India’s banking sector needs market-driven reforms, said Prof. Viral V. Acharya, the C.V. Starr Professor of Economics at NYU Stern School of Business.
He highlighted the critical interplay between economic imperatives and political motivations in shaping India’s banking policies. “India needs market-friendly reforms, and not incumbent-friendly reforms, in the banking sector,” he said during his keynote address at the IMR Doctoral Conference 2025 (IMRDC 2025). The event, organised by the IIMB Management Review and the Office of the Doctoral Programme, took place at IIM Bangalore on January 17 and 18, 2025.
He pointed out that the banking system has often been a tool for populist government expenditures, contrary to the perception that nationalization was primarily aimed at financial inclusion. “The banking system in India is steered not by the economic backdrop alone, but by the political economy of banking as well,” he said.
He also discussed the current challenges posed by digital finance and competition from non-bank lenders, as well as their implications for risk management and financial stability.
“India got digital finance right from the very beginning,” he noted, praising the significant boost the sector received post-Covid. However, he expressed concern over concentrated wealth and corporate profits, which, coupled with stagnant wages in formal, informal, and rural sectors, contribute to a lack of trickle-down economic benefits.
“India often does better when given a jolt, but eventually there is a slowdown. Welfarism has gone up, but there is a lack of vigilantism if the government is too popular,” he remarked.
Encouraging researchers to focus on actionable insights, he concluded, “Research can be very helpful at times to be applied to policy – it helps you realize what the bad ideas are.”
Prof. Acharya’s address underscored the need for structural reforms that prioritize economic inclusivity and long-term growth.
