The Case for Indian lending

Context: The global economic gravity shift to Asia combined with China’s contradictions provides an opportunity to create more financial institutions with an Indian “centre of gravity”.

Economic contradictions in China: Regulators cancelling the $35-billion Ant’s Initial Public Offering (IPO), captures the challenges of reconciling communist rule with free markets and entrepreneurship.

A case for more financial institutions with an Indian “centre of gravity”:

• Lack of capital: India has labour and land but not enough capital; India’s  Credit-to-GDP ratio is stuck at 50 %, while bad loans have exceeded Rs 10 lakh crore.

• Enhances competition: Foreign financial institutions can bring their technology, processes, and experience.

• Strategic implications: There has been an increase in the home bias for global bank lending, which represents the soft power just in the manner China uses its global banks to influence global finances.

•  Recently, Unified Payments Interface (UPI) crossed 2 billion monthly transactions demonstrates the opportunities ahead.

Way Forward: 

• Create a nationalized bank holding company: to replace the Finance Ministry’s Department of Financial Services, having no access to government services and governed by an independent board.

• Bring new banks: Licence 25 new full banks over ten year.

• Empower the Reserve Bank of India:  to deal with bank challenges earlier, faster, and invasively.

• Explore new eyes for banking supervision: that include differential deposit insurance pricing.

• Blunt regulatory barriers between banks, non-banks, and fintech: Financial stability and innovation are not contradictory; An airport can’t be regulated like a train station.

• Give more freedom to Indian entrepreneurs: rather than focussing on providing protection:

• The best case for combining openness with an Indian centre of gravity comes from Gandhiji: “I don’t want my house to be walled in on all sides and my windows to be stuffed. I want the cultures of all lands to be blown about my house as freely as possible. But I refuse to be blown off my feet.”

Conclusion: We need to empower our financial services entrepreneurs to exploit the future opportunity created by the Asian century, China’s contradictions and China’s new inward focus strategy.