The reason banks merged even before the pandemic was to meet the new, changing and growing demands of the economy, Sitharaman said at an annual meeting of the Indian Banking Association.
“The economy is shifting to a whole different level,” said Sitharaman. “Even before the pandemic, the driving force behind the merger (of banks) was that India needs a lot more banks, but a lot more big banks.”
She added, “The more we need four or five more SBIs in the country.”
She didn’t give any details. But the government has been consolidating state banks to combat the slowdown in the pandemic and create bigger and stronger banks, while also trying to sell and privatize its stake in at least two state-owned banks.
Last month, the State Bank of India reported a record profit for the first quarter, betting on a recovery in economic activity to curb a surge in bad loans, which would propel the state bank’s stocks to all-time highs.
Sitharaman praised banks that merged for successfully doing it during the pandemic without bothering customers, but said the banks’ internal systems must also be able to communicate with one another on a regular basis.
“You can’t be in digital silos anymore,” she added. “All of your systems should talk to each other.”
Banks are less burdened today as cleaner books reduce the government’s recapitalization burden, she added.
Domestic banks struggled to cap bad loans, especially on their retail portfolios, as the pandemic and resulting lockdowns hampered economic activity and constrained borrowers’ ability to repay.
The recently formed National Asset Reconstruction Co and Debt Restructuring Co together will be able to remove, restructure and sell non-performing assets (NPAs) from the banking system, added Sitharaman.
“This is not a bad bank. Because it is bank driven and because it is driven by a feeling of needing to clean up quickly, you have given yourself this framework that will help dispose of them responsibly (NPAs) quickly,” she said.
“It’s a phrase you gave yourself that I think will work and will work quickly.”
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