Big banks not always the best, admits RBI's Gokarn

After having promoted a series of mergers and consolidation among public sector banks in the recent past, the Reserve Bank of India seems to have veered around to the view that big banks are not necessarily the safest... or best.

Speaking at a FICCI-organised seminar in Mumbai on Wednesday, RBI deputy governor Subir Gokarn said while bigger banks would be able to deliver services more efficiently, they aren't necessarily safe banks and the larger they get, the more of a risk they pose to the system as a whole.

According to Gokarn, the advantages of scale have been diluted after the global financial crisis.

"There is some debate that has not been resolved as to what the right size of a bank should be. I am sure that it is a function of a lot of variables, but at the end of the day the unambiguous argument in favour of size has been diluted somewhat by the experience of the crisis, rightly or wrongly so," he said.

He said the RBI has decided to give new banking licences to create more capacity and competition in the Indian banking space, but the right size is yet to be determined.

Gokarn said new banks in the system would help achieve financial inclusion. ''As we are moving further down the inclusion agenda, which is to try and get banking services at a very basic level, perhaps new banks are one way of achieving that,'' he said.