Key Details
The Deputy Governor organised the address around three propositions for building financial markets capable of supporting India’s transition to a developed economy by 2047.
Proposition | Central Argument | What It Requires |
|---|---|---|
Mobilise More Long-Term Capital and Distribute Risk Efficiently | Bank lending alone cannot meet the scale and diversity of India’s future financing needs. Market-based finance must connect long-term domestic savings with productive investment while allocating risks more efficiently. | Stronger government and corporate bond markets, broader access to market finance, reliable credit pricing and effective recovery mechanisms. |
Move from Scale to Depth, Breadth and Resilience | Larger markets are not necessarily stronger markets. Mature markets require reliable liquidity, credible price discovery, effective risk transfer and the ability to function during periods of stress. | Deeper secondary markets, diverse participants, wider risk-management instruments and liquidity beyond a small number of benchmark securities. |
Make Market Development a Shared Responsibility | Regulation can create an enabling framework but cannot generate liquidity, capability or participation by mandate. | Predictable regulation, stronger institutional expertise, transparent issuers, informed investors, robust infrastructure and responsible product development. |
Priority Market Reforms
Market | Policy Direction |
Government Securities | Improve liquidity across the yield curve so that reliable pricing extends beyond a few benchmark securities. |
Corporate Bonds | Channel long-term savings into productive investment, deepen secondary-market trading and strengthen credit pricing. |
Money Markets | Expand participation in term money markets to improve liquidity management and monetary-policy transmission. |
Foreign Exchange and Derivatives | Broaden access to effective hedging and risk-transfer instruments while strengthening transparency and risk management. |
The Speech Presents a Three-Part Vision for India's Financial Markets
In his keynote address, the Deputy Governor argued that India's ambition of becoming a developed economy by 2047 requires a stronger market-based financial system alongside traditional bank lending. He organised the address around three strategic propositions: mobilising larger pools of long-term capital, building financial markets that are deeper and more resilient, and recognising that sustainable market development depends on the collective actions of regulators, market institutions, issuers and investors.
India’s Growth Ambitions Require a Broader Financing Model
The Deputy Governor argued that India’s transition to a developed economy by 2047 will require sustained investment in infrastructure, manufacturing, urbanisation, technology, clean energy and human capital. Banks will remain central to this process, but their balance sheets alone cannot meet financing needs of this scale, duration and diversity.
At the same time, a growing share of household savings is being channelled through insurance, pension and mutual fund investments. Deeper financial markets can connect these pools of long-term savings with productive economic activity while giving enterprises access to a wider range of financing options.
The address therefore does not advocate replacing banks. It calls for market-based finance to become a stronger complement to bank lending.
Market Quality Matters More Than Market Size
The second proposition draws a distinction between markets that are merely large and markets that are genuinely deep.
A mature market should provide:
Liquidity beyond benchmark instruments, allowing participants to transact without significantly disrupting prices.
Reliable price discovery, so that capital and credit risks are valued accurately.
Effective risk transfer, enabling risks to move towards institutions best equipped to manage them.
Diverse participation, reducing dependence on a narrow set of investors or intermediaries.
Resilience under stress, ensuring that markets continue to function when conditions become difficult.
This has different implications across markets. Government securities require liquidity across maturities, not only in frequently traded securities. Corporate bonds need stronger secondary-market activity and more reliable credit pricing. Term money markets should support better liquidity management, while derivatives and credit-risk instruments should help businesses and financial institutions hedge exposures more effectively.
Financial Innovation Must Solve Real Problems
The speech supported the development of instruments such as Credit Default Swaps and Total Return Swaps where they meet genuine financing or risk-management needs. However, the Deputy Governor cautioned that new products do not strengthen markets merely because they are sophisticated.
Innovation must be accompanied by:
clear and transparent pricing;
user understanding;
suitability assessments;
strong internal risk management; and
safeguards against excessive complexity and mis-selling.
The broader message is that financial innovation should improve the allocation and management of risk rather than introduce risks that participants do not fully understand.
Regulation Enables Markets - Institutions Build Them
The third proposition places responsibility for market development across the entire financial ecosystem.
The RBI and other regulators must provide clear, proportionate and predictable rules that enable innovation without compromising stability.
Banks and financial intermediaries must invest in expertise, provide liquidity and develop products that address genuine market needs rather than merely securing regulatory permission to offer them.
Issuers must strengthen governance, disclosure and transparency, while investors must undertake independent credit and risk assessment rather than relying mechanically on external opinions.
Market infrastructure institutions must ensure that trading, clearing, settlement and operational systems remain robust and scalable. Industry bodies and both domestic and foreign institutions can also contribute standards, specialised capabilities and market expertise.
The speech’s central institutional insight is that regulators can establish the conditions for market development, but sustained liquidity, participation and confidence must be created by market institutions themselves.
What Is Market-Based Finance?
Market-based finance refers to raising capital and managing financial risks through instruments such as government securities, corporate bonds, money markets, foreign exchange markets and derivatives, rather than relying primarily on bank loans.
It allows savings to be channelled towards a wider range of borrowers and investments while enabling financial risks to be priced, traded and distributed among different market participants.
Policy Relevance
Financing Long-Term Development: Deeper bond and capital markets can mobilise the patient capital required for infrastructure, industrialisation, technological development and the green transition.
Broader Access to Finance: Stronger credit pricing, liquidity and recovery mechanisms can enable a wider range of enterprises to access market-based funding.
Improved Risk Allocation: Derivatives, credit-risk instruments and diverse investor participation can distribute risks more efficiently across the financial system.
Greater Financial Resilience: Markets with reliable liquidity and broad participation are better placed to absorb shocks and continue functioning during periods of stress.
Institutional Market Development: India’s financial-market transition will depend not only on regulatory reform, but also on stronger capabilities, governance, disclosure and conduct across market institutions.
Relevant Question for Policy Stakeholders: How can India convert its growing pool of long-term domestic savings into deeper corporate bond and risk-management markets while ensuring sufficient liquidity, investor capability and financial stability?
Follow the Full Speech Here: Keynote Address by RBI Deputy Governor Rohit Jain