India intensifies efforts to extend its banking sector, aimed at fueling its rapid economic growth and getting closer to its $ 5 billion GDP target.
To carry out it, the government and financial regulators work on a strategic realization strategy by merging banks, new licenses and new regulations.
The goal? Establish stronger and more sustainable institutions and make them technologically healthy enough to finance large ticket infrastructure, extend the scope of financial services and attract foreign investors.
According to an analysis of Bloomberg, the global reshuffle of supply chains has given Prime Minister Narendra Moda a rare government perhaps an opportunity once in a generation to give life to its long-term vision.
But transforming this ambition into reality will not be easy. To achieve the daring objective of the India economy scale almost ten times at approximately 30 billions of dollars by 2047, a critical lever must be removed: credit.
Banking loans, which currently represent around 56% of GDP, would need more than double, going to almost 130% to fuel this type of economic jump.
Why India wants larger banks
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The economy should increase to 6.3% in 2024-2025, the momentum of India is based on a constant flow of credit, in particular in sectors such as infrastructure, manufacturing and services.
Responding to this request will require banks with a serious loan muscle.
Larger institutions are generally better placed to finance large -scale projects and navigate the complex risks that accompany them, which is more than a simple political preference, it becomes an economic necessity.
Currently, the State Bank of India is alone as the only local lender in the country with the weight to correspond to the global banking giants. But that may not be enough.
The main decision -makers, including the Minister of Finance, Nirmala Sitharaman, stressed the urgency of creating “four or five more SBIs”.
The idea is clear: if India hopes to position itself as a serious global financial center, its banking system needs more players with this type of scale and international competitiveness.
What is held on the way
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Indian banks, in particular those in the public sector, have long struggled with the burden of non -efficient assets.
While the recent reforms and the emergence of asset reconstruction companies have brought a certain relief, the shadow of questionable debts persists.
This overhang continues to constrain their ability to lend boldly and extend their balance sheets to the rhythm required by the economy.
Pradeep Saini, a senior official from a public sector bank in India, spoke with Invezz and underlined the issue of persistent questionable debts.
“Although we have made significant progress in cleaning bank balance sheets through reforms and mechanisms for reconstructing assets, the legacy of bad loans still weighs heavily. It is imperative that we continue to strengthen our financial institutions so that they can lend with confidence and support the extent of the growth that India aspires to achieve. ”
The government weighs the possibility of granting new banking licenses and opening the door to large companies of companies to enter the sector, but with property guarantees.
But the idea did not land without controversy.
Critics fear that this can blur the boundaries between trade and finance, increasing the red flags on conflicts of interest, weakening governance and the potential for cronyism if powerful business homes take control of loan institutions.
