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Function only as banks to stay out of crisis, FM tells bankers

— PHOTO: V. SUDERSHAN

DRAWING LESSONS: Union Finance Minister P. Chidambaram (centre) with Minister of Development of North Eastern Region Mani Shankar Aiyar (right) and Sikkim Chief Minister Pawan Chamling at a banking summit in New Delhi on Saturday.

NEW DELHI: Seeking to draw lessons from the ongoing global financial meltdown, Finance Minister P. Chidambaram on Saturday advised domestic banks to function only as bank lending institutions to stay out of the kind of crisis being faced by their counterparts in the U.S. and Europe. Speaking at a banking summit on north-eastern States here, Mr. Chidambaram said: “A banker can only be a banker. If he tries to be something else, we will face the same crisis as the U.S. and Europe are facing today.”

Mr. Chidambaram pointed out that banks were not a substitute for other agencies and could only play a limited role by providing credit to facilitate development. “A bank has to be a bank. And the bank can only be a bank if money that is lent, comes back to the bank,” he said.

The U.S. sub-prime mortgage crisis, Mr. Chidambaram said, aggravated into a global financial turmoil owing to the failure of borrowers to repay their dues to the lending banks. “Look at the consequence. The entire banking system in the western world stands completely frozen today… Nobody [in the U.S.] is lending to anyone despite the central bank pumping in billions of dollars... Nobody lends a pie to anyone. The chairman of one of the largest banks in the world told me that his bank has stopped lending since January 2008,” he said. In response to the demand on extension of the scope of the farm debt waiver programme to the north-eastern region, Mr. Chidambaram noted that the elementary truth about banking is sadly missed in discussions pertaining to poverty alleviation and reduction of regional disparities. He pointed out that the number of bank branches could only be increased gradually in the region as “there is a limit to growth”.

Participating in the summit, Minister of Development of North Eastern Region Mani Shankar Aiyar noted that banks should adopt a non-conventional approach and come up out-of-the-box solutions to deal with the north-eastern region’s problems to help it in catching up with the rest of the country.

In her address, RBI Deputy Governor Usha Thorat pointed out that several new branches and ATMs were opened in the north-east during the last three years and the region’s credit-deposit had improved significantly. She also suggested the use of mobile banking for small payments, in view of the difficult terrain of the region.

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