The Hindu Business Line : `Cost control key to PSU banks' survival'

THE Executive Director of Corporation Bank, Mr K.L. Gopalakrishna, has said that the majority holding by the Government was the factor that was protecting public sector banks in the country today.

Inaugurating the `Centre for Studies on Banking and Insurance', promoted by the Justice K.S. Hegde Institute of Management at Nitte in Udupi district on Tuesday, he said otherwise these banks would be sitting ducks for takeover by large private or foreign banks. The Indian banking sector today was more attuned to survive and progress than it had been in the early 1990s, he said.

Stressing the need for cost containment, he said it was the key to sustain bank profits. Growing interest rates over the last two years had strained interest spreads. He said the need to protect margins and spreads highlighted the importance of cost management. Banks realised the need to contain controllable expenses and boost profits through increased non-fund and fee-based activities.

The increased range and complexity of bank operations called for sophisticated risk management systems and techniques. The impending implementation of Basel II accord brought added urgency.

Mr Gopalakrishna said business expansion and implementation of Basel II accord were forcing banks to shore up capital resources.

He termed burgeoning NPAs a threat to the health of the Indian banking system. Tightening of prudential requirements for recognition of NPAs and poor quality of assets, coupled with other factors have added a large amount of NPAs every year. Rather than resort to clever balance sheet management to show reduction in NPAs banks should embark on improved credit appraisal and risk diversification techniques, and monitoring, he said.

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