India needs to add USD 4 trillion in bank capital to meet 'Viksit Bharat' GDP target: Report

India's banking sector will need to raise USD 4 trillion in capital over the next two decades to support the country's goal of becoming a developed economy, or "Viksit Bharat," by 2047, according to a report by HSBC Mutual Fund.

The report highlighted that for India to achieve its ambitious target, its financial and banking assets must grow at a much faster rate than GDP. The country's GDP, which stood at USD 3.4 trillion in 2023, is projected to expand nearly nine times to USD 30 trillion by 2047.

To support this economic expansion, financial assets--valued at USD 6.4 trillion in 2023--need to grow almost 19 times to USD 120 trillion by 2047. Similarly, banking assets, currently at USD 3.1 trillion, are expected to surge to USD 45 trillion, marking a 14.5-times increase.

It said "India's banking industry will need to add USD 4 trn in capital in the next 2 decades to create the multiplier effect to reach the Viksit Bharat GDP target".

A well-developed financial sector plays a critical role in supporting economic growth by providing credit, investments, and other financial services.

The report noted that India's financial sector must expand significantly to match the scale of other major economies.  At present, the U.S. leads with USD 135 trillion in financial assets, followed by China at USD 78 trillion and Germany at USD 21 trillion. 

India's financial sector, though much smaller today, will need to grow rapidly to sustain the country's economic ambitions. The banking sector, in particular, will require a significant infusion of capital--around USD 4 trillion over the next 20 years.

This capital will be essential in creating a multiplier effect, which will help boost business investments, industrial growth, and infrastructure development. 

A strong banking system will also enhance global confidence in India's economy, attracting more foreign investment. The report also projected that India's GDP could nearly double to USD 7 trillion by 2030 from USD 3.4 trillion currently.

However, sustaining high growth for the next two decades will be the real challenge. If India successfully expands its financial sector at the required pace, it will not only reach the USD 30 trillion GDP target but also emerge as a key player in the global economy by 2047.