Jesus replied: “ ‘Love the Lord your God with all your heart and with all your soul and with all your mind.’ This is the first and greatest commandment. And the second is like it: ‘Love your neighbor as yourself.’ All the Law and the Prophets hang on these two commandments.” Matthew 22:37-40

13 Mar 2016


Just when the government and the Reserve Bank of India are considering a bouquet of solutions including consolidation to revive the health of public sector banks hit by bad debts, one of the top international financial journalists and analysts Martin Wolf has warned that "consolidation doesn't solve the problem of a bad banking sector" but it "could lead to monopolies".

Speaking to NDTV on the sidelines of the Advancing Asia Conference by the International Monetary Fund and the Ministry of Finance, Mr Wolf said India has too many public sector banks and the banking sector needs to undergo a sea change and consolidation is clearly not the best solution. India needs less public sector banks hence some consolidation would make sense but privatisation could be a better solution for India's ailing financial sector. There is a need to improve efficiency in the banks which can be done by amending labour laws, he said.

During the second season of Bankers' Retreat in Gurgaon last week, the idea of bank consolidation was discussed at length between officials from the Finance Ministry and the RBI, and the bankers. At the end, Finance Minister Arun Jaitley said that the government is working to set up an expert panel for the consolidation process.

However, Mr Wolf said that if a couple of bad or weak banks are merged to form another bank, then even that Big Bank would remain bad hence there is a need to incentivise the banks to be able to perform better in the future.

While through the RBI's asset quality review, most of the stress in the banking sector has been identified, there is now a need to prepare the banks for a better future and for that privatisation would be a better option than consolidation.
He also mentioned former Prime Minister Indira Gandhi and said, "Indira Gandhi nationalised all the banks, that was a mistake and that needs to be reversed to have a more efficient financial system for future."
He spoke on a range of subjects. He also listed the main short-term issues that India needs to fix urgently. He said India needs to make its tax system more efficient, improve the ease of doing business and get efficient via GST (Goods and Services Tax).
As a prescription to make things move, he suggested public sector investment in a big way.

Mr Wolf praised the NDA government for correct policy initiatives but in what may be a criticism of the Centre's crackdown on protesting students especially in JNU where students were charged with sedition, he said, "Students can be very very irritating, but you have to put up with it, they will grow out of it. If you crack down too far, you will threaten the freedom of speech."

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