Exhorting the Indian BFSI sector to make a mark globally, Chief Economic Advisor K V Subramanian has said India should have at least six banks in the global top 100.
“It is a matter of mindset now, the mindset has to be one where we are not happy with just being lions at home and lambs abroad, we have to be lions globally as well, Krishnamurthy Subramanian said, delivering the keynote address at ETBFSI Summit.
Stating that India has to become a big player in the BFSI space in the next decade, he said the sector must seek inspiration from IT, pharma & sports.
BFSI sector needs to have that hunger which will also help the Indian economy, Subramanian said, adding, “Five Chinese banks are in the top 100 global, Swedish banks, American banks. There is no reason why our banks cannot be in the top 20 either.”
Ruing that India has only one bank in the global top 100 — SBI at 55th position, he said for the size of the economy, India should have at least six banks in the global top 100, some in the top 10 or the top 20.
Drawing an analogy with cricket, he said the Indian BFSI sector appears like the Indian cricket team of the 1990s which could boast a lot of victories at home but had nothing noteworthy outside the shores, globally.
The sector has to aspire to become like a cricket team under Sourav Ganguly, Mahindra Singh Dhoni or Virat Kohli where they’re achieving global recognition.
“The BFSI sector has to start mattering globally, their aspirations need to be scaled up. Aspiration has to be set, given the aspiration that India has set for the economy itself.”
Fixing problems
The CEA said India’s BFSI sector has a quality and quantity problem which needs to be fixed, especially when the Prime Minister has outlined Rs 100 lakh crore infrastructure building apart from the National Infrastructure Pipeline.
“Infrastructure will actually require the BFSI sector to be able to participate and thereby learn how to do high-quality lending without suffering the problem of non-performing assets, crony lending, evergreening of loans, gold plating of loans, all the kind of problems that we have witnessed in the Indian financial sector over the last decade,” he said.
He said the country has large corporates and large borrowers who end up borrowing but not repaying, and yet many times banks actually end up giving credit to the defaulters as well.
Observing that on the credit side India is far behind, he said, “The ratio of credit to private credit to GDP at about 58% is one-third of the global average of, close to 170 per cent.”
He said the BFSI sector should avoid the phenomenon of accelerating credit, and braking when bad loans mount, if credit expansion has to happen in a sustained manner to push economic growth.
“It is very important for credit expansion to happen at a consistent pace without the usual accelerator brake phenomenon that has been the characteristic of the Indian financial sector ever since liberalisation where, when the economy starts doing well, credit expands significantly oftentimes in the process. The credit underwriting norms are relaxed, and as a result, the seeds for a crisis are sown during good times,” he said.
Leveraging tech, data analytics
Underscoring the importance of technology and data analytics, Subramanian said banks and financial institutions which were very efficiently leveraging data and analytics had much lower bad loans, and their balance sheet expansion did not come under pressure. “Those banks were also able to grow consistently, and thereby contribute to the economy. That is the objective that the Indian BFSI sector must have,” he said.
The CEA said a lot of the private sector banks have used data and analytics for retail lending, but the usage of the same is very low for large ticket lending and SME lending. “The Indian BFSI sector should hire far more engineer MBAs to bring this technology driven in banking,” he said.
“In BFSI sector leaders need to be those that are technologically very well drained not only to be able to come up with models for retail lending, but also models for large-ticket corporate lending,” Subramanian said.
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