KV Kamath, the chairman of the New Development Bank, who has just completed his five-year tenure, says India needs large financial institutions to meet the growth aspiration of $5 trillion to $10 trillion in 10 years.
"What we need to do to get to $10 trillion GDP in 10 years? We need larger institutions for sure. As a first step, the aspiration is to get to $5 trillion, but if you look at $10 trillion in the next 10 years, there is a step change that is required," said Kamath who built the foundation of BRICS-focussed development bank in the last 5 years.
When we talk about the size of the banking system globally, the Chinese banking system is the largest in size in comparison with other countries and almost twice the size of its GDP, whereas the Indian banking system is far smaller.
An RBI internal working group has recently recommended that large corporate and industrial houses should be allowed to set up banks. The group has also recommended allowing well run large NBFCs with asset size of Rs. 50,000 crore and above, including those owned by corporate houses, to transform into banks.
India will need more private sector participation to prepare for the endeavours the country needs to undertake to achieve its economic goals. There will be large fund requirements to fund the growth in infrastructure financing. The MSME sector is another area where funds need to flow. The consumer or retail banking, too, is expanding at a fast pace in semi-urban and rural areas.
The Reserve Bank of India has strengthened its own supervisory capabilities in last few years. If the licenses should be given to corporates there must be some pre-conditions that have to be met in terms of strengthening the supervisory capabilities. It is undisputed that today we are able to move quickly to a time at least in the technological context where all these conditions can be met in the near term. So, we should be hopeful and be ready to welcome the drastic changes in our banking system in forthcoming years.
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