The Hindu Business Line : `Mergers will help PSU banks to compete globally: Chidambaram

PITCHING strongly in favour of mergers among public sector banks, the Finance Minister, Mr P. Chidambaram, on Wednesday said that larger size would provide banks the wherewithal to take on international competition and would also enable them to manage their risks more efficiently.

"Consolidation would allow economies of scale in terms of footprint, manpower and other resources. Having Indian banks of a larger size would also enable them to face competition arising from internationalisation of the economy. Larger size also entails better management of risk," Mr Chidambaram said in a statement in the Lok Sabha on a calling-attention notice by the CPI member , Mr Gurudas Dasgupta.

Mr Dasgupta had moved the notice on various issues relating to banking policy including dilution of Government stake in PSU banks, merger of banks, and FDI in private sector banks.

The Finance Minister said that small and weak banks pose systemic risks with their low capital adequacy ratio and high non-performing assets. "Consolidation is a timely response to augment efficiency, which would lead to income generation and add to the GDP of the country," he said.

Mr Chidambaram, however, said that it is for the banks to initiate the merger moves and that the Government or the Reserve Bank of India has no direct role. "The initiative for consolidation have to come from the management of the banks themselves with the Government playing a supportive role as the common shareholder. No directive on consolidation has been issued by the Government and the RBI," he said.

The Minister said that changes in banking policy were aimed at benefiting customers. "All changes in the banking policy are being contemplated to strengthen the banking sector in India for the benefit of customers and preserve their trust in the banking industry," he said.

On FDI in private banks, Mr Chidambaram said that the RBI would soon come out with operational guidelines on implementation of the Government policy to permit 74 per cent foreign holding. "The revision of the FDI limit (from 49 per cent to 74 per cent notified on March 5) will create an enabling environment for higher FDI inflows along with infusion of new technology and management practices resulting in enhanced competitiveness," he said.

On dilution of Centre's stake in PSU banks, Mr Chidambaram said that though 15 out of 19 nationalised banks have already come out with public offers, the percentage of Government holding in all the banks is well above the mandatory 51 per cent level.

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`Mergers will help PSU banks to compete globally: Chidambaram