RBI Governor Expects A Four-Tier Banking System In Coming Years

India may witness a diversification in its banking sector in the coming years as the lenders embrace technology, according to Shaktikanta Das.

The nation will see a very different banking sector, which can be split into four levels, the Reserve Bank of India governor said at the Annual Banking Conclave organised by the Mint newspaper on Monday.

The segments, according to Das, will include:

First segment: to comprise of large traditional banks with domestic and international presence. This would be encouraged after the merger of 10 public sector banks, as announced by the government last year.

Second segment: to comprise of several mid-sized banks and some niche banks spread across the country.

Third segment: to include small private banks, small finance banks, regional rural banks and cooperative banks that cater to smaller borrowers.

Fourth segment: to comprise digital entities as well as financial technology companies that serve as agents or associates of larger banks to spread services to the bottom of the pyramid.

“The reoriented banking system will of course be characterised by a continuum of banks,” Das said. “The banking space will also include traditional players with strong customer base and new technology-led players.”

According to the RBI governor, well planned consolidation of public sector banks can generate synergies in allocation of workforce and branches as well as streamline operations to meet future challenges. The focus, Das said, has to be on ushering in significant improvements in efficiency and rationalisation of scarce capital to meet the capital adequacy requirements.

At the same time, investments in technology and skill building has to be stepped up. “Bigger and agile banks may be able to reposition themselves with better branding, backed by improved technology, skills and business models.”

Regulatory Scrutiny

Commenting on concerns over supervision and regulation of large and complex financial services businesses, Das suggested the supervisory regime will be tightened.

“The changing landscape of the banking industry will unfold against the backdrop of a strong regulatory and supervisory regime with increased intensity and tech-enabled supervision of banks,” he said.

The RBI, Das said, is engaging with various stakeholders, including statutory auditors, credit rating agencies, credit information companies, mutual funds and banks having large exposures to non-bank financial companies.