The Hindu : Business : Rangarajan wants capital base of PSBs enlarged

Online edition of India's National Newspaper
Thursday, Sep 13, 2007
ePaper

Business

Business

Rangarajan wants capital base of PSBs enlarged

Special Correspondent

Suggests three routes to meet credit needs of real sectors

— Photo: Paul Noronha

MANAGING CHANGE: C. Rangarajan (right), Chairman, Economic Adivisory Council to the Prime Minister, with H. F. Khorakiwala (centre), President, FICCI, M. B. N. Rao, Chairman, IBA and Chanda Kochhar, Deputy Managing Director, ICICI Bank at a conference in Mumbai on Wednesday.

MUMBAI: C. Rangarajan, Chairman, Economic Advisory Council (EAC) to the Prime Minister on Wednesday underlined the need to enlarge the capital base of public sector banks to meet the credit needs of the growing real sectors of the economy.

Inaugurating the three-day Federation of Indian Chambers of Commerce and Industry – Indian Banks’ Association (FICCI-IBA) conference on ‘Global banking: Paradigm shift - Managing transition’ here, Dr. Rangarajan said: “Banks’ assets will have to grow in tandem with the growth of the real sectors of the economy. The public sector banks’ ability to meet the growing needs will be inhibited, unless the Government is willing to bring in more capital. While there is some scope for expanding capital through various modalities, tier-I capital, that is equity, is still critical. When growth is rapid which is likely to be the case, there is need for injection of equity, enlarging the shareholding. In this situation, the government will have to make up its mind either to bring in additional capital or move towards reducing its share from 51 per cent through appropriate statutory changes. A third alternative could, however, be to include in the definition of government such entities as the Life Insurance Corporation that are quasi-government in nature and are likely to remain to be fully owned or an integral part of the government system in the future."

Responding to the observations by Habil Khorakiwala, President, FICCI, Dr. Rangarajan cautioned the banking community against complacency in risk management and advised bankers to adopt new and innovative approaches to assessment of credit risk in lending to service sectors and other areas such as housing and consumer credit.

Earlier, Dr. Rangarajan, released a CRISIL study on banking commissioned by FICCI.

Consolidation

On the issue of consolidation, Dr. Rangarajan cautioned against consolidation through an executive fiat, as any meaningful consolidation among the public sector banks must be driven by commercial motivation by individual banks, with the government and the regulator playing at best a facilitating role. Dr. Rangarajan also said that there was considerable evidence to show that the organised banking system, despite the impressive branch expansion in rural and semi-urban areas, has not penetrated enough. He advised banks to think hard on the effective use of the ‘facilitator and correspondent’ models to reach out to small borrowers and depositors. O. P. Bhatt, Chairman, FICCI Banking and Financial Institutions Committee and Chairman, State Bank of India, presented the theme of the conference.

Printer friendly page
Send this article to Friends by E-Mail

Business

News Update

Stories in this Section