The country's banking sector will have to explore inorganic growth options in order to face "significant" challenges emanating from large-sized foreign banks, minister of state for finance Pawan Kumar Bansal said today."Foreign banks with a large capital base, advanced technology, best audit and accounting practices and skilled personnel, are going to pose significant challenges to Indian banks. There is rich empirical cross-country evidence to indicate that inorganic growth is one of the best ways to compete with foreign banks," Bansal said at a banking seminar.He also said that the government and the Reserve Bank (RBI) have plans to provide managerial autonomy and better operational flexibility to the banking sector by introducing a favourable regulatory climate.The government would also encourage banks to find alternate revenue streams through fee-based activities besides creating new products and devising new distribution strategies, he said while releasing McKinsey report on 'Measurement of Global Competitiveness of Indian Banks'.The country's banking sector has registered a 23.3% credit growth in 2006-07, while the credit-deposit ratio has improved to 74% in 2006-07 from 53.1% in 2000-01, exhibiting exponential growth, he said.RBI has either received applications or is in talks with a host of foreign banks for licences to operate in India. The foreign banks are "attracted by the idea of servicing a fast growing economy and the promise of a liberalised scenario in 2009," Bansal said.On the back of proper sequencing of economic and banking sector reforms, balance-sheet of Indian banks has increased significantly in the last 15 years, with all Scheduled Commercial Banks (SCBs) in the country having a comfortable Capital Adequacy Ratio of 12.3%, Bansal added.Non-performing assets (NPAs) of SCBs have declined from 8.8% in 2002-03 to 2.7% in 2006-07. Besides, they have been delivering significantly in terms of stability and geographic penetration, he said.
