Banks have to additional step up lending to satisfy the financial system’s demanding development necessities, and shouldn’t hesitate to discover a number of avenues to boost the capital wanted, monetary providers secretary M Nagaraju mentioned on Friday. He assured all needed coverage assist to the lenders, and hinted at relaxations within the overseas direct funding (FDI) guidelines.
Chatting with Monetary Specific Deputy Managing Editor Shobhana Subramanian on the FE Trendy BFSI Summit right here, Nagaraju mentioned: “We additionally really want to have a look at reviewing the present FDI guidelines within the banking sector to allow Indian banks to boost extra capital…extra affected person capital.”
The FDI in non-public banks is presently capped at 74 per cent, whereas the restrict is 20 per cent for public sector banks (PSBs); any single entity can not maintain greater than 15 per cent in any Indian financial institution except exemption is granted by the Reserve Financial institution of India (RBI).
“If overseas capital comes at a less expensive fee, I believe we should always welcome (it). At present, it’s 15 per cent (single entity cap), and if it may be extra, the banks will be capable of develop credit score, that’s the objective,” the DFS secretary mentioned.
He burdened the necessity to have sustained excessive development in credit score flows to the needy sectors of the financial system, together with MSMEs. As of June 27, 2025, credit score offtake was up 9.5 per cent on yr, lagging deposit development of 10.1 per cent.
Nagaraju’s feedback come at a time when the State Financial institution of India (SBI) has raised Rs 25,000 crore by way of certified institutional placements (QIPs) to bolster its capital base, and different state-run banks amongst themselves are set to boost Rs 20,000 crore through this route within the present monetary yr.
“Credit score development is a bit slower on this quarter, however we expect that it’ll choose up… we additionally need the banks to lend,” the official mentioned. With giant firms flush with money, credit score development is now largely directed at MSMEs, the secretary mentioned.
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In March 2025, the mixture capital adequacy ratio (CAR) of 46 main banks reached a file excessive of 17.2 per cent, however the credit score flows haven’t been precisely holding tempo with this, or the funding demand to the assisted through financial institution capital.
With banks required to play a pivotal function in driving India’s ambition of turning into a $30-trillion financial system by 2047, he mentioned financial institution credit score to the non-public non-financial sector ought to attain round 130 per cent of the gross home product (GDP) from 56 per cent now.
In accordance with Nagaraju, banks and monetary establishments have to discover and develop varied avenues of elevating capital, together with standard fairness markets, issuance of Basel III-compliant AT1 bonds and tier 2 devices. They may additionally discover revolutionary strategies like tapping world monetary hubs, inexperienced bonds, sustainability-linked loans and likewise overseas debt markets to fund home credit score enlargement. He additionally urged giant incumbent banks to deal with capital conservation by decreasing operational prices with the usage of expertise.
Nagaraju mentioned banks must reimagine deposit mobilisation and enhance leverage and productiveness, deepen digital and knowledge capabilities, and construct future-readiness by way of ESG-resilience and governance. By advancing these strategic themes, Indian banks may truly rework themselves into stronger establishments, he mentioned.
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“Due to this fact, entry to capital from all sources must be checked out and labored upon by all of us. We want a number of globally aggressive giant banks facilitating entry to world funds, greatest expertise and technical experience,” he mentioned. At present, solely two Indian banks — SBI and HDFC — are within the high 100 world banks by whole property, which isn’t sufficient, he mentioned, drawing comparability to lenders in China and the US.
On additional consolidation of PSBs, he mentioned the earlier mergers have yielded good outcomes. “We might see that wherever the synergies are, we are able to at all times take a look at them (extra PSB mergers).”
Banks anchor inclusive development by bringing the unbanked beneath formal monetary methods, enabling thousands and thousands by way of schemes like Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, and extra, he added.