A high-level committee on banking for Viksit Bharat is expected to examine bank ownership structures, seeking to build fewer but bigger lenders with sufficient balance sheet arsenal to power India’s entry into the elite league of developed nations that offer robust and reliable infrastructure, high per capita incomes and quality of life, and a financing ecosystem capable of undergirding long-gestation projects.
Besides the likely consolidation of smaller government banks, the panel is also likely to review the longstanding issue of aligning voting rights with ownership stakes in private sector banks. That’s also expected to quicken the pace of consolidation, potentially sweetening the deal for overseas investors keen on running banks in India.
On Sunday, finance minister Nirmala Sitharaman proposed setting up the panel to undertake a comprehensive review of the banking sector and align it with India’s next phase of economic growth, while safeguarding financial stability, inclusion and consumer protection.
“The nature of the banking industry is undergoing a fundamental shift; beyond the rapid infusion of technology, the sources of bank deposits themselves have changed significantly over the past few years,” Amitabh Chaudhry, MD and CEO at Axis Bank, told ET. “This is an opportune moment for the Reserve Bank of India and the government to step back and reassess what next-generation reforms are needed.”
Prospective investors in the banking sector have been seeking a relaxation in voting rights, currently capped at 26%, to align them more closely with the ownership stakes held by promoters. The proposed committee is also expected to examine the 20% foreign direct investment cap in state-run banks.
Separately, the foreign ownership in some private banks may need to be brought down, as approvals were granted on a case-by-case basis.
A uniform approach
The panel could, therefore, review the need for uniform and transparent rules on foreign ownership, replacing ad hoc approvals with a more predictable regulatory framework.
“The two big issues plaguing the banking sector today are ownership of banks and the disconnect between ownership and voting rights,” Rajiv Anand, MD and CEO at IndusInd Bank, told ET. “I believe the committee that will be formed could deliberate on these issues, including how to position banks for the future.”
Bankers said that while the sector’s balance sheets are currently strong, a structural review could help improve capital deployment efficiency, strengthen risk monitoring frameworks, and address emerging balance sheet pressures.
“While the details of the committee are not yet known, what we understand is that it could consist of senior bankers and other experts with an aim to determine the scale and scope of the banking industry in line with the needs of a growing economy and the vision of Viksit Bharat in 2047.” Rajneesh Karnatak, MD & CEO, Bank of India, told ET.
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On Sunday, finance minister Nirmala Sitharaman proposed setting up the panel to undertake a comprehensive review of the banking sector and align it with India’s next phase of economic growth, while safeguarding financial stability, inclusion and consumer protection.
“The nature of the banking industry is undergoing a fundamental shift; beyond the rapid infusion of technology, the sources of bank deposits themselves have changed significantly over the past few years,” Amitabh Chaudhry, MD and CEO at Axis Bank, told ET. “This is an opportune moment for the Reserve Bank of India and the government to step back and reassess what next-generation reforms are needed.”
Prospective investors in the banking sector have been seeking a relaxation in voting rights, currently capped at 26%, to align them more closely with the ownership stakes held by promoters. The proposed committee is also expected to examine the 20% foreign direct investment cap in state-run banks.
Separately, the foreign ownership in some private banks may need to be brought down, as approvals were granted on a case-by-case basis.
A uniform approach
The panel could, therefore, review the need for uniform and transparent rules on foreign ownership, replacing ad hoc approvals with a more predictable regulatory framework.
“The two big issues plaguing the banking sector today are ownership of banks and the disconnect between ownership and voting rights,” Rajiv Anand, MD and CEO at IndusInd Bank, told ET. “I believe the committee that will be formed could deliberate on these issues, including how to position banks for the future.”
Bankers said that while the sector’s balance sheets are currently strong, a structural review could help improve capital deployment efficiency, strengthen risk monitoring frameworks, and address emerging balance sheet pressures.
“While the details of the committee are not yet known, what we understand is that it could consist of senior bankers and other experts with an aim to determine the scale and scope of the banking industry in line with the needs of a growing economy and the vision of Viksit Bharat in 2047.” Rajneesh Karnatak, MD & CEO, Bank of India, told ET.
