Opinion
India’s growing economy needs bigger banks
Summary
Finance minister Nirmala Sitharaman has said India needs more banks the size of State Bank of India, or even larger. By global comparison, our banking sector is small. It also needs efficiency. What happened to bank privatization?
Finance minister Nirmala Sitharaman has said that India needs more banks the size of State Bank of India, or even larger. “We need more SBI-sized banks. Maybe three times the size of SBI. Because SBI is also not in the top 10 (globally)," Sitharaman said in an interview with Mint.
The size of our banks, as measured by assets, has long been in discussion. As our economy grows, lending capacity must expand and large lenders can lend larger sums without asset-concentration risk. By global comparison, we still have a modest level of bank assets as a proportion of GDP. One way to enlarge banks is to push for consolidation, an approach taken earlier. In 2019, the government decided to merge at least 10 state-run banks to create four larger ones.
Also expected was a bank privatization programme aimed at raising efficiency in a banking sector with a long history of state dominance since Indira Gandhi’s bank nationalization in 1969. But plans for this have languished. Perhaps no urgency is felt to de-nationalize banks, given that these do serve policy aims. Efficient allocation of capital, however, would ask for a smaller government role in banking, which means reduced ownership and control.
