No plan to dilute majority govt ownership in PSU banks: DFS Secretary M Nagaraju

There is no proposal before the government to reduce its holding in public sector banks below 51%, said M Nagaraju, Secretary, Department of Financial Services, under the Ministry of Finance.

“They will continue to be majority-owned by the government, because there is a public interest in the government owning a majority in public sector banks,” Nagaraju told CNBC-TV18 at the Banking Transformation Summit. He stressed their critical role in serving neglected and underserved sectors.

At the same time, Nagaraju underlined the need for both bigger and more banks to meet the growing needs of India’s large population and expanding economy. “For a country of our size, this kind of population, this kind of trade growth potential, we also require more banks. On that, there is no debate. The government is very clear that we require both more banks and bigger banks. They are not contradictory; they actually go together,” he said.

He pointed out that about 300–350 million people still need to be fully integrated into the financial system, creating a massive opportunity for the sector. “Imagine that number of people being formalised, and the kind of credit and banking business that will emerge. The scope is huge for new banks also,” he added.

On consolidation, Nagaraju clarified that it remains a long-term goal. While regional rural banks have already been merged under the “one RRB, one state” model, the broader vision looks ahead to 2047, when India completes 100 years of independence. “At that point of time, we need to have larger banks, bigger banks, banks with global influence, so that India is able to play a bigger role in the global markets,” he said.

Looking ahead, the government is also focused on raising capital for four banks this year to meet SEBI norms and support further lending. Nagaraju emphasised that expansion must be balanced with prudence. “The first fundamental principle of a banker is to ensure our banks are not overleveraged, that we are healthy, and that our capital base is protected,” he said.

Below is the excerpt of the interview.

Q: There's been a lot of interest in what transpired in that two-day Manthan with public sector banks. How much did you churn the banking sector, so to speak? Give us insights into what transpired in that meeting. What was the big takeaway? What was your message to banks? What was the message from banks to the government?

Nagaraju: This was the third Manthan during the 11 years. I think all of you know the results of the first Manthan in Pune and then the second one in Delhi, and this is the third one. The first and the second Manthan were related to how we survive because of the NPA burden, credit issues, and, of course, the PCA.

Now, because of the steps that the government has taken, most of our banks are actually very healthy. We have made the highest profits with the lowest gross NPAs and net NPAs, and we also have professional managers.

The bank recruitment process is much more professional now, more dynamic compared to the past. I think all of them are actually showing results on the bottom line and the profits we are declaring.

Now we felt, including all the banking leaders—we all felt that this is the time for the Indian banking industry to take a leap of faith into the next phase of both reforms and lending. We want to become bigger. The Indian banks want to be bigger. And I think all of us know in the top 10 we have only two Indian banks, SBI and HDFC. I think we need many more.

We are currently the fourth-largest economy, and next year we will be the third-largest economy. But we have only two banks. Given the size of our economy, the credit requirements and the potential, I think all of you agree with me when I say that our banks deserve to be in the top 10, not just the top 50. I think we need to work towards this, and there are so many methods. One is, of course, organic growth. We have great potential. We need to do that. This is one issue.

The second issue is that, while growing, we need to be very cautious to ensure the health of the banks is protected. That is the first fundamental principle of a banker. We need to ensure our banks are not overleveraged, that we are healthy, and that our capital base is protected so that we will be able to provide security and assurance to the entire country that the banks are aligned with the growth of the country.

Q: You said India aspires to have more banks in the top 10, so clearly the government is going to prioritise size, along with healthy balance sheets, as you pointed out. What will the route be to get to the top 10? Is consolidation the preferred option? Is consolidation likely to be the route that the government takes, especially for putting PSBs in the top 10?

Nagaraju: See, there are several routes the government can take. The first fundamental is organic growth. There is huge credit growth potential in the country—in MSMEs, startups, defence, infrastructure, power sector. There are huge growth areas including shipping, ports development, and roads. We have huge areas of potential. Now we need to have the right projects to come forward, and then we will be able to lend.

We need capital. This year, we are going to raise capital for four banks to also meet the SEBI guidelines of below 75% public shareholding. So that is one way of raising funds, so that when the capital is there, we will be able to lend more. Till now this year, our credit growth has also been very high. I think because of last year’s profits, the banks have earned, our credit growth is also very high. We are very confident, given the low inflation numbers and the availability of liquidity in the system, that we want to lend more. That is the message we want to give to the country.

Q: Sir, you sidestepped my question on consolidation. While I understand that the government wants banks to lend more, and that certainly is something that you are working towards, what about consolidation? Is that something that is actively being considered at this point in time?

Nagaraju: We have consolidated all the rural banks. From 46 or 47 banks, now we are 28. We have successfully implemented the “one Regional Rural Bank (RRB), one state” model. Now some of the RRBs are actually very big, especially in Andhra Pradesh and Gujarat. They are also going to play an important role.

But I think the banks are now free. SBI is a big bank; others are free, and they can look at ways of becoming bigger. This is a long-term goal. I'm not talking in the short term. I’m talking about Viksit Bharat 2047. When we complete 100 years of India’s independence, at that point in time, we need to have larger banks, bigger banks, banks with global influence, so that India is able to play a bigger role in the global markets.

Q: You said that we need bigger banks. Do we also need more banks at this point in time? What is the government’s view on that? And if we do, what kinds of banks do you believe we need today to service the needs and requirements of the India of the future?

Nagaraju: Those who are connected with the financial sector, believe that we need bigger banks. That’s one. And for a country of our size, this kind of population, this kind of trade growth potential, we also require more banks. On that, there is no debate. The government is very clear that we require both more banks and bigger banks. They are not contradictory; they actually go together.

We have about 300–350 million people who still have to be fully formalised into the financial system. Imagine the number of people being formalised, and the kind of credit and banking business that will emerge. The scope is huge for new banks, also.

Q: In light of the next phase of reforms that you spoke of, one of the expectations—which has been talked about for many years—is whether the government will, in fact, look at bringing down its shareholding below 51%. You talked about meeting the SEBI minimum public float norms. But is there any active consideration at this point in time within the government to even consider bringing the government’s holding below 51%?

Nagaraju: I don’t think so. There is no proposal before the government to reduce it. They will continue to be majority-owned by the government, because there is a public interest in the government owning a majority in public sector banks. We are not just lending instruments, but the government is also doing a lot for neglected or underserved sectors like education loans, Kisan Credit Cards, PM Jeevan Jyoti, etc. These are all done because they are government banks. This would not be possible if they were private. So, in the interest of national development, the government will continue to hold a majority shareholding.

Q: You talked about the profitability of banks, and it was a record year in FY25 for the banking sector specifically. Do you expect to be able to repeat that performance? What’s the indication?

Nagaraju: As far as I can see, I think this year also we are going to have record profits in public sector banking. The first quarter was very good. I keep travelling, I keep hearing different cross-sections of people. A large number of people are very happy that public sector banks are doing extremely well. The culture is changing. The one fundamental principle we are working on is culture. The amount of trust public sector banks enjoy among the Indian public is enormous, and they’re happy that now the banks are very responsive.

The systems have improved, digitisation has done wonders for them. The top management is very good, highly skilled, and excellent at decision-making. So, this quarter also, I’m expecting good profits, so that the country will be happy with the performance of public sector banks.

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