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Updated: November 25, 2012 01:20 IST

Consolidation of banks inevitable: FM

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P Chidambaram
P Chidambaram

Department of Financial Services will not attempt to impose any uniformity on banks

Stating some consolidation in the banking system was inevitable, Finance Minister, P. Chidambaram, on Saturday, said India must have two or three world-size banks.

“Finding new business models will inevitably lead to some consolidation. We should not fear consolidation. I know there is pride and identity, but, ultimately, some consolidation would have to take place in the banking system in this country,” he said at the Bancon-2012 meet here.

“We must create at least 2 or 3 world-size banks. China has done it. And if India wants to be and as it will be the third largest economy in the world...we must also have one or two world size banks and some consolidation is inevitable,” he said.

Mr. Chidambaram further said that while consolidation takes place among top banks, there would also be place for local area banks.

“In fact, I regret that the idea of the local area bank, which was started in 1996, stopped after first three licences were given. I think there is place for a local area bank for serving people of the region, local area, drawing strength from those people and serving those people, he added.

Country’s largest lender State Bank of India (SBI) has acquired board approval for the merger of the its remaining five associates with itself. It has already amalgamated two of its subsidiaries.

SBI merged one of its associate, State Bank of Saurashtra, with itself in 2008 besides merging itself with State Bank of Indore in 2010.

At present, there are five associate banks of SBI. Two of them are fully-owned, State Bank of Patiala and State Bank of Hyderabad, while remaining three, State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur (SBBJ), are not 100 per cent owned and listed at the bourses.

Meanwhile, the Finance Ministry had recently asked large public sector banks (PSBs) to hand-hold smaller counterparts to improve the latter’s functioning.

It has divided banks in seven pools, with a large bank appointed co-ordinator for each group, to improve internal policies and procedures.

The banks have been asked to continuously interact and work collectively on issues such as human resources, e-governance, internal audit, fraud detection and protection, recovery, asset-liability mismatch and business process re-engineering.

New business models

Talking about new business models, Mr. Chidambaram said “may be because there is a regulator and there is a Department of Financial Services”, that there is an unintended tendency among banks to stress on uniformity.

“I am opposed to uniformity. I don’t think one banks should be or can be clone of another bank. It will be a tragedy if we have got 19 clones (nationalised banks) in this country,” he said.

He asked every chairperson of a bank to be a different banker, running a different bank and not become a clone of each other.

The Finance Minister also assured the bank CMDs and boards that government would encourage them to follow new business models.

“I assure you on behalf of the government that the Department of Financial Services will not attempt to impose any uniformity on banks. And as long as I am Finance Minister, I assure we will allow board of directors of each bank to innovate and to follow different model and different path,” he said.

“RRBs (regional rural banks) are meant to serve a very different purpose, achieve very different objective, and serve a very different clientele. Why should RRBs be a clone of the parent bank. I think we must distinguish between the bank and RRBs,” he said.

Stating that the economy is in a slowdown mode, he said the economic growth was expected to be 5.5 per cent in the second quarter.

“I attach greatest importance to the banking sector, I devote a lot of time to learn about, to understand and to work with bankers,” he said.

“Every time I meet with bankers I learn something new and I will continue to work with banking community in India. Because I genuinely and sincerely believe that banks represent the heart of the financial system and it is banks that will drive the revival of India’s economy and putting India’s economy on high growth path,” he added.


Where caution is welcomeNovember 26, 2012

More In: Industry | Business

The consolidation exercise is a ploy to divert the attention of growing NPAs in the PSU banks mainly due to the policy of Govts.Nationalization no doubt has made the banks to grow in numbers and finally caught with sickness. A lot of money has been poured in Banking system by various Govts but the sickness is in never attended.Off late, the reducing manpower is another threat to the system.Despite the Interest rate manipulation mechanism , Foreign based banks are doing well due to the quality of manpower.Consolidation technique people should know is developed by whom?

Posted on: Nov 25, 2012 at 17:12 IST

Our Honorable Finance Minister is at right path to develop RRR, the back bone institutions for growth of rural banking culture for the future. I also agree that banks should not be clones of another and run in set path generally common. They should innovate and bring new diamentions for development of Banking, and bring fresh waves of interest to all with safty and trust in savings. It should not be stale. This will give imputus to the ground staff of these banks to take the benefits to the doors of investers. The banks are sure to gain, only when the money rest with them is in circulation outside and not horded in suffocated volts.

from:  A.V. Pathi
Posted on: Nov 25, 2012 at 06:35 IST
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