India needs to trim its bloated banking sector: CEA Subramanian

A healthy system has between three to five public and private sector banks.

Outgoing Chief Economic Adviser (CEA) Arvind Subramanian is of the opinion that India’s banking sector needs to shed off some unnecessary weight by cutting down on the number of public sector banks (PSUs) in operation.

"India should have just three to five public sector banks and as many private sector banks," he said in an interview to ToI. 

Also read: India mulls consolidation of state banks

There are a total of 21 PSU banks in India, according to the Department of Financial Services. This includes Punjab National Bank (PNB) which has been at the heart of a $2b fraud after diamond merchants took off with the money financed by fraudulent loans from rogue bank staff.  

"I think there should be more private sector banks and probably fewer banks. A healthy system is where we have three to five public sector banks, three to four private sector banks and one or two foreign banks," added Subramanian.

Public sector lenders are not exempt from the fate that doomed PNB as the country's PSUs have incurred an accumulated $3.81b (Rs25,775 crore) loss in the financial year 2017-18 due to a slew of banking frauds crippling the financial sector, according to a Right to Information reply. 

Photo from Kabi1990 - Own work, CC BY-SA 3.0