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India's financial system is undergoing a major shift as the ways in which borrowers raise funds have expanded far beyond traditional bank loans.
According to a Bank of Baroda press release, total resources raised in the economy have more than doubled in the last five years, reflecting the changing face of resource mobilisation. The data shows that the total flow of funds increased from Rs 13.58 lakh crore in 2019-20, the year before the pandemic, to Rs 30.08 lakh crore in 2024-25. This represents a compound annual growth rate of 20.9 per cent during the period. Borrowers now range from large corporates to farmers, households, and small enterprises, and the channels they tap into are becoming increasingly diverse. Traditionally, banks dominated the lending space. But the growth of capital markets has opened up opportunities for raising equity and debt directly from investors. Non-Banking Financial Companies (NBFCs), with their deep reach and last-mile connectivity, have also emerged as a strong alternative. Government-backed institutions targeting infrastructure and vehicles like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have added more depth to the system. On the global front, external commercial borrowings and foreign listings, such as GDRs and ADRs, continue to serve as options, although their growth has been uneven. "Growth in the domestic segment under non-bank sources has grown at a higher rate of 43 per cent, with equity registering a very smart increase of 27 per cent. Corporate bonds growth has been 8 per cent, which is understandable due to the market being one mainly for highly rated companies, which leads to exclusion of others. NBFCs have become a major cornerstone of lending, as can be seen by the sharp increase of 43 per cent during this period. Foreign sources have registered negative growth with both ECBs and FDI being lower in FY25 relative to FY20," the release said. The share of banks in total resources has moved in line with economic growth cycles. During the pandemic year of 2020-21, their share fell below 50 per cent. It later peaked at 67 per cent in 2022-23, a year when India's GDP grew 7.6 per cent. In 2024-25, the share came down to 51 per cent, though the overall flow of resources remained robust. Trends in non-bank domestic sources have varied within segments. Equity financing has been closely linked to stock market conditions, peaking in 2024-25 as companies tapped into buoyant markets. Corporate bonds saw a spike during the pandemic but later stabilised at lower levels. NBFCs, after facing challenges before 2020, have shown steady performance over the past three years, becoming the second-largest source of finance in 2024-25. Foreign capital sources now account for a smaller share. External borrowings saw rising approvals, but higher repayments kept net additions modest. FDI flows also slowed, with their share dropping from 29.2 per cent in 2019-20 to 7 per cent in 2024-25. (ANI)
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