When Finance Minister Nirmala Sitharaman argues that India needs a few large banks capable of competing globally, the sentiment sounds intuitive. Scale, in theory, brings stability, competitiveness, and the muscle to finance big projects. Yet, in practice, this “size equals strength” narrative feels outdated in a world being redefined by technology, decentralised finance, and evolving credit models. India doesn’t need a few giant banks; it needs a new banking philosophy—one that focuses on reach, inclusion, innovation, and resilience, rather than consolidation and control.
Historically, banks were indispensable as repositories of savings and trust. They were the custodians of financial security, holding deposits and extending loans. But technology has disrupted this monopoly. Today, the repository function of banks has been unbundled. Digital wallets, UPI platforms, and fintech intermediaries have transformed how people store and move money.
Depositors no longer need to walk into a branch; the idea of a physical bank as a “place” has already become obsolete. What matters now is trust in systems, not institutions. The rise of Paytm, Google Pay, PhonePe, and even government-backed systems like BHIM and Jan Dhan-UMANG interfaces proves that India’s financial backbone is now digital, not brick-and-mortar.
If money can move seamlessly between a hawker’s QR code and a corporation’s ERP system, the argument that only large banks can support a complex economy loses its force. The function of “being large” is being replaced by “being agile.” The more the system digitises, the less advantage a monolithic bank has over a nimble one.
Large banks, by design, tend to become bureaucratic and risk-averse. All of us has experienced this when we walk into our friendly ( !) neighbourhood large bank branch. They favour secure lending—corporates over individuals, metros over hinterlands. Yet the Indian economy’s next phase of growth will come from small entrepreneurs, informal workers, and rural enterprises—segments that large banks notoriously underserve.
To serve this diverse base, India needs new financial incubators—specialised digital NBFCs, microcredit startups, regional co-operatives, and credit technology platforms. These entities can assess risk through new data sources—GST filings, mobile transaction patterns, and AI-driven credit scoring—beyond the rigid traditional models used by large banks.
If the government wants to create a financial ecosystem that is both inclusive and growth-oriented, it should nurture these new-age lenders instead of encouraging further concentration of financial power. The focus should be on multiplying banking models, not merging them.
At its core, banking must now be about two things: reach and credit. Everything else—size, legacy, branding—is secondary.
• Reach means access to financial services in every panchayat, every gig worker’s phone, every women’s SHG, every MSME cluster. Digital infrastructure has made this possible; what remains is the imagination to redesign policy around it.
• Credit means enabling productive capital. True financial empowerment is not about subsidised accounts or direct transfers—it’s about affordable, timely, and relevant credit that fuels livelihoods.
Large banks, unfortunately, are poor at both. They remain urban-centric and conservative in their credit portfolios. Despite decades of priority sector lending norms, most small entrepreneurs still depend on informal lenders charging double-digit interest rates.
Instead of building “large Indian banks,” we need a large Indian banking network—a web of interoperable, tech-enabled institutions that can deliver credit where it is most needed. This model aligns with the government’s Digital India vision and harnesses the full potential of platforms like the Account Aggregator framework and Open Credit Enablement Network (OCEN).
The Reserve Bank of India (RBI) has historically played the dual role of regulator and protector. But in this new era, it must evolve into an enabler and a risk-prevention architect, not merely a gatekeeper.
If India’s financial system is to become more dynamic, the RBI should focus on enabling safe experimentation—for example, regulatory sandboxes for credit innovation, dynamic capital adequacy rules for small digital lenders, and real-time supervisory technology to prevent systemic risk.
Rather than forcing smaller banks and NBFCs into mergers in the name of stability, the RBI can instead build a framework that encourages competition with safety nets. Technology allows continuous monitoring of capital buffers and risk exposures, making “too big to fail” logic outdated.
The regulator’s mission should shift from “building big institutions” to “building strong systems.” And the regulator must not underthink the social media narrative too , which drives much of the financial thought across the board . Your cab driver to the airport asking you about SIPs, the sabjiwala asking pointers for opening a PPF account for his daughter's marriage, are signs that the financial inclusion through social media has taken a role that cannot be controlled and probably should not be.
If I was the Finance Minister, my “Chintan Shivir” with the RBI would be to imagine the next ten / twenty years of social transformation to think of what banking needs to do to serve our citizens. We are in a unique place to leapfrog all legacy, if we have the appetite for it. We could get size, but not if we drive size, but if we drive innovation and service and I reckon, capital for this would never be a problem .
Watch this space.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication. |
