Large banks, FI necessary for funding infra plans: Vaghul

With the demand for funding infrastructure projects pegged at $1 trillion, the regulator and the government should allow new large-size banks and financial institutions in the country, according to N Vaghul, chairman emeritus of ICICI Bank.

At the same time, he voiced reservations about using the merger route to consolidate the existing banks to form large banking entities. It would only create a few banks, too big to fail, and create concentration risks (regarding exposure), Vaghul said while addressing a function organised by the Indian Institute of Banking and Finance here on Thursday.

Banks and a mature financial system would evolve over time with a strong regulatory oversight. These banks could work in specialised areas and would get operational freedom and exemption from priority sector lending norms, he added.

Lack of depth in financial markets was hurting rural India and financial inclusion as well, Vaghul said. Those in rural areas remained highly indebted and continued to be at mercy of money lenders. Now farmers’ suicides are also posing a challenge. While micro finance institutions can play a role in financial inclusion they are covering only small section of population, he pointed out.