Deepak Parekh seeks further consolidation of PSU banks, increase in FDI cap to boost GDP growth | Today’s news
Mumbai: Seasoned banker Deepak Parekh on Monday proposed banking reforms, including further consolidation in public sector banks and raising the foreign direct investment (FDI) cap, to support India’s ambition to become a $30 trillion economy by 2047. The economy will need to expand seven to eight times over the next two decades, he added, to achieve this goal.
The former chairman of HDFC Ltd said reforms should be done “when the sun is shining”, pointing to banks’ gross non-performing assets (NPAs) of less than 2%, the lowest in decades.
“Public sector banks have already consolidated, but there is a case for further consolidation,” Parekh said, adding that the government has indicated it is working in that direction.
Speaking at the 118th Annual General Meeting of the IMC Chamber of Commerce and Industry in Mumbai, he said higher FDI limits in public and private sector banks will bring in the additional capital needed to fund India’s next phase of growth.
Finance Minister Nirmala Sitharaman had said in February that the proposed high-level committee on banking for Viksit Bharat would look into various sectoral issues, including consolidation. However, the government says there is no plan yet for another round of public sector bank mergers.
The number of Indian state-owned banks has shrunk from 27 in 2017 to 12 by 2020, with 10 banks being merged into 4 entities under the government’s consolidation programme.
Parekh’s remarks on FDI are in line with discussions between the finance ministry and the Reserve Bank of India to raise the ceiling for public sector banks to 49% from 20%. Private sector banks can accept up to 74%.
He also called for deeper debt markets, saying the corporate bond market should double from around 18% of gross domestic product (GDP), and also welcomed the recent tax exemption for foreign investors in government securities.
In capital markets, Parekh described the nearly USD 50 billion foreign portfolio outflow over the past 18 months as a temporary phenomenon and said monthly mutual fund SIP inflows of around ₹30,000 crore helped to support the markets.
On the issue of artificial intelligence (AI), Parekh said the technology is “not a doomsday scenario” for the information technology services sector, but stressed that India must continue to create 10 million jobs a year.
On the geopolitical scenario, he said India remained structurally strong on the domestic front even as global uncertainty increased.
