Financial Daily from THE HINDU group of publications
Saturday, Nov 12, 2005
Money & Banking
Mergers & Acquisitions
Banks consolidation Chidambaram asks unions to convince their top leaders
SPEAKING HIS MIND: The Union Finance Minister, Mr P. Chidambaram, addressing the Bancon 2005 conference, in Kolkata on Friday. A. Roy Chowdhury
Kolkata , Nov. 11
BANK employee unions, thought to be satisfied that consolidation among banks is necessary, should now convince their national leaders on its merits, the Finance Minister, Mr P. Chidambaram, has said.
The statement may be seen against the backdrop of the staunch opposition to consolidation proposals, expressed particularly by some sections of bank employees.
The Minister was addressing newspersons after inaugurating BANCON 2005, the annual bankers' conference that opened in Kolkata on Friday.
Earlier, Mr Chidambaram urged banks to monitor their assets closely and ensure quality, increase non-fund income, introduce new products and manage risks efficiently.
Good governance would enable bankers to address these issues, he said, adding that banks had been encouraged to tap the capital market effectively.
"All customer segments deserve the same attention. Customers are the very reason for your existence. Complaints must be redressed, especially if these are lodged by the poor and the vulnerable", the assembled bankers were told.
Bank finance should contribute more to GDP: The FM implored banks to raise their contribution to the country's GDP, which is currently around 35 per cent.
In many countries it is as high as 50-75 per cent. Incidentally, a 7 per cent-plus GDP growth is expected this year.
The economic outlook is "bright", he noted, adding that banks would need to effectively finance the growth that wasbeing projected.
However, Indian banks are small; only 22 of them figure among the top 1,000 banks in the world.
In Asia, SBI (the largest in India) is the only local entity that has made it to the top-25 list.
In comparison, China's fourth-largest bank is 2.5 times that of SBI.
Size, therefore, is being seen as a limiting factor.
"A simple calculation will indicate that banks, to attain the 50 per cent GDP contribution status, will have to raise about Rs 60,000 crore additional capital over the next five years," Mr Chidambaram said, adding that the additional capital can come by way of improved profitability (and retained profits), better recovery or by raising resources from the market.
Strengthen capital base: Indian banks must expand their capital base, which will help them finance fresh activities, including lending more to agriculture and SMEs as well as to the unorganised sector.
Nevertheless, the Finance Minister was satisfied with the progress recorded in agri lending as banks have exceeded their targets on this front.
However, a few segments will still have to be focused on - tenant farmers, micro enterprises and small enterprises.
Tenant farmers, in particular, have no access to bank credit at all, not with the bulk of the credit going to the land-owning farmers.
As for micro enterprises, the "burst of energy" lately generated by the rural poor should be financed by banks, especially when SHGs (self-help groups) are involved.
SMEs too should be backed by lending institutions, particularly because they have to withstand long downturns in business cycles.
With credit ratings increasingly becoming the accepted norm for the SME sector, small entrepreneurs need particular attention, it is felt.
SMEs are important because of their capacity to create jobs and contribution to exports.
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