rated AAA or AA, while government-owned entities and financial institutions have accounted for over 80 per cent of issuances since FY23. Retail and foreign investors together hold less than 10 per cent of outstanding corporate bonds.

The report also flagged weak secondary market liquidity as a key constraint. Average daily trading turnover has remained below 0.25 per cent of outstanding corporate bonds for a decade, while insurance and pension funds have less than 3 per cent exposure to non-government and non-AAA debt.

“As the savings landscape transitions from traditional bank deposits to managed investment products, it is important to develop and effectively utilise market channels to fund critical segments such as infrastructure, housing and urban development under the Viksit Bharat vision,” said Somasekhar Vemuri, chief criteria officer, Crisil Ratings. “This will require regulatory and market infrastructure reforms to further strengthen the existing system.”

Among the measures proposed, Crisil has called for regulatory changes to encourage investments in A- and BBB-rated corporate bonds, development of a covered bond market through dedicated legislation, government support for securitisation, and greater use of municipal bonds to finance urban infrastructure.