The Hindu : Business : Centre not to allow closure of merged banks' branches

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Saturday, Apr 09, 2005

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Business

Centre not to allow closure of merged banks' branches

By Our Special Correspondent

MUMBAI, APRIL 8. The Union Finance Minister, P. Chidambaram, today said the Government would like to give more autonomy to public sector banks and at the same time it would protect the public sector character of these banks even while merging two state-owned banks.

"Consolidation, convergence and competition are drivers of growth in the banking sector. Public sector banks must consolidate. But we will not allow any retrenchment or closure of branches. Irrational fears about mergers and consolidation must be dispelled," said Mr. Chidambaram, while inaugurating the Small Industries Development Bank of India's new office premises named `Small and Medium Entrepreneurs (SME) Development Centre' here, today.

"The Government would like to give more autonomy to public sector banks. So that banks should become more efficient," he said, adding, "banking is not an extended activity of the Government."

Mr. Chidambaram also held out an assurance that there would be more flow of funds to the small and medium enterprises (SME). These enterprises were providing employment and helping Indian exports to grow, "the only stagnant factor is flow of funds to SME sector," he said.

The Finance Minister also revealed that SIDBI would be adopting a new business model. However, he refused to give more details on this new model. He said SIDBI would be disbursing more funds through direct lending instead of refinancing through banks and State Finance Corporations, as the very idea that SIDBI would lend only to financial corporations was flawed.

Mr. Chidambaram said the whole purpose of establishing SIDBI was to enhance flow of credit to the small scale sector. However, this model was basically flawed. "It is time to reorient ourselves towards the notion of small industries." Echoing his recent budget speech, Mr. Chidambaram said, industries should enter as smaller ones but these should gradually become medium sized. Scale and size do matter. In the real world what mattered was the ability to compete and excel.

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