'Further financial reforms must for growth'

Rating agencies Moody's Investors Service and ICRA today said further reform of the financial markets is needed if India is to expand the sources and availability of credit to meet rising demand from the private sector.

"India's accelerating economic development is spurring demand for credit. Indian companies are expanding domestically and abroad, and a large, and growing middle class is showing greater willingness to utilise credit," the just-released paper said.

"Much of India's infrastructure is of poor quality, and requires enormous amounts of capital for improvements to sustain its economic expansion," the report, which is titled New Era for India's Economy Spurs Need for More Varied Debt Markets, said.

"A major problem is the government's need to finance its own high level of debt, which has historically crowded-out the availability of credit to the private sector," the authors say, adding, "the debt burden is unlikely to fall significantly in the near term."

"On the demand side, reforms would include easing investment guidelines for pension funds and insurance companies, which both restrict their ability to invest in non-governmental paper, and inhibit the emergence of a deeper and broader credit culture through the financial system," the report said.

"On the supply side, reforms could promote the domestic corporate bond market as a viable alternative to bank lending," the report says, adding, "additional reforms could encourage development of the domestic structured finance market, which would increase the capacity of banks to lend."