• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Paul Noronha

Basel II concerns: Dr C. Rangarajan (right), Chairman, Economic Advisory Council to the Prime Minister; Mr O. P. Bhatt, Chairman, State Bank of India; and Mr Malcolm D. Knight, CEO, Bank for International Settlement, at a banking conference in Mumbai on Wednesday. –

Our Bureau

Mumbai, Sept. 12 The Government should either bring down its equity stake in public sector banks below 51 per cent or infuse more capital into them. These banks will require more capital for the adoption of Basel II norms and to meet the growth of the real sectors of the economy, said Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister.

“As the growth is at a rapid pace, there is need for injecting equity or enlarging the shareholding of public sector banks. 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,” he said.

Dr Rangarajan was speaking at a seminar on banking organised by FICCI here on Wednesday.

According to analysts, it is difficult to get an exact estimate of the capital requirement of the entire banking industry post-Basel II. Mr Krishnan Sitaraman, Head-Fund Services and Fixed Income Research, Crisil, however said, “The entire banking system might need to raise about Rs 50,000 crore in order to meet the capital adequacy norms post-Basel II in conjunction with the need to maintain the credit growth at reasonable rate.”

Stressing the need for consolidation in the banking sector, which has so far been largely confined to a few private sector banks, Dr Rangarajan said, “As the bottomlines of domestic banks come under increasing pressure and the options for organic growth exhaust themselves, banks in India will need to explore ways of inorganic expansion.”

Efforts have been initiated to iron out legal impediments inherent in the consolidation process, he added.

However, consolidation must come out of felt need for pressure rather than pressure from outside. A merger by fiat is less likely to be successful, he pointed out.

He also said that consolidation does not mean that small and medium sized banks — which may become natural lenders for small businesses — have no room for growth.

On financial inclusion, Dr Rangarajan said that the banking system needs to put in place appropriate mechanisms to reach out to the excluded groups, which is around 50-70 per cent of the population.

Banks should think about supporting other institutions that are better equipped to reach out to the excluded groups. Banks should also use the business facilitator and correspondent models effectively, as they have great potential, he added.

Dr Rangarajan said the Indian economy would grow at about 9 per cent this fiscal. He said the RBI’s monetary policy has played an important role in reducing inflation to less than 4 per cent.

More Stories on : Banking | Public Sector Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rice exporters await decision on basmati definition

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line