The Congress on Friday hit out at the Modi government over its policy of privatising banks and said the Reserve Bank of India's latest report has warned against further reduction of public sector banks.

Congress General Secretary, Communications, Jairam Ramesh accused the government of working arbitrarily and said it ignored the apex bank's warning even during demonetisation.

He wondered if the Centre wanted to reduce public sector banks to only one.

"RBI warning! The number of public sector banks has already come down from 27 to 12. The government's plan is to reduce further, perhaps to merely one. RBI says doing so is an invitation to disaster. But the Modi government always works arbitrarily. It did not listen to the RBI even on demonetisation," Ramesh said on Twitter.

A research paper published in the RBI Bulletin's August issue said, "A big bang approach of privatisation of banks may do more harm than good. The government has already announced its intention to privatise two banks. Such a gradual approach would ensure that large scale privatisation does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission," it said.

Thus, the researchers are of the view that instead of a big bang approach, a gradual approach as announced by the government would result in better outcomes, it added.

In 2020, the government merged 10 nationalised banks into four large lenders, thereby bringing down the number of public sector banks to 12.