India's Banks TINY Compared to Global Giants? Finance Minister Sparks Urgent Debate!

Banking/Finance

|

Updated on 13 Nov 2025, 04:11 pm

Finance Minister Nirmala Sitharaman has reignited the debate on why Indian banks struggle to compete on a global scale. Analysis reveals that India's total bank assets ($3.3 trillion) are less than half that of China's Industrial and Commercial Bank ($6.7 trillion). Even the State Bank of India, after crossing ₹100 lakh crore in business, ranks only 43rd globally. Several factors contribute to this:

1. **Credit Demand:** Prudential lending norms limit access for many small businesses and individuals, capping the overall credit demand and thus the banking system's size. 2. **Capital Constraints:** Indian banks rely on public investors or the government for equity, unlike Chinese counterparts. The government's fiscal limitations prevent large infusions, and a slower deposit growth rate (9% vs. credit growth over 15%) adds to capital challenges. 3. **Regulatory Norms:** Requirements like SLR and CRR (together over 21% of deposits) and mandatory priority sector lending (40% of net credit) tie up significant bank funds. 4. **Limited Market Exposure:** RBI's focus on stability restricts Indian banks from capital market activities and investment banking, which are key growth drivers for Western banks but carry higher risks.

**Impact** While these conservative regulations ensure greater stability and depositor confidence, they limit the scale and growth potential of Indian banks. Policymakers are advised to allow organic growth and utilize specialized institutions like NABFID, IREDA, or PFC for large funding needs, avoiding potential asset-liability mismatches in banks. Impact rating: 7/10

**Difficult terms** **Scheduled Commercial Banks**: Banks authorized by the Reserve Bank of India to conduct banking business, forming the formal banking system. **PSU Banks**: Public Sector Undertaking Banks, where the majority stake is held by the Government of India. **Prudential Lending Norms**: Guidelines ensuring banks lend responsibly and manage credit risk. **Credit Offtake**: The rate at which businesses and individuals borrow money from banks. **Capital Adequacy**: A measure of a bank's financial strength to absorb potential losses. **Fisc**: Refers to the government's financial resources and budget. **Statutory Liquidity Ratio (SLR)**: Requirement for banks to hold a percentage of deposits in liquid assets like government securities. **Cash Reserve Ratio (CRR)**: Requirement for banks to hold a percentage of deposits as reserves with the central bank. **Priority Sector Lending**: Directives requiring banks to lend to economically important sectors like agriculture and small businesses. **Capital Market Exposures**: Investments by banks in stocks, bonds, and other securities. **Investment Banking**: Financial services that help entities raise capital and provide advisory services. **Asset-Liability Mismatches**: Situations where a bank's assets and liabilities don't align in maturity or interest rate sensitivity, posing financial risks.