<p>At a recent IMA CFO Conference, where your columnist had the opportunity to moderate the discussion, Rajeshwari Sengupta began with a simple question. Does India have enough fuel to grow at the pace it aspires to? By fuel, she meant credit and by growth, she did not mean the now-familiar 6-7 percent. She meant a sustained 8-9 percent trajectory, considered necessary if India intends to become a developed economy within a generation. This note distils the body of her presentation and the discussion that followed.</p><p>Her starting point was blunt. India remains a credit-underpenetrated economy. The ratio of outstanding non-food bank credit to GDP has declined over the past decade. In advanced economies, credit often exceeds GDP but In India, it remains more modest. More importantly, credit is not growing materially faster than nominal GDP. Historically, sustained accelerations in growth have required credit expansion ahead of output. That is not yet visible. But the issue is not only quantum, it is also composition. India’s financial architecture is undergoing structural change, as intermediation was once overwhelmingly bank-led, but now banks’ share of total financial flows has declined, while non-bank financial companies and capital markets have grown. In principle, diversification enhances resilience. The United States relies far more on markets than banks. Yet India’s bond market remains narrow and conservative, where issuances are concentrated in highly rated paper. The “middle rung” of the risk spectrum, where the space that allows firms to graduate from moderate risk to investment grade, is shallow. The system efficiently finances the safest borrowers. It does far less for mid-tier firms, where much entrepreneurial growth resides.</p><p>On the demand side, the transformation is even more striking. A decade ago, industrial credit drove bank balance sheets. Today, retail lending has surged. Personal loans, housing finance and unsecured consumption credit have expanded rapidly, while credit flowing to industry has stagnated or declined in share. The reasons are understandable. After the twin balance sheet crisis, banks became wary of large project lending. Retail credit is granular and statistically safer. It spreads risk across millions of borrowers. Yet India is not a high- income consumption economy. It still requires large-scale investment in manufacturing and infrastructure. This tilt toward consumption, rather than production, raise questions about long-term growth dynamics.</p><p>Behind credit lies savings. India has traditionally relied on its household savings rate. But composition has shifted. Financial savings as a share of GDP have softened as more wealth flows into physical assets such as real estate and gold, or directly into equity markets rather than traditional deposits. In a predominantly domestically financed economy, this matters. Constrained savings can limit lendable funds and keep the cost of capital elevated. Also, regulators have prioritised stability, understandably so after a prolonged period of banking stress. Pension and insurance funds face tight investment guidelines and risk-taking is supervised closely.</p><p>But conservatism has trade-offs as a developing economy requires risk capital. Yet the tone was not pessimistic. Banks are far healthier than they were a decade ago. For CFOs, the implications are practical. Funding sources must diversify. Balance sheets must remain robust in a system that rewards high credit quality. Liquidity conditions could tighten if domestic savings remain constrained. Regulatory signals will matter greatly. And capital allocation decisions must reflect the shifting composition of demand in the economy. India is not out of fuel. But if the journey is as ambitious as policymakers suggest, the tank may not be as full as the rhetoric implies.</p>
<p>At a recent IMA CFO Conference, where your columnist had the opportunity to moderate the discussion, Rajeshwari Sengupta began with a simple question. Does India have enough fuel to grow at the pace it aspires to? By fuel, she meant credit and by growth, she did not mean the now-familiar 6-7 percent. She meant a sustained 8-9 percent trajectory, considered necessary if India intends to become a developed economy within a generation. This note distils the body of her presentation and the discussion that followed.</p><p>Her starting point was blunt. India remains a credit-underpenetrated economy. The ratio of outstanding non-food bank credit to GDP has declined over the past decade. In advanced economies, credit often exceeds GDP but In India, it remains more modest. More importantly, credit is not growing materially faster than nominal GDP. Historically, sustained accelerations in growth have required credit expansion ahead of output. That is not yet visible. But the issue is not only quantum, it is also composition. India’s financial architecture is undergoing structural change, as intermediation was once overwhelmingly bank-led, but now banks’ share of total financial flows has declined, while non-bank financial companies and capital markets have grown. In principle, diversification enhances resilience. The United States relies far more on markets than banks. Yet India’s bond market remains narrow and conservative, where issuances are concentrated in highly rated paper. The “middle rung” of the risk spectrum, where the space that allows firms to graduate from moderate risk to investment grade, is shallow. The system efficiently finances the safest borrowers. It does far less for mid-tier firms, where much entrepreneurial growth resides.</p><p>On the demand side, the transformation is even more striking. A decade ago, industrial credit drove bank balance sheets. Today, retail lending has surged. Personal loans, housing finance and unsecured consumption credit have expanded rapidly, while credit flowing to industry has stagnated or declined in share. The reasons are understandable. After the twin balance sheet crisis, banks became wary of large project lending. Retail credit is granular and statistically safer. It spreads risk across millions of borrowers. Yet India is not a high- income consumption economy. It still requires large-scale investment in manufacturing and infrastructure. This tilt toward consumption, rather than production, raise questions about long-term growth dynamics.</p><p>Behind credit lies savings. India has traditionally relied on its household savings rate. But composition has shifted. Financial savings as a share of GDP have softened as more wealth flows into physical assets such as real estate and gold, or directly into equity markets rather than traditional deposits. In a predominantly domestically financed economy, this matters. Constrained savings can limit lendable funds and keep the cost of capital elevated. Also, regulators have prioritised stability, understandably so after a prolonged period of banking stress. Pension and insurance funds face tight investment guidelines and risk-taking is supervised closely.</p><p>But conservatism has trade-offs as a developing economy requires risk capital. Yet the tone was not pessimistic. Banks are far healthier than they were a decade ago. For CFOs, the implications are practical. Funding sources must diversify. Balance sheets must remain robust in a system that rewards high credit quality. Liquidity conditions could tighten if domestic savings remain constrained. Regulatory signals will matter greatly. And capital allocation decisions must reflect the shifting composition of demand in the economy. India is not out of fuel. But if the journey is as ambitious as policymakers suggest, the tank may not be as full as the rhetoric implies.</p>
