Chidambaram promises more funds to public sector banks

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Sets store by consolidation

The Centre is committed to infusing more capital into public sector banks (PSBs), Finance Minister P. Chidambaram said.

Replying to the discussions on the Banking Bill in Lok Sabha on Tuesday, Chidambaram said that another Rs 15,000 crore capital will be infused in PSBs before end-March.

He said that the Bill would pave the way for PSBs to raise capital through every accepted mode including rights issue, bonus shares without diluting their public sector character.

Chidambaram pointed out that private sector banks are able to grow because they are able to raise more capital. But in the case of PSBs, they have to rely on the Government to infuse capital.

“Today, public sector banks have a share of 75 per cent of the business. Notwithstanding the competition posed by private sector banks, the public sector banks are holding on their own,” he said.

Chidambaram also said that more capital has to be infused into State Bank of India if its status as the largest commercial bank were to be maintained. SBI is looking for more capital infusion from the Government and has already indicated that an option of rights issue was on the table.

He also expressed confidence that economy will come out of the present trough and recovery will happen. “When recovery happens, banks will be required to lend more money”.

On consolidation, Chidambaram pointed out that none of the Indian banks are among the top 20 banks of the world. “China has three”.

India for the size of its GDP and the future that is envisioned needs world-size banks, he said.

“Nobody said that all 27 public sector banks will be consolidated. We said that we need two or three world-size banks. The two or three world-size banks will come by some smaller banks consolidating into larger banks. But we will still have 20 public sector banks and each of them will grow”

If the private sector banks should become larger and larger, should not the public sector banks become larger and larger, Chidambaram asked.

“I think there is a case for merger of banks and there is a case for two or three world-size banks,” Chidambaram said.

The Banking Laws (amendment) Bill 2011 was later passed by the Lower House.

(This article was published on December 19, 2012)
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