India needs 'world size' banks to take on challenges:FM

India needs 'world size' banks to take on challenges:FM

Reiterates shoring up capital adequacy

India needs 'world size' banks to take on challenges:FM

Making a case for consolidation in the Indian banking system and emergence of large-sized banks, Union Finance Minister P Chidambaram on Saturday said India needs at least one or two “world size” banks that can compete with other global banks like in China, which has three among the top 20 banks in the world.

“Banks in the country are governed by a sound financial system, rules and a very strong regulator. India now needs at least one or two world size banks that can compete with global banks. China today has three banks among the top 20 (of the world). India has none,” he said at a function at Chennai.

On the need for consolidation, he said: “I plead there has to be consolidation. Though the sound financial system had seen banks in India overcome the European crisis in 2008-09, none of them were present among the top 20 banks of the world.”

Chidambaram pointed out that during the crisis, 1,000 banks had collapsed in the US, starting with Lehmann Brothers, but in India, not even one bank collapsed, whether it was in public sector, private sector or banks with national or regional footprints.

He added  that India needs all kinds of banks like cooperative banks serving a cluster of village panchayats.

“We need banks with a very pronounced local flavour. The State Bank of Bikaner has a strong Rajasthan flavour; about 80 per cent of its branches are in Rajasthan. People of Rajasthan look up to the bank as their own bank. That is how it should be. We also need a bank dominating a region of this country. We have banks dominating the East and West. Punjab National Bank dominates in North and North West region and Indian Bank and Indian Overseas Bank in Tamil Nadu,” Besides, banks should always have a national footprint like State Bank of India, he said, adding other banks are now following SBI.

The government would inject Rs 15,000 crore capital in state-owned banks by March 2013 with an aim to help them expand business, he said.

“Overall, an enormous amount of new capital would have to be infused in banks in the next five to 10 years,” he said, adding, “I think we need about Rs one lakh crore as new capital.”

On strengthening capital adequacy, he said: “It is our intention to make our banks stronger. Capital Adequacy is very important for banks. New capital has to be infused from time to time so that banks can expand their business. The government will be able to provide the required capital, Chidambaram added.

“We will find ways to the make the new capital... our banks will always remain well above Capital Adequacy norms. We will remain well ahead of those norms and will ensure that adequate capital is provided to our banks", he said.

On the proposed direct cash-transfer scheme, Chidambaram said there was a misconception that it would be rolled out in the first month itself.  “No it is not correct. Some schemes under it would be initially rolled out in some parts of the country from January 1, 2013. By the end of the year (2013) we hope to cover all parts of the country,” he said.

Stating that “no one knows” where the crores of money transferred is, under the existing format of sending funds to beneficiaries, he claimed the government for the first time, would know where the money is.

In the present system, he said: “Before we find out that there is a loss of money, three years would have gone. And through an enquiry to find the lost money, it will take another three years. By the time, who is supposed to receive the money may or may not be there.”