The Hindu : Business : PSBs asked to grow in size

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Thursday, Jun 16, 2005

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PSBs asked to grow in size

Special Correspondent

Government holding not to be reduced below 51 p.c., says Chidambaram

ATMS APLENTY: The Union Finance Minister, P. Chidambaram, with the Chairman and Managing Director of Bank of Baroda, Anil K. Khandelwal, at the launch of the bank's 201 ATM's in a single day in New Delhi. — Photo: Kamal Narang

NEW DELHI: The Centre on Wednesday asked public sector banks (PSBs) to concentrate on convergence and go in for mergers and acquisitions to emerge globally competitive.

Making the Government's stand clear on the bank privatisation issue after simultaneously launching 201 ATMs of Bank of Baroda here, the Union Finance Minister, P. Chidambaram, said: "There should be no fear that we will privatise PSBs. The United Progressive Alliance will not privatise PSBs.''

Reiterating yet again that at no point of time would the Government's equity holding in PSBs be allowed to go below 51 per cent, Mr. Chidambaram made it clear that instead, ideas that would gain acceptance were moves such as convergence and consolidation.

Urging the PSBs to go in for mergers and acquisitions (M&As) and become large entities, Mr Chidambaram said: "We want large and strong banks," as only strong banks will be able to push up credit growth. This, in turn, will push up the overall economic growth of the country.

Explaining the M&A rationale further, he said bank credit must expand rapidly, but for that to happen, the banks' capital had to expand rapidly too. "That is why we are asking banks to grow in size. We want Indian banks to be world-class and of world-scale," he said. Stressing on the wider network coverage, the Minister asked the PSBs to set up branches in all parts of the country instead of mushrooming in "certain geographical areas.''

Mr. Chidambaram said the UPA Government was in favour of giving more autonomy for banks, but for that, they would have to be "accountable'' and "assume far greater responsibilities.''

The concept of autonomy would succeed only if banks were more accountable and transform to cater to the needs of changing customer preference in the highly competitive banking market.

In fact, now that the banks had far greater autonomy than before, except in four areas, Mr Chidambaram stressed that it was now the turn of the banks to show improved performance. The four areas where the banks could not ask for more elbow room were aspects such as the Government's holding in PSBs, corporate governance, appointment of chairmen and executive directors and adherence to the memorandum of understanding (MoU) that is signed each year with the Government with respect to benchmarks and operational performance.

While the PSBs had been extended more autonomy in areas such as human resource management, bankers want more. They were seeking performance-linked incentives as also the powers to appoint senior management staff.

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