India doesn't need so many public sector banks, says former SBI chief

The former SBI chief opined that digital currency will have to be on a different kind of platform with only the central bank issuing it or mining it and attributing a value to it

Arundhati Bhattacharya, former chairperson of State Bank of India. File | Photo Credit: H.S. Manjunath

India needs 'fewer' but stronger Public Sector Banks (PSBs), and the smaller ones could be privatised or merged, former SBI chief Arundhati Bhattacharya has said.

Ms. Bhattacharya further said much of the goals that are expected to be achieved through the privatisation of PSBs can also actually be achieved by enabling the State-owned banks and by levelling the playing field.

"The thing is, privatisation has never been the answer to all the ills," she told PTI while responding to a question on former RBI governor D. Subbarao's suggestion that the government should come up with a 10-year road map for privatisation of all PSBs.

Mr. Subbarao had recently suggested that the government should come up with a 10-year road map for the privatisation of all PSBs as it would provide much needed predictability to stakeholders.

"I don't really believe that we need so many public sector banks either, the number of PSBs could be decreased.

"Some of them could be privatised. And maybe you know, the stronger ones could still remain public sector banks," said Ms. Bhattacharya, who is currently the chairperson and CEO of Salesforce India.

In 2020, the government merged 10 nationalised banks into four large lenders, thereby bringing down the number of PSBs to 12.

While observing that even at this point of time PSBs are not enabled enough, she asserted that wholesale privatisation of State-owned banks is not the answer.

Mr. Subbarao had also said that the big bang approach to privatisation of public sector banks is not desirable but at the same time the issue should not be put on the back burner.

In the Union Budget for 2021-22, the government announced its intent to take up the privatisation of two PSBs in the year and approved a policy of strategic disinvestment of public sector enterprises.

The government think-tank NITI Aayog has already suggested two banks and one insurance company to the Core Group of Secretaries on Disinvestment for privatisation.

On NITI Aayog's proposal of setting up full-stack digital banks, Ms. Bhattacharya said the people in the age group between 17 and 25 seem to be okay with not having brick-and-mortar branches of banks.

"Now, if the customers are there...then at some point of time this [digital banks] will come into play," she said.

Ms. Bhattacharya recalled that in 2010, she had approached the RBI seeking a license of this sort and she was told that there was no such proposal or no such thought in the offing.

While admitting that even though there are a lot of risks in setting up full-stack digital banks, she said, "The change is inevitable. You may try to stop it, you may try to delay it. But you can't stop it altogether."

Recently, Niti Aayog had said India has a technology stack to facilitate digital banks and there is need for creating a regulatory framework for promoting this.

The Aayog, in its report titled 'Digital Banks: A Proposal for Licensing & Regulatory Regime for India', had made a case and had offered a template and road map for a digital bank licensing and regulatory regime for the country.

Replying to a question on RBI's proposed Central Bank Digital Currency (CBDC), she said the launch of CBDC this year will be a big step.

"But the digital currency as it exists today does not inspire confidence," she said.

Noting that one of the biggest attributes of currency is that people holding it should be confident of its value, Ms. Bhattacharya said digital currency the way it is now is more like a commodity.

The former SBI chief opined that digital currency will have to be on a different kind of platform with only the central bank issuing it or mining it and attributing a value to it.

The RBI has proposed to launch CBDC on a pilot basis this year, as announced in the Budget by Finance Minister Nirmala Sitharaman.

In the Union Budget for 2022-23, the Finance Minister had said the RBI would roll out a digital currency equivalent to the rupee in the current financial year.