India needs a larger banking system with “many more banks” and more competition in the banking sector, Manish Sabharwal, Chairman and Co-founder, TeamLease Services Ltd, and Director at Central Board of the Reserve Bank of India (RBI), said in an E-XPLAINED session organised by The Indian Express Wednesday. Stating that India needs to double its credit-GDP ratio to 100 per cent, Sabharwal also listed out the need for governance reforms in public sector and private banks along with strengthening regulation and supervision at the RBI.
“Need a sustainable way to raise the credit-GDP ratio through five measures: need more competition in banks. We had 94 banks in India in 1924, 97 banks in 1947, today we have 95 banks, we have clearly not moved the number of banks, so you need many more banks. Second, we need to fix the governance in public sector banks, shareholders are so powerful that the board and management are weak, we need to fix the governance in private banks where the CEO is so powerful that the Board and shareholders are weak. Next, you need to raise your game in regulation and supervision at RBI. Fifth, we need to stop treating non-banks as stepchildren, UPI took off when non-banks became the rocket for UPI…,” he said.
On the issue of providing finance to MSMEs, Sabharwal said the RBI should not force banks to lend to the sector as the NPA issue may worsen in the years ahead. “MSME lending in India is not a 2, 3 per cent NPA business, it is a 15, 20 per cent NPA business sometimes, so I don’t think the RBI should force banks to lend, you can hit them with a big stick now and make them lend, and then we’ll take a bigger stick and hit them for NPAs three years from now.”
Sabharwal said that the coronavirus pandemic phase has provided India with a “policy window”. “… institutional reforms, capacity building reforms take a lot of time. I hope that in the 90 days after lockdown we focus on flick-of-pen reforms because they are the lowest hanging fruits … civil service reforms, banking reforms, education reforms will take a long time, all of them are important, but ease of doing business, labour law reforms are flick-of-pen reforms which should absolutely be at the top of the agenda,” he said.
He, however, added that labour law reforms does not mean no labour laws but India must evolve its labour laws. States have recognised that they can amend central labour laws using Article 254(2) of the Constitution and this is one of the flick-of-pen reforms that should be on top of the agenda.
Sabharwal said the binding constraint for companies is not labour, but to get back consumers, and the complete end of the lockdown.
“In the 12 months, we will be back to our trajectory of 4-6 per cent growth after the lockdown is lifted for various reasons … we need to shift our focus from financial year ‘21 to say what will happen in the 12 months from the lockdown and I think in that case we’ll be back to our growth trajectory but I hope we would have got rid of many of the structural constraints which have held India back. India and China had the same per capita GDP in 1997, today they have 5 times more than us and this virus has proved that the Indian welfare state does not lack intentions, it lacks resources,” he said.
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