India will have 8-10 very competitive public sector banks once the "dust settles" and the consolidation phase ends, Union Minister Jayant Sinha said today.
Currently, there are 27 state-owned banks in the country.
"We are doing all the things necessary to really ensure that these banks are vibrant, are competitive and a huge sort of reform agenda we have underway for the banks right now... and of course we are now in the third phase of that," the Union Minister of State for Finance said.
"We have gone through governance and management reforms, we have gone through the asset quality review...And now we are in the consolidation phase where we are really trying to ensure that at the end of this consolidation phase, we have a set of competitive banks," Sinha said, speaking at an event organised by Indian Software Product Industry Round Table (iSPIRT) here.
"We have 27 public sector banks right now. When the dust settles, I think we will have may be eight or ten very competitive banks. Some of them are going to be large scale global players, some of them are going to be differentiated banks," he said.
What the country needs at the end of the day is to ensure financial inclusion does not suffer and at the same time we have competitive institutions, he said.
He added that if we let our public sector institutions like banks, Air India, BSNL/MTNL languish so that they are not competitive, it is akin to a "de facto privatisation".
"In this de facto privatisation, rather than the value of those enterprises built up over decades with public money going to the public, it goes to the disruptive entrepreneurs or whoever it is who are able to take share away from these public sector enterprises...," he said.
"There will be de facto privatisation of wealth. We may have some billionaires because of this, but ultimately it is people who will be suffering," he said.
Recalling Prime Minister Narendra Modi's message about the role of government as a trustee of people's wealth, Sinha said, "As the trustee of people, we can't let all the value in the public sector go into the private sector because that contributes to inequality and uneven distribution of wealth.
ISPIRT had organised a discussion with Sinha as part of
its programme to launch a "policy hack" that aims to demystify policy announcements and regulatory framework for startups and entrepreneurs.
Responding to a question, Sinha said the problem with public sector banks in India was that they have "massive" fixed costs and 75 per cent of it is labour.
The market share of public sector banks is dropping quite "dramatically" and the process of people shifting from public to private sector is going on, forcing public sector to respond, he said.
In response to another question regarding overall financial well-being of citizens, Sinha said, "We are trying to operate in two tracks. Securing the population at basic level and providing ample room for innovation, new products."
On online-only digital banks, he said, "You will see more of that."
Speaking on the entrepreneurial ecosystem, Sinha said we have to create not just a globally competitive economy, but also an innovation-driven system.
"....Just like the US is the entrepreneurial engine for top one billion people on the planet, India must be the entrepreneurial engine for the next six billion people... We do not have a choice in this matter. We have to do it not just for India, but world at large," he said.
Stating that 95 per cent of venture capital in India comes from overseas, Sinha said to be an innovation-driven economy, we have to build up our own domestic venture capital industry and institutions.
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Sinha was also asked a question on the tussle between IIM-Ahmedabad and Flipkart regarding joining dates of some students from the institute.
"We know what just happened with Flipkart. What do you think is going to happen in the IIMs and IITs now? Do you think anybody is going to want to work for a startup? Everybody wants job security... But for the government its not a job, it's a service," he said
Later, Sinha along with Union Urban Development Minister Venkaiah Naidu reviewed Mudra, Jan-Dhan Yojana and pension schemes with bankers here.
They also distributed loans to small entrepreneurs.
"Karnataka has met 200 per cent of its Mudra target. Mudra loans worth Rs 8,984 crore were given in 2015-16," he said.
He also said the number of inactive accounts in Jan-Dhan Yojana has come down "drastically".
