Banking & finance

Infrastructure sector to fuel demand for funds

By Ashok Kumar

FOR the banking and finance sector in India, the coming years will see a huge demand for funds, especially from the infrastructure segment. Finance minister Nirmala Sitharaman recently reviewed the progress of projects worth Rs3.6 lakh crore under the National Infrastructure Pipeline (NIP), which are being implemented by the Ministry of Health and Family Welfare and the Department of Water Resources, River Development and Ganga Rejuvenation.

According to a government spokesperson, despite the ongoing COVID-19 pandemic, the NIP has managed to achieve substantial progress. Launched with 6,835 projects, it has now been expanded to more than 7,300. Importantly, between 2020 and 2025, a whopping Rs111 lakh crore will be invested in these projects.

Slowdown caused by the pandemic, ministries and departments have shown substantial progress in project implementation and expenditure, especially in the second quarter of 2020-21.

The massive amounts being invested in infrastructure will provide huge opportunities for the banking sector to expand operations. The Indian banking system includes a dozen public sector banks, 22 private sector lenders, 46 international banks, 56 regional rural banks, 1,485 urban cooperative banks and 96,000 rural cooperative banks, besides several cooperative credit institutions. And millions of Indians are utilising the services offered by the banks.

According to estimates, there were more than 2 lakh ATMs in India in August, and this is expected to more than double in 2021. Public sector bank assets added up to nearly Rs108 lakh crore in FY20. Bank credit grew at a CAGR of 3.57 per cent between FY 2016 and 2020, while deposits grew at a much higher rate of 13.93 per cent.

Backing economic revival

Shaktikanta Das, Governor, Reserve Bank of India (RBI), pointed out recently that the banking sector was supporting the ongoing revival in economic activities. The central bank had taken several measures to the tackle the pandemic, stabilise the economy and ensure financial stability. Banks have to be vigilant and take proactive measures to strengthen their resilience and lending capacity by raising capital and making provisions proactively, he noted.

“India, with a large section of population in the working age group, is already the third largest economy in the world in terms of purchasing power parity and is aiming to become a $5 trillion economy,” he said. “The Government has been undertaking a series of calibrated macro measures through wide ranging structural reforms. We need to harness the demographic dividend by meeting the aspirations of a large young population. This necessitates creating an enabling environment and infrastructure in the form of education, training and opportunity. Among all the prerequisites for achieving demographic dividend and accelerated growth, quality of human resources, greater formalisation of economy, a higher credit to GDP ratio and greater financial inclusion are the differentiating factors that would elevate our economy to the desired level.”


The significant initiatives of the Indian government and the RBI have seen leading international and domestic players responding well. WhatsApp, for instance, launched its UPI (Unified Payments Interface) service in the country after getting approval from the National Payments Corporation of India. UPI recorded more than two billion transactions worth nearly Rs4 lakh crore in October.

The government has also launched the process of consolidating the public sector banking segment, reducing the number of state-owned banks to eight. Importantly, technology including mobile and internet banking are now to the fore and millions of people do their banking transactions on their phones. India’s digital payments system has witnessed rapid evolution; it is the highest among 25 countries, with its Immediate Payment Service (IMPS) being the only one at level five in the Faster Payments Innovation Index.

The Monetary Policy Committee (MPC) noted recently that the recovery in rural demand is expected to strengthen further, while urban demand is also gaining momentum as unlocking spurs activity and employment, especially of labour displaced by COVID-19. Consumers remain optimistic about the outlook, and business sentiment of manufacturing firms is gradually improving. “Fiscal stimulus is increasingly moving beyond being supportive of consumption and liquidity to supporting growth-generating investment,” it noted.

Financial inclusion is expected to grow exponentially in India with digital savvy millennials joining the workforce, social media blurring the urban-rural divide and technology shaping the policy interventions.