‘Consumerisation’ of banking in India: Cyclical or structural?

Rajeshwari Sengupta (IGIDR) and Harsh Vardhan (SP Jain) in this Ideas4India article show how Indian banking has become more consumerised over the years:

Over the past decade, India’s banking sector has undergone a transformation in terms of the proportion of credit extended to consumers and industry – with consumer credit now accounting for a larger share. In this post, Sengupta and Vardhan examine this change and contend that the next couple of years would be crucial in determining whether the ‘consumerisation’ of banking is a cyclical or structural phenomenon.

Banking in India appears to be at a crucial juncture. The next couple of years will decide if it goes back to being a lender to industry and businesses, or if it will continue to focus on consumer lending. If the ‘consumerisation’ of banking continues, it will have a profound impact on the economy in general and on the growth of industry in particular. For sustained economic growth, capital expenditure cycles will have to be revived. Indian companies will have to get back to investments and will need credit to do so. The preference of bankers to lend to consumers over industry, could create a credit shortfall, which may impede the investment cycle and ultimately harm economic growth.

Hmm..So will we need to go back to old model of establishing industrial banks/DFI to finance industry?

 

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