India Aims for Large-Scale Banks to Propel Economic Progress

Post by : Bianca Suleiman

New Delhi: India is moving towards the establishment of larger, world-class banks that can meet the capital requirements of its rapidly expanding economy. Finance Minister Nirmala Sitharaman announced on Thursday that the government is in active discussions with the Reserve Bank of India (RBI) and commercial banks to pave the way for the next phase of banking reforms.

“We require a number of large, global-standard banks,” Sitharaman stated at the 12th State Bank of India Banking and Economics Conclave in Mumbai. She noted that dialogues regarding subsequent steps have already commenced.

The government is considering various strategies, including the merging of current lenders and the formation of new institutions, to create stronger banks capable of financing infrastructure projects and enhancing credit availability. Major consolidations have already occurred within the public banking sector over the past several years. In 2017, SBI merged with its associate banks, and in 2019, ten public sector banks were consolidated into four, reducing the number of state-owned banks from 27 to 12.

In addition to consolidation, Sitharaman underscored the necessity of a nurturing banking environment. She stressed the importance of maintaining the “human touch” in customer interactions by employing staff members knowledgeable in local languages and cultures. Furthermore, she called for the simplification of loan processes for MSMEs, advocating for decisions to be informed by local insight rather than excessive documentation and outsourced credit evaluations.

On the technological front, the finance minister reaffirmed India’s careful approach to regulating artificial intelligence (AI), aiming to balance innovation promotion with national security concerns. The government’s ₹1 trillion Research, Development, and Innovation (RDI) fund is also expected to enhance private sector innovation, complementing the comprehensive banking reforms.

This initiative to develop larger, more efficient banks coincides with growing optimism regarding India’s economic outlook, spurred by recent GST reforms and an increase in private sector investments. By establishing financial institutions that meet global standards, India aims to maintain its growth trajectory while supporting significant infrastructure and credit expansion initiatives.