Restricting banking to Indian ownership a mistake, says Abhijit Banerjee

As India struggles with banking sector reforms, Nobel laureate Abhijit Banerjee said on Wednesday (December 9) that the Indian banking system is “half-dead” and will need a lot of capital for revival, which can only come from foreign sources.

Banerjee’s views came at The Indian Express’ webinar and in the wake of the amalgamation of Lakshmi Vilas Bank with DBS Bank of Singapore. DBS Bank India, the new owner of the 94-year-old LVB, has retained the latter’s identity and logo in name boards at LVB’s head offices, branches and website. The new additions are DBS Bank India’s logo and a line under LVB: ‘Now part of DBS Bank India Ltd’.

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“I think restricting it to Indian ownership is, to me, a mistake. I think we have some ideological view that Indian capitalists are somehow good capitalists and foreign capitalists are bad capitalist,” Banerjee said during a webinar at the TiE Global Summit.

Banerjee said that nobody other than foreign capitalists would have that kind of fund depth to write down the debt of the Indian banking system.

“The reason why we need that debt written down is that banking sector, in a sense, is the zombie banking sector. They are sort of the living dead. If you examine their books carefully, a lot of them are not actually viable, they are in the red,” the Nobel Prize winner in Economics said.

Banerjee also highlighted the need for a supportive residential infrastructure for migrant workers, and said that short-term migrations meant that there was not much of skill up-gradation happening, adding that the reason why growth contributed to poverty reduction was not necessarily through good jobs but through bad jobs.

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“It’s mostly through jobs in the construction and low ends of the service sector. If you see, where the jobs are growing, they are growing in transportation, they are growing in food delivery, they are growing in restaurants. This is the domestic consumption-led boom. Exporting industries are not using a lot of our labour,” he said.