Bank Consolidation & Voting Caps: ICRA Analysis

Mumbai, Mar 10 (PTI) A government-appointed high-level committee on banking for Viksit Bharat could look at issues such as consolidation among lenders and foreign investor voting caps, according to Karthik Srinivasan, senior vice president and group head - financial sector ratings at ICRA.

"The basic premise is that the government is of the belief that you need large size institutions to cater to the demands," Srinivasan said, adding that India may require bigger banks to support domestic growth rather than relying entirely on foreign funds.

He said the panel may examine "consolidation, voting patterns for foreign investors, there are caps today, and whether you are going to look at conversion of NBFCs into banks or allow them to remain large NBFCs".


On the debate around the 26 per cent voting cap for foreign investors in banks, Srinivasan said the final decision would rest with regulators and the government, though there have been instances where the central bank has allowed foreign entities to take higher stakes in Indian banks.

From a credit perspective, long-term strategic equity investments from credible foreign players are generally positive for the banking system, he said.

"If it's long-term patient capital, especially equity, from credible players, then we don't see why that would have a negative consequence," Srinivasan said.

On consolidation among public sector banks, he said there is no "right or wrong number" of state-owned lenders, and the outcome would depend on how effectively consolidation improves efficiency.