Large corporates will never be allowed to open a bank in India, veteran banker N Vaghul has said. Vaghul said India has learnt from its pre-bank nationalisation experience and will never repeat the same mistakes by allowing large corporations into banking.
In the last round of licensing before it was made on-tap, a slew of corporates had unsuccessfully applied for a banking license. Two years ago, a RBI discussion paper made a case for allowing the large corporations because of their ability to get capital which will in turn fund economic growth. That discussion led to a raft of criticism by many, including former RBI top brass, and did not move ahead.
Speaking to reporters, Vaghul suggested that the capital needed for economic growth will come from the public, which is keen to invest in a lender which is run professionally. Industrial houses “cannot be banking”, Vaghul said, recalling the past experiences with them and how state ownership of banks became popular. “There used to be a talk about, even in professional banking circles, that things are not alright in the banks which are owned by the industrial houses.
“I don’t think this country will have a repetition of that. It will be all professional banking,” he told reporters on the sidelines of the launch of “Reflections”, his memoirs, last Friday. In the next decade, banking will be all digital and there is a chance that legacy banks can be unbundled, he said, adding it will be entirely Fintech oriented.
Vaghul said there is a need to take the state control out of banking, reminding that Prime Minister Narendra Modi had made it clear that the state has no business being in any business in 2014 itself. The 87-year-old, who formerly headed ICICI, however, did reply when asked about the promise not fructifying even after nearly a delay of Modi being at helm. “He (Modi) did not envisage the state to be a part of the business. That has to be translated into reality now,” Vaghul said.
Vaghul also hoped that the government will move ahead on its stated goal of privatising state-run banks made in a budget two years ago. Privatisation can help professionalise boards and get better selections of the chief executives, he said, pointing out that this helps the credibility of banks and once that is established, accessing funds from the public becomes easier.
Going forward, the private sector banks’ play in the financial sector will grow so fast that automatically the heft of public sector banks will keep moving down. There is a need for all the banks, including the regional rural banks as well, to adopt technology much faster, he said.
“The future is going to be very different. Speed with which everything is changing… banking in ten years time will be all digital,” he said, adding that this period can also see legacy banks get unbundled as well. “It will be all Fintech oriented where loans will be granted online, with very few customer contacts,” he added. A few years ago, consolidation was said to be the panacea for the issues in banking, Vaghul said, adding that consolidation is not an answer anymore