The finance ministry on Monday underscored the need for Indian banks to look at inorganic growth and consolidation to compete with large global banks and build efficiencies in the run up to the 2009 Basel-II regime.
The ministry and the Reserve Bank of India (RBI) are also continuously exploring measures to facilitate capital raising by banks, especially public sector banks (PSBs), to enable them to be stronger in the new global banking environment, post-Basel-II.
Delivering his inaugural address at Bancon 2007, the annual bankers? conference, on the theme ?Indian Banking: Towards Global Best Practices? hosted by Bank of Baroda in association with the Indian Banks? Association (IBA), minister of state for finance Pawan Kumar Bansal said there was rich empirical evidence to indicate that inorganic growth is one of the best ways to compete with large global banks. ?This facilitates banks to expand their geographic reach and product portfolios and helps in risk diversification,? Bansal pointed out.
Pointing out areas where banks in India would have to concentrate in the post-2009 scenario, Bansal said the migration to Basel-II norms had created a need for a larger capital base so that Indian banks can adequately provide for credit, market and operational risks. ?Recognising this, the government and RBI are continuously exploring necessary measures to facilitate adequate capital raising by banks, especially the PSBs,? he said.
Dwelling on financial inclusion as another thrust area, Bansal said the higher level of sustainable development requires increasing absorption of India?s rural masses into mainstream banking activities.
?The banking sector has to make an all-out effort to increase penetration to reach out to a wider customer base from rural areas,? the minister said.
Citing figures, he said there are only 10-12 ATMs per million population in India compared to over 50 in China and 500 in South Korea. The opening of no-frills accounts and offering doorstep banking through business correspondents with hand-held smart card-operated devices will go a long way to increase the outreach of banks, he said. Other critical areas requiring attention were customer service, IT and operational effectiveness, risk management and the development of human resources, he pointed out.
Bank of Baroda chairman & managing director Anil K Khandelwal said Indian banks fall short on two counts: scale and efficiency. ?Indian banks will have to adopt global best practices in order to retain their market share and customers as well as to attract new customers for fuelling growth,? Khandelwal said. He pointed out that a PricewaterhouseCoopers report had said India may well emerge as the third-largest banking hub in the world by 2040. Canara Bank chairman & managing director MBN Rao also spoke on the occasion.