Former HDFC Bank chief executive Aditya Puri on Tuesday backed the proposal to allow deep-pocketed corporates into banking in India. Puri, the founder chief executive of what has become the largest private sector lender who retired recently, said the country needs more banks to fuel its economic growth ambitions and capital will have to come from somewhere. Late last year, an internal working group of RBI had proposed to re-allow corporates into banking, leading to a huge controversy on concerns over potential conflicts of interest.
"Giving (banking licences) to individuals didn't work, public ownership didn't work either. There is no harm trying it," Puri said during an online event. He named Yes Bank, started by two individuals, and also infra lender IL&FS which faced troubles over governance as cases which did not work and underlined the need to try something new. In order to become a USD 5 trillion economy, India needs to have more banks and a corporate with a good set of ethics and a strong brand might just be the right candidate, Puri argued. Puri, who has taken up an advisory role at a private equity fund and also a corporate directorship since retirement, however, did not favour the idea of having a bad bank to house dud debt and also that of a development finance institution (DFI).
Rather than bad bank, Indian banks can follow the remedial banking unit approach which has been successfully used to resolve bad debt issues in the US by the likes of Citibank and JPMorgan, he said, adding the RBI and the Ministry of Finance can supervise and oversee functioning of such a platform. For the DFI, he said mistakes which were committed in the past should be avoided. Puri further said the banking system has sufficient capital to see through the asset quality reverses and is sitting on excess liquidity of over Rs 6 lakh crore to take care of lending needs of the economy at present. For the 8.5 per cent in non-performing assets, the system is carrying provisions of 7 per cent, he said and added that from a net NPA perspective, the Indian system is at par with any other in the world. The challenges facing Indian banking are solvable, he emphasised.
On the future of state-run lenders, Puri said the government's approach to have five large banks is a welcome one, but warned that there are a few more whose fates continue to be undecided and some choices will have to be made. Terming it a sad eventuality, he said over the next few years the state-run banks, which currently possess over 65 per cent of the loans, will see a faster depletion in their market share than they have seen in the last two decades. Puri said over 40 per cent of the payment volumes handled by banks are of third-party service providers like Amazon Pay, Google Pay or PhonePe, and demanded that the banks should be allowed to charge for rendering such services.
He justified the demand saying banks are the entities making upfront investments in the infrastructure and need to be compensated. After cashbacks, none of the payment platforms are making profits, he added. On the pandemic, he said the world underestimated India's capabilities, pointing out that the recovery is faster in the country and it has come out better than most others.