The Hindu : Business : Centre to encourage bank mergers

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Friday, Sep 10, 2004

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Centre to encourage bank mergers

By Our Special Correspondent

— Photo: Rajeev Bhatt

The Chairman and Managing Director, Indian Overseas Bank, S. C. Gupta, the Chairman and CEO, The Ganesh Bank of Kurundwad Ltd., S. V. Kavathekar, and the Chairman and Managing Director, ICICI Bank, K. V. Kamath, with their shields presented by the Union Finance Minister in New Delhi on Thursday.

NEW DELHI, SEPT. 9. The Union Finance Minister, P. Chidambaram, today said the Government would encourage consolidation among banks in order to make them globally competitive.

Briefing presspersons after a review meeting of the banking sector here today, Mr. Chidambaram said, "the Government will not force consolidation, but if two banks want to consolidate, we would encourage them. We will encourage them if it helps banks grow in size, scale and muscle so that they can compete globally.'' To facilitate such mergers, a small amendment to the Income-tax Act would be made during the budget session of Parliament next year.

Similarly, banks would be encouraged to go to the market to raise resources, Mr. Chidambaram said. The Minister disclosed that non-performing assets, asset reconstruction companies, the debt recovery tribunals and the Securitisation Act were some of the subjects that came up for discussion during the meeting. On the bankers' objections to the Securitisation Act, he said the Indian Banks' Association had presented a five-page note which the Finance Ministry would study before deciding on any amendments.

Senior bankers later told presspersons that the note was of a technical nature, detailing some of the changes that were required to make the Act more effective.

FDI limit

On the issue of ownership of banks and the permissible limit of foreign direct investment (FDI) in them, Mr. Chidambaram said the Reserve Bank of India had floated a discussion paper and would formulate its views based on the feedback. "But the ultimate decision on ownership of banks would be that of the Government,'' the Minister added.

Stable interest rates

Asked about the interest rate scenario, Mr. Chidambaram said there was excess liquidity in the system and banks were being urged to lend more. "Though the RBI Governor is the final authority on it, my sense of the situation is that interest rates would remain stable in the medium term,'' he added.

On infrastructure, the Minister said the meeting reviewed the performance of the Inter-Institutional Group (IIG) for the power sector and found it to have been a success. Now, the idea would be replicated in other sectors such as airports, seaport and tourism which had been identified in the budget. Besides, the bankers had identified two other sectors, telecom and roads, and IIGs for them would also be set up. The IIG report on tourism was expected in the next 15 days and thereafter lending would start, the Minister said.

Today's meeting also reviewed the lending in various sectors such as agriculture, education and the issue of Kisan Credit Cards and it was felt that the targets would be met this fiscal year.

"After the meeting, I now have a better understanding of the state of the banking industry and the bankers have a better idea of the goals of this Government,'' Mr. Chidambaram said.

Awards to banks

Earlier, the Minister handed over shields for outstanding performance to banks including Indian Bank, Punjab National Bank, Indian Overseas Bank and Allahabad Bank. Awards were also given to State Bank of Indore, State Bank of Patiala and State Bank of Saurashtra. ICICI Bank and Ganesh Bank of Karuwadi also received awards from the Minister.

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