October 29, 2025 : Veteran banker and finance sector leader KV Kamath has said that both banks and capital markets will play a pivotal role in India’s next growth phase, signalling a shift in how the country’s economic engine will be fuelled. Speaking at the Global FinTech Fest 2025 in Mumbai, Kamath emphasised that while banks remain critical, the capital markets — including equity, debt, and non-bank financing — will increasingly take centre stage.
Growth outlook & the runway ahead
Kamath said India has a visible “25-year runway” of opportunity, backed by its youthful workforce, rising aspirations, and domestic capital formation. “To me, the runway exists. The people exist. The opportunities exist. We have set ourselves a 25-year runway. You only have to look around to see what needs to be done.” He suggested that if growth in the next-eight to nine years averages around 8–9 per cent, the economy could double in size by 2030–31.
The evolving role of banks
Kamath noted that India’s banks must expand dramatically to support higher growth, given an economy that may grow from around US$4 trillion to perhaps US$8 trillion in the next five to six years. He pointed out that Indian banks—with return on equity (ROE) in the 15–20 per cent range—are fundamentally capable of “bulking up”. But he also cautioned that banks cannot remain the sole source of funding — especially for long-duration infrastructure or heavy investment projects.
The rise of capital markets and non-bank funding
Kamath stressed that for large, long-term infrastructure and industrial investments, capital markets, mutual funds, pensions and insurance pools are better suited than banks, which typically carry short-term liabilities. “Banks’ era of infrastructure funding is over,” he said in reference to the structural mismatch in tenure and liquidity for banks. He highlighted that companies are increasingly funding expansions through cash flows, equity issuance or bonds — outside pure banking credit. “What was unthinkable five years ago — raising capital outside the banking system — is now happening.”
Domestic strength, less reliance on foreign capital
Kamath argued that India’s growth narrative will be driven primarily by domestic capital rather than foreign capital. “Foreign capital will come, but it will not be the foundation of our growth,” he said. He pointed to the rise of internal capital formation — such as via mutual funds, insurance, pensions — and innovative financing models (e.g., InvITs) as validating that India is not starved for funds.
Role of technology, regulatory edge & financial services evolution
On technology, Kamath suggested that banks don’t necessarily need to invest indiscriminately in tech, but rather invest smartly – in platforms that are scalable and efficient. “Banks don’t need to invest more in technology, they need to invest less, but where it matters.” He also praised India’s financial regulatory framework, saying it is “ahead of the curve” in many respects and enabling digital finance innovation.
Kamath sees shifting dynamics in financial services: growing retail financial services, non-bank players (NBFCs, fintech) gaining ground, and capital markets playing a more important role in funding growth than just bank credit.
Implications & challenges
- Banking sector growth: To meet aspirational growth, banks will need to grow their balance sheet, improve efficiency, expand digital reach, and possibly merge or scale via consolidation.
- Infrastructure funding gap: With banks less suited to long-term projects, the capital markets, DFIs (development finance institutions) and institutional investors must step in. Kamath emphasised strengthening existing DFIs rather than proliferating new ones.
- Capital markets deepening: More companies leveraging equity, bonds, hybrid structures; institutional investor and pension flows increasing; retail participation rising — all supporting deeper capital markets.
- Domestic mobilization of capital: The need to continue developing domestic savings, insurance, pension flows, and channel them into productive investment.
- Technology & regulation: Ensuring banks, NBFCs, fintechs, and capital markets players all adapt to digital finance and regulatory innovation, while managing risk, stability and inclusion.
- Execution risk: While the runway exists, the actual delivery of projects, enhancement of bank & capital-market infrastructure, and managing structural issues (e.g., asset quality, governance, linkages) remain critical.
Final thought
KV Kamath’s remarks underline a paradigm shift in India’s growth financing model: from bank-centric credit-driven growth to a more diversified model where banks, capital markets, institutional investors and domestic savings interplay to enable the next phase of growth. In his view, with a clear opportunity set, strong institutions and domestic capital mobilisation, India is well placed to capitalise — but execution will be key.
Summary
KV Kamath says India’s next growth phase will be powered by banks scaling up and capital markets deepening, with domestic capital formation taking precedence and foreign funding playing a supportive role.