Comprehensive Summary of the Document

1. Monetary and Financial Sector Developments: The Cart and the Horse

The document provides a detailed overview of India’s monetary and financial sector performance
during the first nine months of FY 2024-25. It covers trends, policies, and regulatory
developments aimed at strengthening financial inclusion, enhancing credit growth, and
supporting capital markets.

2. Introduction

Financial institutions are pivotal in shaping India’s economic growth by facilitating savings,
investments, and credit for economic activities.

The chapter explores monetary policy trends, indicators like Reserve Money (M0) and Broad
Money (M3), and developments in banking, insurance, pension sectors, and financial markets.

3. Monetary Developments

Monetary Policy Goals: Focus on price stability while supporting economic growth.

Policy Repo Rate: Maintained at 6.5% throughout 2024 to manage inflation and growth balance.

Cash Reserve Ratio (CRR): Reduced to 4% in December 2024 to infuse ₹1.16 lakh crore
liquidity into the banking system.

Money Supply Trends:

Monetary Base (M0) grew by 3.6% as of January 2025.

Broad Money (M3) grew by 9.3% YoY as of December 2024.

Money Multiplier (MM) rose to 5.7, indicating higher liquidity in the market.

4. Banking Sector Performance

Improvement in Asset Quality:

Net NPAs stood at 0.6%, with better recoveries and upgrades.

Capital Buffers: CRAR of SCBs increased to 16.7%, indicating financial robustness.

Profitability: Return on Assets (RoA) and Return on Equity (RoE) improved despite a marginal
decline in Net Interest Margin (NIM).

5. Credit Growth and Sectoral Trends

Deposit Growth: Stood at 11.1% YoY by November 2024, with a preference for term deposits.

Credit Growth: Moderated to 11.8% YoY in November 2024 due to tighter monetary policy and
increased capital requirements for unsecured loans.

Sectoral Credit:

Agriculture credit grew by 5.1%, industrial credit by 4.4%, and MSME credit by 13%.

Credit to services and personal loans segments moderated.

6. Financial Inclusion

Rural Financial Institutions (RFIs):

Expansion in Regional Rural Banks (RRBs) to 696 districts with 22,069 branches as of March
2024.

Government recapitalization of ₹10,890 crore improved RRB profitability.

Development Financial Institutions (DFIs):

Institutions like IIFCL and NaBFID played key roles in infrastructure financing.
NaBFID sanctioned ₹1.3 lakh crore loans by September 2024, focusing on roads and renewable
energy.

7. Capital Markets Developments

Primary Market Activity:

Resource mobilization from primary markets stood at ₹11.1 lakh crore by December 2024, a 5%
increase from FY24.

IPO numbers surged, with 259 IPOs raising ₹1.53 lakh crore.

Secondary Market Performance:

Despite volatility, Nifty 50 delivered a 4.6% return from April to December 2024.

BSE market capitalization crossed $5 trillion in May 2024, reaching ₹445.2 lakh crore by
December.

8. Insurance and Pension Sector Developments

Efforts continued toward achieving universal coverage and strengthening India’s financial
ecosystem.

The sectors witnessed steady growth in asset accumulation and coverage expansion.

9. Use of Artificial Intelligence in Banking

Applications: AI is being used for credit underwriting, fraud detection, liquidity management,
and customer service via chatbots.

Risks: Include accountability issues, lack of transparency, and cybersecurity concerns.

10. Insolvency Law Effectiveness

IBC Impact:

1,068 resolution plans approved, recovering ₹3.6 lakh crore for creditors.

Early resolutions improved debtor behavior, reducing defaults.

Challenges: Delays in admission of cases and judicial bottlenecks persist.

Proposals: Adoption of pre-pack arrangements for MSMEs and standardization of procedural

11. Cybersecurity and Financial Sector Stability

The government and regulatory authorities enhanced cybersecurity mechanisms to protect the
financial ecosystem.

12. Outlook and Key Challenges

Emerging Risks:

Rising consumer debt and unsecured lending trends require careful regulatory balancing.

Equity market volatility poses potential risks.

Recommendations:

Strengthen judicial efficiency under IBC, deepen corporate bond markets, and foster ethical AI
practices.
Comprehensive Summary of Monetary Management and Financial Intermediation (FY 2023-24)

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1. Introduction

The Indian financial system demonstrated resilience despite global uncertainties, maintaining
stable economic growth.

