Indian banks for consolidation of fin'cial sector

New Delhi, Sep 24: The Indian banks are looking for consolidation of the financial sector as a measure to a create world class banking system followed by Strict Corporate Governance Norms, Regional Expansion, Higher FDI limits and FTA's, an industry report said here today.

However, a bulk of the public sector lenders lament lack of sufficient autonomy to offer attractive incentive packages to their employees to ensure commitment and raise productivity.

Indian banking sector has expressed its interest for consolidation of the financial sector and fully endorses the need for creating six or seven banks of the size of the State Bank of India, industry chamber FICCI said.

Technological and Regulatory systems of Indian banks, the report said, are more advanced than China and Russia, but less advanced than Singapore, the UK and the US.

''Respondents rated India's Risk mangement systems more advanced than China and Russia and quoted credit quality of Indian banks better in comparision with China, Japan, Russia at par Singapore but below par with UK and US,'' FICCI said.

The penetration of banking services to Indian households stand at a mere 35.5 per cent.

Though Indian banking system acquires higher potentials, it is lacking in certain areas, like diversification of markets beyond big cities (84.2 per cent), HR systems (63.15 per cent), size of banks (52.63 per cent), high transaction costs (47.3 per cent), banking infrastructure (42 per cent) and labour inflexibilities (42 per cent), it said.

On preparedness of Indian banking sector to tackle the challenges being faced, FICCI said, ''This is the right time for consolidation and fully supported government point of view of creating 6-7 banks as big as State Bank Of India.'' Besides, it stated that 92 per cent of public sector bank's respondents voiced that they lack sufficient autonomy to offer attractive incentive packages to their employee.

Out of these, the study said, 82 per cent claimed that offering competitive compensation packages at all levels is essential to improve their productivity levels.

It said, ''58 per cent of respondents expressed that Indian banking sector is prepared to achieve the Basel II milestone by March 31, 2007, whereas the remaining voiced that the deadline should get extended.'' Similarly, 83 per cent respondents also highligted that presently there are sufficient instruments in the market to meet the increased capital requirements of Indian banks, it added.

UNI