Banks must grow in size to compete globally: FM

Finance Minister Pranab Mukherjee today said Indian banks must achieve scale to be competitive globally.

“I must emphasise that financial services is vital for economic resilience and Indian banks must grow in size to be able to offer services on par with global players and must have appropriate systems in place to manage growth,” Mukherjee said while speaking at the 105th Foundation Day of the Bank of India.

The finance minister added the growth aspiration must drive banks’ future plans and actions with financial stability, resilience, vision and social commitments.

“Our commercial banks and PSBs (public sector banks) in particular have performed quite well in terms of high credit growth, deposit mobilisation and profitability apart from meeting their socio-economic commitments… As the global banking landscape has been changing fast, I look forward to the time, not very far away from now, when Indian banks would reign among the top global brands,” he added.

The remarks may spark another debate on mergers and acquisitions in the banking space. The finance ministry had first proposed consolidation among the PSBs last year. Later, however, it said it would not force banks into mergers, but would ‘bless’ any proposals in that direction.

Financial Services Secretary R Gopalan, who was present on the occasion, said Indian banks were big, but not big enough to compete globally. He advised banks to address HR issues, control costs and maintain asset quality.

In December 2009, the finance ministry had invited chiefs of five leading public sector banks — Punjab National Bank, Canara Bank, Union Bank of India, Bank of Baroda and Bank of India — to take their views on consolidation. Banks, however, did not come up with any concrete proposal. Many small banks and trade unions had strongly opposed the idea.

A high-level committee on financial sector assessment, headed by former RBI deputy governor Rakesh Mohan, had also said some public sector banks lacked the leeway to raise fresh equity capital, and one option would be to consider merging banks that are on the borderline of 51 per cent state ownership with banks where government holding was significantly higher.

Meanwhile, Mukherjee also asked banks to over perform to achieve their targets so that by 2011 all habitations with a population of 2,000 and above got the facility of a bank and related financial services.