Lok Sabha Question No. 1625 (UNSTARRED), answered on 2025-03-10
Subject: Excessive Financialization of the Economy
Ministry: FINANCE
Asked by: Shri Azad Kirti Jha

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 1625 TO BE ANSWERED ON 10.03.2025

## EXCESSIVE FINANCIALIZATION OF THE ECONOMY

## †1625. Shri Azad Kirti Jha:

Will the Minister of FINANCE be pleased to state:

(a) whether the  Government has assessed the risks associated with the increasing financialization of the economy, as highlighted in the Economic Survey 2024-25;

(b)  if  so,  the  details  of  the  sharp  rise  in  consumer  credit  as  a  share  of  total  loans  and  its potential impact on financial stability;

(c) whether the Government has taken note of the declining share of banks in total credit and the growing dependence on non-bank financing;

(d)  the  steps  being  taken  by  the  Government  to  enhance  transparency  and  safeguard  retail investors in corporate bond markets, particularly given the dominance of private placements; and

(e) whether the Government is considering any regulatory interventions to mitigate systemic risks arising from AI-driven financial services?

## ANSWER

## THE MINISTER OF STATE FOR FINANCE (SHRI PANKAJ CHAUDHARY)

(a)  to  (c):  The  financial  sector  regulators  continuously  monitor  the  systemic  health  of  the sector. This includes aspects such as monitoring excessive risk-taking through channels of investment  and  borrowing,  which  are  characteristic  of  increasing  financialization  in  an economy. Further, the trends in financing of various segments of the economy through the banking  and  non-banking  financial  avenues,  such  as  non-banking  financial  companies (NBFCs),  equity  markets,  bond  markets  etc,  are  also  closely  monitored.  As  may  be warranted,  the  regulators  take  measures  to  temper  excessive  activities  in  certain  segments and protect investors.

Consumer credit  has  been  a  key  driver  of  loan  growth,  post  COVID-19.  It  increased  at  a compound  annual  growth  of  20.6  per  cent  (banks  and  upper-  and  middle-layer  NBFCs) between March 2021 and December 2023. The Reserve Bank of India (RBI) took a number of  regulatory  measures  during  third  quarter  of  2023-24  to  curb  excessive  growth  in  this segment. These include, increasing the risk weights on consumer credit exposures for both commercial banks and NBFCs, excluding housing, education, and vehicle loans.

Additionally, risk weights on credit card receivables was increased for scheduled commercial banks and NBFCs. These measures have slowed consumer credit pace both at an aggregate level as well as across product and lender types.

(d): The Securities and Exchange Board of India (SEBI) has undertaken several measures to enhance  transparency  and  safeguard  retail investors  in  corporate  bond  markets.  Key initiatives include standardization of the record date for identifying eligible holders; introduction  of  Liquidity  Window  facility  for  investors  in  debt  securities  through  stock exchange  mechanism;  UPI  interface  for  participation;  reduction  in  face  value  of  debt securities;  issuing  the  framework  for  registration  of  Online  Bond  Platform  providers  and mandating  publishing  investor  charter  and  disclosure  of  investor  complaints  by  Merchant Bankers on their websites.

(e)  The RBI has, on 26 December 2024, constituted a committee to develop a Framework for Responsible and Ethical Enablement of AI (FREE-AI). One of the terms of reference (ToR) of the committee is ' To identify potential risks associated with AI, if any and recommend an evaluation, mitigation and monitoring framework and consequent compliance requirements for financial institutions, including banks, NBFCs, FinTechs, PSOs, etc.'.

In  the  securities  market,  the  SEBI  has  advised  market  infrastructure  institutions  and registered intermediaries who use AI tools, either designed by them or procured from third party  technology  service  providers,  to  take  full  responsibility  for  their  use  of  such  tools, irrespective of the scale of adoption and ensure privacy, security and integrity of investors' data.