Bank mergers before privatisation is one of three biggest headlines from RBI governor Shaktikanta Das’ interviews

• Shaktikanta Das told the Times of India that public sector banks have certain social and macro-economic responsibilities and the ongoing consolidation model should be given time.
• ‘NBFCs with governance issues will be treated differently with intense regulations.’
• The earlier light-touch approach will have to be suitably modulated in keeping with today’s requirements, Das said on NBFCs.

The RBI governor would like to merge and reduce the number of government banks before any talks of selling them off to private players. While Shaktikanta Das said that the decision to privatise banks lies with the government, he also lent voice on the issue.

“The questions of privatisation, etc, can be addressed later. Now, we have to focus on the model that has been adopted (of large, consolidated banks),” Das told Times of India. He added that the public sector banks have certain social and macro-economic responsibilities and the ongoing consolidation model should be given time.

India had 21 government banks in 2018 before the mega merger of Vijaya Bank and Dena Bank with Bank of Baroda. In 2017 too, SBI merged with five of its affiliates and Mahila Bank. The government intends to merge banks and create at least four global-sized banks.

In the Budget, finance minister Nirmala Sitharaman said that they brought down the number of government banks by eight. The government is reportedly considering a fresh round of mergers too.

India has a large number of public sector banks after a historic decision by former Prime Minister Indira Gandhi to nationalise 17 private banks, and bring it under the government wing.


Curbing a crisis

Das intends to keep non-banking financial companies (NBFCs) on a tight leash. A crisis has been unfolding in India’s shadow banks or NBFCs-- the ones that lend money but do not take public deposits-- since the crash of the gigantic IL&FS, which made loans to infrastructure projects. Not only has it caused a cash crunch in the system, but also revealed a lot of dirt in governance in these companies.

“The earlier light-touch approach will have to be suitably modulated in keeping with today’s requirements and anticipated developments,” said Das. A few weeks back, in the Budget, Sitharaman armed the RBI with ‘more powers’ to tackle NFBCs and the crisis that has been unfolding over the last many months.

With financial stability high on his mind, Shaktikanta Das told the Times of India that those NBFCs with governance issues will be treated differently with intense regulations. At the same time, he also said that NBFCs in general will be provided liquidity support, as banks have stalled lending to them after IL&FS turned insolvent last year.

He however denied the sector’s request to gain ‘clean, unsecured money’ directly from the regulator.


Accomodative stance

When asked about a possible cut in base rates yet again, Das said that they have already provided the market with 75 basis points rate cut. Added to that, they have taken an ‘accomodative stance’ which itself implies another 25 basis point rate cut, taking the effective cut to 100 basis points. This, according to him is ‘adequate’ liquidity which is being sent into the system.

RBI, under Das’ stewardship is working with the government to ensure growth and ‘accelerate economic expansion’. Its efforts are in sync with that of government to make sure there is credit growth. “I believe in having consultations with all stakeholders and the government is much more than a stakeholder,” he told TOI.