CIO: Is consolidation really inevitable in the banking sector?
Naina Lal Kidwai: Consolidation will happen and it is good that it is happening. India needs a bigger banking sector and that will come in two ways: More big banks and more banks in general. Consolidation is a natural process. Some banks outlive their utility and their strength comes in being absorbed by others.
You can have small banks which have every reason to exist because of the niche they serve. So, it doesn't always have to be just big banks. You need a variety of banks but at least two or three banks should make it into the top 50 banks in the world. This is not asking for much. For a large economy like ours, we need bigger banks that stack up in the context of global scale.
I am also pretty sure that we do not need 70 percent of the banking sector to be government-owned. That's a big problem for the government as it has to keep pumping money into these banks. Let the government own some--say the SBI--but why 70 percent of the banking sector?
There is certainly room for the government to shed some of the public sector banks, consolidate others, and allow for a mix of healthy private sector banks which provide a competitive landscape. Ultimately, competition is good for the customer and it definitely strengthens the banking sector.