Chief economic adviser Krishnamurthy Subramanian on Sunday said there should be more banks in operation in the country, which will increase competition and ensure faster transmission of policy rates though the proposal appears to be at odds with the consolidation of PSU banks that has the support of the government.

Delivering the Bandhan Bank’s fifth anniversary lecture on Sunday, Subramanian said more banks meant greater competition.

The concept of competition through more banks is in contrast to the consolidation seen in the banking space with the amalgamation of public sector banks to 12 at present from 27 in 2017.

The logic behind consolidation was to expand the size of the anchor banks, increase their capacity to lend and have better ability to raise resources from the market.

“India needs more banks. The US has a third of our population but has almost 20 times as many banks. This has an impact on competition in the banking sector, which affects the transmission of rate cuts. This is something that India needs,” Subramanian said.

Subramanian stated the numbers on country-wide distribution of banks in the list of the global top 100 banks, while suggesting that the country has to start evaluating the position of its banking sector in a global perspective.

“China has 18 banks in the global top 100 list. The US has 12 and these are the two largest economies in the world. India is the fifth-largest economy. If the Indian banking sector was proportional to the size of the economy, India should have been where South Korea is, which is six banks in the global top 100. But India only has one bank and that too ranked 55th,” he said.

SBI is the only bank from India which is placed in the list of top 100 global banks.

Sweden, which is one-sixth the size of the Indian economy, and Singapore, which is one-eighth the size of the Indian economy, have three banks each in the global top 100. Even countries such as Finland, Norway, Austria, whose economies are a fraction of that of India, have one bank each in the global top 100, he said.

Subramaniam also called for the banks to take a cue from its global peers and invest in technology to build models that can do corporate lending while analysing the ability of the borrower to repay the credit.

“Banks today internationally are primarily technology companies. They use so much data and analytics to not only determine their ability to repay but also their willingness to repay. There are several models now which even use psychological parameters to infer the ability to repay,” he said.