Long-term capital availability and the high cost of capital constrain private investment in India. Suggest institutional reforms involving banks, DFIs and NBFCs.

Viksit Bharat @2047 depends on private investment in infrastructure and manufacturing, and those projects need patient, long-tenure capital at affordable rates. The government has acknowledged the gap: the High Level Committee on Banking for Viksit Bharat has been asked to assess the long-term capital needs of Banks, DFIs and NBFCs and the gaps in the cost of capital [1].

Why capital is scarce and costly

• Asset-liability mismatch: banks use short-term deposits to fund long-gestation projects. The resulting bad-loan cycle required a ₹2.11 lakh crore PSB recapitalisation (2017) [2].
• Thin DFI layer: once older DFIs such as ICICI and IDBI turned into banks, few specialised long-term lenders remained. This led to the creation of NaBFID (2021) [3].
• Funding chain: a shallow corporate-bond market leaves firms dependent on bank loans. NBFCs also borrow from banks, so costs rise at each layer.

Reforms – Banks

• Calibrated prudential norms: adapt global Basel-type norms to Indian conditions rather than copying them, and release capital for productive credit [1].
• Risk-sharing tools: use credit guarantees and take-out financing so the next NPA cycle does not fall on the taxpayer again [2].
• Governance and technology: give PSB boards more autonomy, and use AI-based credit appraisal with cyber safeguards [1].

Reforms – DFIs

• Scale up NaBFID: bring in pension funds, sovereign wealth funds and multilaterals as shareholders, which its Act already allows. Use it to deepen infrastructure bond and derivatives markets [3].
• Private DFIs: grant the RBI licences the Act permits so that more players compete [3].

Reforms – NBFCs

• Scale through restructuring: Budget 2026-27 restructures PFC and REC [4], which can serve as a template for other public lenders.
• Diversified funding: widen access to long-term bonds and securitisation. Align oversight with banks under RBI's scale-based regulation to contain contagion.
• Foreign capital: a simpler FEM (Non-debt Instruments) Rules framework will make foreign investment easier [4].

These reforms point to a tiered architecture. Banks would supply working capital, DFIs would carry long-gestation risk, and NBFCs would deliver last-mile and sector-specific credit, all supported by a deeper bond market. If the Committee turns this into a roadmap while safeguarding financial stability, inclusion and consumer protection [5], it can lower the cost of capital, revive private investment and advance SDG 9 on resilient infrastructure.