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Get rid of mental block against consolidation: FM

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`Initiative must come from banks' management, employees'

THE FINANCE MINISTER, Mr P. Chidambaram, with the CMDs of public sector banks (from right) Mr O.N. Singh, Allahabad Bank; Mr S.C. Gupta, Punjab National Bank; and Mr V.P. Shetty, IDBI before a meeting in the Capital on Friday. Kamal Narang
THE FINANCE MINISTER, Mr P. Chidambaram, with the CMDs of public sector banks (from right) Mr O.N. Singh, Allahabad Bank; Mr S.C. Gupta, Punjab National Bank; and Mr V.P. Shetty, IDBI before a meeting in the Capital on Friday. Kamal Narang

Our Bureau

New Delhi, July 21

The Finance Minister, Mr P. Chidambaram, has warned that Indian banks would be reduced to small players if they don't consolidate and get rid of the mental block against consolidation.

"World over, consolidation is taking place. Consolidation is the driver of all industries including pharmaceuticals, steel etc. When Mr L.N. Mittal takes over Arcelor, everybody is happy. But when one big bank consolidates with a smaller bank, there is all kind of apprehension," Mr Chidambaram told reporters after his meeting with the chief executives of public sector banks here on Friday.

Asked whether any proposal for consolidation was before the Finance Ministry, he replied in the negative.

"I have spoken about consolidation now for two years... I have not received any proposal," he said.

The Finance Minister said that the initiative must come from management and employee representatives. He, however, said that bank managements are ready for consolidation.

Outsourcing issue

On the strike planned by employees in protest against outsourcing of banking activities, Mr Chidambaram said that it was "unfortunate and unnecessary".

He urged the bank employees to "move with the times".

The Finance Minister said that outsourcing by banks was in line with the RBI guidelines on this matter and that no core activities of banks are being outsourced.

He said the RBI had, as a regulator of banks, allowed outsourcing in certain non-core functions and this should not raise any apprehensions.Mr Chidambaram also pointed out that bulk of India's software industry depends on outsourcing. "When America outsources to India, we are happy", he said.

At the meeting, the Finance Minister reviewed the working of the public sector banks during 2005-06.

Mr Chidambaram said that last year (2005-06) was a "difficult year" for public sector banks because of the impact of treasury management.

"With interest rates rising, bond prices fell and many had to make provisions for that," he said. Mr Chidambaram said that the performance of these banks in 2005-06 showed that the Indian banking system was getting stronger.

(This article was published in the Business Line print edition dated July 22, 2006)
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