In its prescription for an `Ideal structure of Indian financial sector industry', the apex industry chamber has pointed out that it was not advisable to have small- or medium-sized universal banks as they will not be able to compete with their bigger counterparts.

To allow banks build up assets that have a lower risk of default, CII has stressed that there should be regional players with strong regional networks and familiarity with the business environment.

"There should be players catering to `niche' products such as IDFC for infrastructure financing and retail financing institutions," said the CII prescription.

It has outlined that in the long run, only banks and non-bank finance companies should exist and the DFIs should convert themselves into either of these.

In the ideal structure, theweak banks should not be forcefully thrust upon the stronger banks. According to the prescription, all decisions regarding the mergers of the banks should be left on the management.

CII has noted that greater autonomy was required for the banks in this regard which can be obtained only when the government stake falls below 51 per cent.

It has said that instead of spending resources on recapitalising weak banks, the government should allow them to find their own survival strategy.

"Despite Narasimham Committee recommendations, the government has continued with the practice of recapitalisation (Indian Bank being the latest case)," CII has said. This has allowed weak banks to function without initiating any serious reforms, it pointed out.

The CII prescription suggested that it would be better if the government spends resources on manpower rationalising by offering VRS scheme in such banks rather than wasting resources on recapitalisation.

It has also stressed the need for giving greater freedom to thebanking sector in closing weaker branches as well. The CII has felt that the need for huge branch networks will slowly go with `virtual banking' circumventing the need of greater geographical reach.

In such an environment, according to the apex chamber, the fleet-footed private sector banks would be in a more advantageous position than their public sector counterparts.

THE PRESCRIPTION