RBI foresees four distinct sets of banks over the next decade: Shri Shaktikanta Das

Today, the Governor of RBI Shri Shaktikanta Das, in his address at the India Economic Conclave 2021 organized by the Times Network in New Delhi. “Today, the Governor of RBI Shri Shaktikanta Das, in an address at the India Economic Conclave 2021 organized by the Times Network in New Delhi and chosen to speak about Financial Sector in the New Decade.  He said “I choose on a subject in which the Reserve Bank has a major stake – “financial sector in a new decade”. Contextually, it is important to bear in mind that unlike the global financial crisis (GFC) of 2008 when financial sector vulnerabilities impacted the real sector, this time the risk of contagion is from the real sector to the financial sector”.

The Reserve Bank is striving towards a more competitive, efficient, and heterogeneous” banking sector with four distinct sets of banks dominating the landscape over the next decade, he said. There will be large banks having presence across the country and the world, mid-size banks present across the economy, small finance banks/regional rural banks/cooperatives to take care of the small borrowers and digital players, he said. The licensing policies for universal banks, small finance banks (SFBs), and payments banks are a step in this direction, he said.  At present, there are ten small finance banks and six payments banks which are operational. “I foresee four distinct sets of banking landscapes emerging in the current decade. The first set will be dominated by a few large Indian banks with domestic and international presence, the second will be mid-sized banks with economy-wide presence, while the third set would encompass smaller private sector banks, SFBs, regional rural banks, and co-operative banks, which may specifically cater to the credit requirements of small borrowers and the fourth segment would consist of digital players who may act as service providers directly to customers or through banks as their agents or associates, the Governor said.  He further said that such players would increasingly emerge as “critical pieces” across all segments.

The Governor added that maintaining the health of the banking sector remains a policy priority, adding strength to a banking system depends on building its capital base while at the same time focusing on corporate governance and ethics-driven compliance culture. “Banks and NBFCs need to enhance their skillset to identify risks early, measure them, mitigate the risk proactively and build up adequate provisioning buffers to absorb potential losses. They should also augment their internal stress testing framework with severe but plausible stress scenarios,” he said.

While concluding his address at the conclave he said “Going forward, banks need to address the financing needs of new sunrise sectors without undermining the traditional sectors of the economy. This conclave gives us an opportunity to look back on what has been accomplished and deliberate on what still needs to be done. I wish to reiterate that we at the Reserve Bank are fully committed to using all our policy tools to secure a robust recovery of the economy from the debilitating effects of the pandemic. The Reserve Bank remains devoted to building an enabling environment to develop the financial sector and create necessary preconditions for growth while preserving financial stability.”