Finance Minister Pranab Mukherjee on Thursday asked banks to improve the quality of assets as their support would be necessary to maintain the higher growth momentum of 9 per cent or more in the coming years.

“The banking sector needs to support the growth momentum in the economy while giving due attention to the asset quality and prudent provisioning to balance emerging returns and risks,” Mr. Mukherjee said.

The Finance Minister was addressing senior officers and employees of Union Bank of India (UBI) and other dignitaries at a function organised on occasion of the 92{+n}{+d} Foundation Day of the bank. Mr. Mukherjee also released a book authored by M. V. Kamath titled ‘The Bankers' Beacon' on the history of UBI.

The banking sector, he said, needed to support this growth momentum as “India with growth trajectory heading towards 9 per cent or more in the coming years is placed at a critical juncture.” Mr. Mukherjee pointed out that while the country's banking sector had remained more or less unscathed from the global financial meltdown, there was, however, a decline in the profitability of Indian banks in 2009-10 in terms of all major indicators.

Moreover, the asset quality of banks had deteriorated and the coverage ratio of provisions showed a fall at the aggregate level reflecting a weakening cushion to meet NPA losses.

With regard to financial inclusion, Mr. Mukherjee asked all banks to step up their efforts and use the instrument scale neutral technology as this would help in bringing the vast population into the ambit of formal finance and also boost future economic growth coupled with equity. As per RBI data, of the six lakh habitations in India, only about 30,000 had commercial bank branches.

Thus, on an average, there were less than three bank branches per 100 sq. km. of land area and this ratio was worse for rural areas and for the Northeastern region, he said

Also, the deposits mobilised in rural bank branches in 2009 were a mere 9 per cent of the total bank and the share of rural credit in total bank credit was still lower at 7 per cent, he said. Besides, the percentage of people having any kind of life insurance, he said, was just 10 per cent while the percentage of non-life cover was merely 0.6 per cent.

Mr. Mukherjee, however, commended UBI for transforming itself into a modern bank by leveraging on technology and adapting to the changing needs and opportunities, ensuring appreciable growth in its business from just Rs.50,000 crore to Rs.3 lakh crore during this decade.

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