"The task is to ensure that there are at least 4-5 banks of comparable size at all times to ensure that consolidated banks do not acquire monopolistic market power, adopt predatory behaviour and force smaller banks into unviable models," said Subbarao while speaking at the Ficci-IBA annual banking conference on Tuesday.
Arguing against the model of large banks, Subbarao said large banks can become too-big-to fail, leading to moral hazard problems such as use of power to suppress competing institutions and markets and dilution of competition.
He also added that small local banks are more nimble and flexible. They can effectively cater to unbanked areas and meet localised needs and can be more efficient in financial inclusion. Subbarao also said that failure of a small bank will not have any systemic impact and resolution would be easier.
However, he also said that India should aspire to have some multinational banks also. He said India;s largest bank ranks 60th in the global league of large banks and it is likely to take years for Indian banks to achieve the status of a large global bank through organic growth.
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