Deepak Parekh Calls for PSU Bank Consolidation and Higher FDI Caps

Former HDFC Chairman Deepak Parekh has advocated for further consolidation of public sector (PSU) banks to foster a more resilient and efficient financial system. Speaking at the Indian Merchants’ Chamber, Parekh argued that India requires a few large, powerful banks rather than a multitude of smaller entities. He also recommended raising foreign direct investment (FDI) caps in both public and private sector banks, emphasizing that now, when the sector is strong, is the optimal time to implement deep structural reforms to attract additional capital.

Parekh highlighted the need to deepen India's debt markets, suggesting that corporate bond markets must double in size to meet the nation's investment requirements. Addressing equity markets, he noted that while foreign investors have been net sellers, the resilience of domestic institutional investors—supported by monthly SIP inflows of approximately Rs 30,000 crore—continues to stabilize the landscape. Regarding the housing sector, he pointed out a massive shortage of 30 million units expected over the next five years, arguing that India's current housing development is skewed toward luxury properties rather than meeting the needs of the rising middle class.

On the subject of job creation, Parekh pushed back against the narrative that AI adoption poses a doomsday scenario for the Indian IT services industry. Instead, he framed the pivot to AI as an integration phase that will necessitate highly skilled IT services, with future roles diverging significantly from traditional designations. He emphasized that the overarching national priority must remain the creation of 10 million jobs annually. His comments serve as a call for bold policy shifts, ranging from adopting cross-border securitization to fostering municipal bond markets, to ensure long-term economic stability.