India needs world-size banks, consolidation inevitable: FM

Nov 25 2012, 00:32 IST
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Finance Minister P Chidambaram with bank chiefs at Bancon 2012 in Pune on Saturday. 	Sandeep Daundkar Finance Minister P Chidambaram with bank chiefs at Bancon 2012 in Pune on Saturday. Sandeep Daundkar
SummaryCASH TRANSFER: Direct payment of subsidies in 51 districts across 16 states from January 1

Finance Minister P Chidambaram on Saturday stressed on the need for world-size Indian banks for which, consolidation among banks would be inevitable.

There is a need to create two to three world-size banks and for this there is a need for some consolidation in India. While there is space for local banks, some may have to let go their identities, Chidambaram said in his address at the bankers conference BanCon 2012 here.

We should not fear consolidation, he added. While Chidambaram did not have a road map for consolidation, the he said the impetus for this would have to come from the banks themselves. We have said it is board-driven. It is for the banks and board to propose consolidation, he said.

The finance minister also said the government would launch its ambitions project of using the banking system for cash transfers to citizens on January 1 next year.

The Prime Minister would hold a meeting of the cash transfer committee on Monday, Chidambaram said. To begin with, 51 districts across 16 states will be covered under this direct cash transfer through Aadhar-based systems.

He also reiterated the demand that the Reserve Bank of India should speed up the process of finalising new guidelines for issuing new banking licences and called for the RBI to resume the process started a year ago to finalise guidelines and start accepting applications as early as possible.

The need for invoking the extraordinary powers will not come the next day the licence is issued, and it will only come when the bank does something wrong and that is not going to happen one day after the licence is generated, Chidambaram said.

By the time such an occasion arises, the finance minister said that banking laws amendment legislation would be passed. These powers are already with the RBI and the new Act would only formalise these powers.

On rising bad loans in the banking system, Chidambaram said that when the economy slowed down, a rise in NPAs was expected and there would be some stress, so it was the duty of the bank to hand-hold them.

The banks should hand-hold certain sectors till the economy revives, he said, listing construction, textiles, telecom and infrastructure among such sectors.

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