Banking Sector Is Holding Back India’s Growth, Says Chief Economic Adviser - Banking News


Wednesday, July 22, 2020

Banking Sector Is Holding Back India’s Growth, Says Chief Economic Adviser

Banking Sector Is Holding Back India’s Growth, Says Chief Economic Adviser

The banking sector is holding back India’s growth, and focus should be to scale up that segment, said Chief Economic Adviser Krishnamurthy Subramanian.

A big reason for the current slowdown is because of problems in the banking sector such as soured loans, risk aversion, and an impact of a decline in corporate lending on investment, Subramanian said at an event organised by industry body Federation of Indian Chambers of Commerce & Industry on Wednesday. The decline in investment has slowed down growth with a lag, impacting consumption, he said.

“We have been caught in this ‘chakravyuh’,which is induced by the banking sector,” Subramanian said.

Any sizable economy has been built with large banks, “and this is one area where India lags spectacularly”, Subramanian said. A lot of work is required here as India has only one bank in global top 100 banks, and countries with one-sixth of India’s size like Switzerland and Singapore have far more large banks, he said.

India being the world's fifth-largest economy, according to the Economic Survey 2019-20, has only State Bank of India ranked 55th in the world, and is the only lender to feature among global top 100 banks. Given the size of the Indian economy, there should be at least six Indian banks in the global top 100.

Besides, Indian banks have a “scale and quality” problem, Subramanian said, adding “when we try to achieve scale, we actually do not lend in the right way by allocating capital to good projects.” When banks lend to large corporates, they don’t end up doing a good job, he said.

Banks, according to him, need to use technology, data and analytics in lending. “By leapfrogging on technology, our banks can achieve both scale and quality.”

Timing For Fiscal Push

According to Subramanian, the timing will be right for the government to announce more measures or provide a fiscal push once a vaccine to cure Covid-19 is ready. The government is willing to do what’s necessary for boosting consumption, but the timing for this is extremely important.

If the vaccine to cure the pandemic comes in the next few months, the uncertainty will go down, he said. “Then the time would be very right for a fiscal push, which will generate the demand even for discretionary items.” The timing for the measures, he said, will be important “to ensure bang for the buck is maximised”.

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