New Delhi: Finance Minister Nirmala Sitharaman said on Thursday that India requires big world-class banks to support the massive capital needs of the fast-growing economy, signaling a renewed push for consolidation and expansion in the country’s financial sector.
The government has started discussions with the Reserve Bank of India (RBI) and commercial lenders on how to shape the next phase of India’s banking development, she said.
“India needs a lot of big banks, world-class banks,” Sitharaman said at the 12th State Bank of India (SBI) Banking and Economic Conclave in Mumbai.
“For that we will have to sit down and talk to the Reserve Bank and the banks themselves to see how they want to take this forward… The work has already started,” she added.
The minister suggested that the government and the RBI explore several avenues, including mergers between existing lenders and the creation of new institutions, to build a financial force capable of supporting India’s expanding economic ambitions.
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“You need an ecosystem and an environment where more banks can operate and grow,” Sitharaman said, stressing that India’s banking environment needs to become more dynamic to keep up with the rapid growth in demand for credit and infrastructure finance.
The central government has merged several state-owned lenders over the past decade to improve efficiency and scale, although the minister hinted that further reforms could go beyond mere mergers.
India has already seen two major waves of public sector bank mergers, with SBI absorbing its associate banks in 2017 and then in 2019, when 10 such lenders were merged into four larger entities. These moves reduced the number of state-run banks from 27 to 12 now.
On 27 October, Mint reported that the central government is preparing a new plan to merge select public sector banks as it aims to increase the number of such lenders and streamline overlapping operations as part of banking sector reforms planned over the next few years.
On the technology front, Sitharaman said India is treading carefully in regulating artificial intelligence (AI), balancing the need to foster innovation with national security and ethical safeguards.
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“I actually have a lot of discussions about AI and AI regulation, both with RBI and NITI Aayog,” she said.
“At a time when artificial intelligence is opening up opportunities, we don’t want to regulate it so heavily that we stifle it. But if it remains completely unregulated, the implications for national security and abuse by misguided elements are very high,” she added.
Sitharaman said India will adopt a “soft touch” approach to AI oversight, encouraging innovation while remaining “nimble enough to fill any loopholes that may bring national risk into the picture.”
Regarding research and development, the finance minister reiterated that ₹1 trillion Research, Development and Innovation (RDI) scheme fund announced recently by Prime Minister Narendra Modi will also support private sector innovation.
“It’s not just limited to government-related research and development,” she said. “Private entities can also benefit from this fund,” she added.
Meanwhile, Sitharaman urged public sector banks to restore the “human touch” in customer service, particularly by deploying staff who understand local languages and communities.
“Technology can bring great benefits, efficiency, productivity and profit. But many earlier private banks that were later nationalized had that human touch,” she said.
Citing complaints from small borrowers, she added that excessive paperwork and external ratings hurt access to credit.
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“You can’t put the burden on the borrower to continue to prove and provide documents until death comes,” she said. Sitharaman urged banks to streamline processes and make more informed credit decisions on the ground.
“The credit rating of the customer, especially the MSME, will have to be your own,” she said.
“Whoever is published there will tell you who is trustworthy, who is reliable, who is authentic,” she added.
The minister said she would like banks’ performance evaluations to take into account staff’s ability to communicate with customers in the local language.
“Recruiting not just for numbers. Recruiting for understanding your customer,” she added.
Citing growing optimism about the Indian economy, Sitharaman also said that India’s strong consumption response to the next-generation GST reforms reflected citizens’ confidence in the policy changes.
“I see good private sector capacity building and lending to banks as well. It has started the biggest virtuous cycle for India,” she said.
“If it accelerates at this rate, the growth numbers may be what you want,” she added.
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