India's debt market is not yet equipped to finance the country's next phase of economic growth, according to Deloitte's latest State of Financial Services in India report. The report warns that India can no longer rely on bank deposits to fund rising credit demand as household savings and consumption patterns evolve. To realise the ambition of becoming a $7.3 trillion economy by 2030, the debt market must bridge the funding gap efficiently — but currently it is not equipped to do so.
Structural Weaknesses Identified
As per news agency ANI, Deloitte highlighted several structural weaknesses in India's debt market:
- Muted price signals across the yield curve
- Risks not adequately differentiated across borrowers and financial instruments
- A significant share of offshore non-deliverable forward (NDF) trading in the rupee often operates independently of domestic markets
The report warned that these shortcomings could hamper growth as global financial conditions become tighter: "As global conditions tighten, these issues will directly impede growth," the report cautioned.
Proposed Reforms
To address these challenges, Deloitte proposed three major structural reforms:
| Reform Area | Recommendation |
|---|---|
| Deepening the debt market | Expand investor participation, improve market liquidity, and integrate money, bond and derivatives markets so that short-term funding, long-term capital and risk-hedging mechanisms work together. Also rationalise reserve requirements for stable market borrowings and rethink metrics like the credit-deposit ratio. |
| Market-driven interest rates | Strengthen the benchmark yield curve across various tenors and risk categories to make rates genuinely market-driven. The report stated: "Continued reliance on the administered repo rate weakens monetary policy transmission." |
| Onshore price discovery | Make India's domestic currency markets more attractive to global investors so that a larger share of rupee price discovery takes place within the country instead of offshore markets. |
"Continued reliance on the administered repo rate weakens monetary policy transmission." — Deloitte report
Financial Inclusion and Credit Gap
The report also linked stronger debt markets with broader financial sector reforms. Despite rapid progress in digital finance, financial inclusion gaps persist:
- Only 14 per cent of India's micro, small and medium enterprises (MSMEs) currently have access to formal credit.
- The MSME credit gap was estimated at around Rs 25 lakh crore as of March 2025.
- Deloitte said the formal credit gap could be "well over INR 50 lakh crore" based on the sector's contribution to GDP and a healthy credit-to-GDP ratio.
Implications for CFOs and Treasury Professionals
For finance executives and treasury directors, the report underscores that India's reliance on bank deposits for credit funding is becoming unsustainable. As household savings shift, companies may face tighter domestic credit conditions, making market-based funding — via bonds and commercial paper — more critical. The offshore NDF activity signals that rupee hedging costs may remain elevated until onshore markets deepen. The proposal to make interest rates more market-driven implies that the repo rate's influence may diminish, requiring treasuries to monitor benchmark yield curves more closely for pricing loans and bonds. Additionally, the large MSME credit gap highlights potential supply-chain credit risks for larger corporates whose smaller suppliers lack formal financing, a gap that could be addressed through stronger debt markets.
Deloitte's report concludes that improving debt markets, expanding financial inclusion, increasing the use of artificial intelligence in financial services, and attracting higher foreign capital inflows will be critical to supporting India's long-term economic growth.
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