Mumbai, Oct 21 (PTI) Reserve Bank Deputy Governor Mr Rajeshwar Rao said on Friday that the consolidation of public sector banks does not appear to have had a negative impact on their outreach or inclusive banking efforts.
The number of public banks has fallen from 27 (in March 2017) to 12 (in June 2022).
At the 12th RK Talwar Memorial Lecture, Rao said that India’s banking system had a very distinctive feature before and after liberalization.
Prior to liberalisation, India’s economy was largely a mixed economy, with the government playing a dominant economic role in planned development, he noted.
This economic structure was well aligned with the contemporary banking structure where public sector banks held about 90% of total banking assets in India, especially after two major episodes of bank nationalization (1969 and 1980).
The genesis of financial sector reforms in India could be traced to the recommendations of the Committee on the Financial System chaired by Mr Narasimham in 1991.
The Deputy Governor said that based on the recommendations of the committee, it was proposed to remove the dual regulation of banks, interest rates were largely deregulated and the statutory liquidity ratio (SLR) and reserve ratio (CRR) were reduced to increase production capacity. bank capital.
In addition, the banking sector began to reorganize with the entry of the private sector and foreign banks. The idea of introducing new lenders was to improve the competitiveness of the banking system for better allocative efficiency, Rao said.
He added that since the beginning of their activities, the private sector banks of the new era are increasingly contributing to the credit needs of the economy. Their share in total credit rose from around 3% in 1996-97 to 36% in 2021-21, he said.
Rao said the government has facilitated the consolidation of public sector banks in India over the past few years.
”The consolidation of public sector banks does not appear to have had a negative impact on their reach or inclusive banking efforts, as the total number of bank branches has remained largely the same (with minor reductions due to streamlining) before and after the merger,” he noted.
In addition, the Deputy Governor said that financial inclusion efforts have already transformed into a model led by business correspondents leveraging technology.
He further stated that at a broader level, to allow for a reasonable level playing field, there should be gradual convergence in terms of the operating space and flexibility available to each entity class.
RK Talwar was a legendary banker who ran the State Bank of India (SBI).
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