Consolidation of banks imperative to become globally competent: PC

Mumbai, May 26 (UNI) Union Finance Minister P Chidambaram has once again advocated bank consolidation as a means of making Indian banking sector globally competitive.

Speaking at the Indian Banks' Association's (IBAs) Diamond Jubilee function here today, Mr Chidambaram said, ''The merger of banks, especially weaker banks with stronger ones, is inevitable.'' Till now, he continued, merger of banks have taken place out of regulatory measures and not as a prudent business decision.

Emphasising the importance of consolidation, the Minister pointed out that only 22 domestic banks figure among the top-1000 global banks and in which only five Indian banks among the top-500 in them.

In this context, he cited the example of consolidation of banks in Malaysia which took up the initiative prudently as a business decision and brought down the number of its banks from 55 to 10 through mergers.

In a related context, Mr Chidambaram also cited that State Bank of India, inspite of being the pioneer bank in the country, whose market capitalisation stands at USD 10 billion as compared to the market capitalisation of the top-most global bank at USD 247 billion.

Dwelling on the rationale behind consolidation, the Finance Minister said that only large, well-capitalised banks will be in a position to face competition globally successfully. He urged the banking sector to discuss imperatives of consolidation which should be driven by business need and not for complying any regulatory measures.

Mr Chidambaram was emphastic that ''mergers between banks should come on its own as a business or economic imperative in the interest of consolidation to becoming more competitive globally.'' Further, he said the banks in the country to meet the Basel II norms would require an infusion of Rs 42,000 crore by March 2010, for which banks should contemplate raising through innovative capital instruments under both Tier I and Tier II.

Mr Chidambaram also said domestic banks despite its large presence, is still under-serviced in the country, with majority of the population remaining outside the purview of banking. In this context, he said, ''The problem of exclusion'' can be tackled by banks through recognising that ''poor are bankable, credit worthy and good business risks.'' State Bank of India&IBA Chairman A K Purwar also spoke on the occasion.

UNI SN KU AW2148