Commercial sector’s recourse to non-bank sources reflects adaptability of the financial system

India’s financial system has undergone a structural transformation

Bank credit expansion slowed in FY25, though non-bank domestic and foreign funding sources effectively bridged the commercial sector’s financing gap, according to an RBI bulletin article.

Funding from non-bank sources rose during FY25, attributed to strong equity issuances in the domestic equity market, NBFC credit growth, and increased foreign short-term financing after India’s merchandise import rebound, noted RBI officials Amit Pawar, Abhinandan Borad, Pawan Kumar, John V Guria, and Vishal Raina in their analysis of financial flows to the commercial sector.

This shift toward non-bank funding sources amid bank credit moderation highlights the financial system’s ability to adapt to evolving economic needs, as per the authors.

Credit moderated

Non-food bank credit decreased by ₹3.4 lakh crore during FY25. However, readings from non-bank domestic and foreign sources increased by ₹4.5 lakh crore and ₹0.8 lakh crore respectively, resulting in a net increase of ₹1.1 lakh crore in total commercial sector financing.

Domestic financing grew primarily through equity market activity and NBFC lending, while foreign short-term credit rebounded with import growth.

Commercial sector

Bank financing remains dominant despite the rise in non-bank alternatives. The outstanding non-food bank credit to GDP ratio increased to 55.1% in March 2025 from 54.5% in March 2024. Combined bank and non-bank credit to GDP rose to 81.9% in March 2025 from 80.2% in March 2024.

Structural transformation

The article highlighted India’s financial evolution from bank-centric intermediation toward a diversified system with expanded market participation. Corporate bonds, equity issuances, FDI, ECB, and trade credit are now complementing traditional bank financing.

Published on September 25, 2025