Monetary management and financial intermediation remained essential for resource mobilization
and capital allocation to support growth.

The chapter is divided into two sections:

1. Monetary Developments: Focus on liquidity conditions and policy transmission.

2. Financial Intermediation: Analysis of the banking sector, capital markets, financial inclusion,
insurance, and pension sectors.

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2. Monetary Developments

2.1 Monetary Policy Overview

The Monetary Policy Committee (MPC) retained the policy repo rate at 6.5% throughout FY24.

Objective: Ensure gradual alignment of inflation with targets while supporting economic growth.

2.2 Liquidity Management

The Reserve Bank of India (RBI) undertook 17 fortnightly Variable Rate Reverse Repo (VRRR)
and seven Variable Rate Repo (VRR) auctions, along with 49 fine-tuning operations.

The return of ₹2,000 banknotes, higher deposit rates, and the temporary incremental CRR of
10% (August 2023) influenced liquidity conditions.
2.3 Money Supply Trends

Reserve Money (M0): Grew by 6.7% YoY in March 2024 compared to 9.7% last year.

Broad Money (M3): Grew by 11.2% (excluding HDFC merger impact).

Money Multiplier: Increased to 5.4, indicating higher liquidity.

2.4 Policy Transmission

Lending and deposit rates rose due to prior repo rate hikes.

Weighted average lending and deposit rates increased for both outstanding and fresh loans.

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3. Financial Intermediation

3.1 Banking Sector Performance

Asset Quality:

Gross NPAs declined to a 12-year low of 2.8%.

Net NPAs were reduced to 0.6%.

Capital Buffers: CRAR improved to 16.8%, well above regulatory requirements.

Profitability: Return on assets (RoA) rose to 1.3%, while return on equity (RoE) reached 13.8%.

3.2 Credit Disbursal

Agriculture Credit: Increased by 1.5 times to ₹20.7 lakh crore.

Industrial Credit: Rebounded to 8.5% growth by March 2024, driven by MSMEs and large
industries.

Personal Loans: Growth driven by digital lending; housing loans saw steady improvement.
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4. Distressed Asset Management

4.1 Recovery Mechanisms

Insolvency and Bankruptcy Code (IBC): Facilitated 4,131 corporate insolvency resolution
processes (CIRPs), rescuing 3,171 companies.

Creditors' Recovery: Achieved 85% recovery of fair value and 162% of liquidation value.

4.2 Real Estate Sector

Unique challenges addressed through innovative solutions like reverse CIRP and project-specific
resolutions.

Government initiatives such as the SWAMIH Fund provided liquidity for stalled projects.

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5. Financial Inclusion

5.1 Progress Achievements

Pradhan Mantri Jan Dhan Yojana (PMJDY): Enabled 52.6 crore bank accounts.

Digital Payments: UPI123Pay launched for feature phones; NPCI introduced UPI Lite for small
transactions.

5.2 Digital Financial Inclusion

India's robust digital public infrastructure, including Aadhaar, UPI, and DigiLocker, facilitated
financial inclusion.

Cross-border retail payment initiative Project Nexus aimed at linking payment systems between
India and ASEAN countries.

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6. Capital Markets
Primary Market Activity: Witnessed record IPOs and equity financing growth.

Secondary Market Performance:

Nifty 50 delivered a 26.8% return during FY24.

Market capitalization to GDP ratio ranked fifth globally.

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7. Insurance and Pension Sectors

Significant growth in asset accumulation and coverage.

Regulatory reforms aimed at achieving "Insurance for All by 2047."

Robust increase in pension subscribers and assets under management.

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8. Financial Sector Stability and Coordination

Enhanced cybersecurity measures and regulatory coordination ensured stability.

Financial Stability and Development Council (FSDC) played a key role in monitoring systemic
risks.

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9. Challenges and Future Outlook

Key Risks:

Rising retail investor participation could lead to market speculation.

Need to moderate equity market volatility and deepen bond markets.

Strengthen judicial efficiency in insolvency resolutions.

Promote responsible AI adoption in banking.

Foster further financial inclusion and ethical digital practices.

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This detailed summary covers all major topics and subtopics, providing a comprehensive
overview of India's monetary and financial developments during FY 2023-24.