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There is a need to rethink the banking structure in the country to enable financial inclusion as well as support growth of industry, according to Naina Lal Kidwai, President of the Federation of Indian Chambers of Commerce and Industry (FICCI).
Speaking to Business Line , Kidwai said the country needs a banking system that is big and specialised.
“Unless you have a bigger banking sector, you cannot support growth of industry. As long as companies go to the capital markets to raise money, they are fine. But if you ask them only to borrow money from the banking sector, then there is not enough money for them. That is the sad state of affairs,” Kidwai, who is also the Country Head-India of HSBC, said. Reflecting on the dominance of public sector banks in the country’s banking space, the FICCI chief said there are very few countries where 75 per cent of the banking system is concentrated in the hands of the government.
“We have good, solid banks in the system, but do we need Government owning 75 per cent of the banking sector? Isn’t 30 per cent of the total banking sector in government hands enough?” she asked.
Public sector banks must be allowed to go to the markets and raise money at a time when it is right for them. It should not be when the Government thinks that it needs money.
Else, we have a situation where all PSBs go to the market together, she said.
“Private sector banks are capitalised at 19 per cent, while public sector banks are capitalised at only eight per cent. Prudential norms suggest 12-14 per cent capitalisation,” she pointed out.
Emphasising the importance of having more specialised banks, Kidwai said such banks will make lending more efficient. For example, there can be banks that are good at agricultural lending. Right now banks are required to do everything.
“Here you have to do rural lending, even if you have not lent to rural areas anywhere else in the world,” she said.
This, she said, adds to inefficiency and today priority sector lending is a very high cost operation for the banking system. That cost means the price at which a regular borrower borrows goes up as someone has to bear the cost.
“Allow other banks to lend to banks, which are specialised and good in a particular area like agriculture, in order to meet their obligations,” she said.
>satyanarayan.iyer@thehindu.co.in
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