The Deloitte report said that India can no longer rely on bank deposits to finance the growing demand for credit
India’s debt market is not yet equipped to finance the country’s next phase of economic growth and needs structural reforms to support higher capital requirements in the long term, according to Deloitte’s latest report on the state of financial services in India.The report said that India can no longer rely on bank deposits to finance the growing demand for credit as household savings and consumption patterns evolve. He warned that unless the debt market became deeper and more efficient, it could become a bottleneck to the country’s economic ambitions.“Changing household consumption and saving patterns mean that we can no longer rely on bank deposits to the extent we did in the past to finance growing demand for credit.
To achieve the ambition of becoming a $7.3 trillion economy by 2030, the debt market must bridge this gap efficiently. “Today, it is ill-equipped to do so,” the report said.
Why does the debt market need reform?
According to news agency ANI, Deloitte has highlighted several structural weaknesses in the Indian debt market. Price signals across the yield curve remain muted, risks are not adequately differentiated between borrowers and financial instruments, and a large share of rupee non-deliverable forward (NDF) trading often operates independently of local markets, it said.
The report warned that these shortcomings could hamper growth as global financial conditions tighten.“As global conditions tighten, these issues will directly hinder growth,” the report warned.To address these challenges, Deloitte proposed three key structural reforms.First, he recommended deepening the debt market by expanding investor participation, improving market liquidity, and integrating money markets, bonds and financial derivatives, so that short-term financing, long-term capital and risk hedging mechanisms work together more efficiently.It also proposed rationalizing reserve requirements for stable market loans and reviewing metrics such as the credit-to-deposit ratio to encourage more market-based financing.
Market-driven interest rates and strong local markets are key
The second recommendation focuses on making interest rates truly market driven through a stronger benchmark yield curve across durations and risk categories.“Continued reliance on the managed repo rate weakens monetary policy transmission,” the report said.The third reform calls for making India’s domestic currency markets more attractive to global investors, so that a greater share of rupee price discovery takes place within the country rather than in foreign markets.According to Deloitte, these reforms would help build a more efficient financial system capable of supporting India’s long-term investment needs as the economy expands over the coming decades.
Financial inclusion Another challenge remains
The report also linked stronger debt markets to broader reforms needed in the financial sector.
The report noted that despite India’s rapid progress in digital finance, financial inclusion gaps remain.Only 14 per cent of India’s micro, small and medium enterprises currently have access to formal credit, while the credit gap for SMEs was estimated at around Rs 25 lakh crore as of March 2025.Deloitte said the official credit gap could be “significantly more than INR 50,000 crore” based on the sector’s contribution to GDP and a healthy credit-to-GDP ratio.Improving debt markets, expanding financial inclusion, increasing the use of artificial intelligence in financial services, and attracting higher inflows of foreign capital will be critical to supporting India’s economic growth in the long term, the report added.