Ex-SEBI Member Warns India’s Credit Markets Among Most Suppressed in Major Economies

Ananth Narayan, former SEBI Whole Time Member, highlighted significant concerns regarding India’s credit markets at the 13th SBI Banking and Economics Conclave, stating that they currently represent only 65% of GDP, making them the smallest among all large economies. He pinpointed a critical policy contradiction, noting that the Reserve Bank of India (RBI) has purchased ₹8.8 lakh crore in government bonds in FY26, accounting for nearly 85% of the government’s net borrowing. Simultaneously, tax policies penalize fixed income returns, making these investments less attractive for savers.

The implications of this situation for the average citizen and the market are profound. Households are increasingly turning to equities due to the low post-tax returns on fixed-income investments, which heightens equity market valuations and complicates the investment landscape. This shift not only affects individual savers, who may lack the risk appetite or knowledge needed for equity investments, but also poses a challenge for the broader financial system, potentially deterring foreign capital investment in India as high valuations may seem less sustainable.

In terms of long-term outlook, Narayan advocates for a policy shift to alleviate the tax burden on fixed-income products, suggesting that this could enhance post-tax returns without necessitating higher yields. Such a reform could redirect household savings from equities back into bonds, thus strengthening the fixed income market. Policymakers and the RBI are urged to reassess tax structures and consider measures that would attract more investments into the credit markets, ultimately bridging the significant gap with global standards.

Source: The Hindu

(Expert Note: This report was independently prepared by the Wealthova Economy team.)