FM to review PSU banks' performance

Finance Minister P Chidambaram is expected to meet the chairpersons and managing directors of the public sector banks on November 18 to review the performances of their respective organisations and to ask for their action plan to meet additional capital requirement of about Rs 60,000 crore over the next five-six years.

The performance review after the results of the quarter ended September 2005 is expected to cover various parameters, including growth in loans and deposits, profitability, non-performing assets, and capital adequacy ratio.

The finance minister is also likely to review the progress of banks on technology upgrade and implementation of core-banking solutions (CBS) to provide customers instant and hassle-free services. Chidambaram had recently expressed concern that some banks were lagging behind in the implementation of CBS.

"The finance minister is expected to discuss targets in key areas like lending to the farm sector, infrastructure and small and medium enterprises," a bank executive said.

In 2004-05, the public sector banks had exceeded the 30 per cent growth target in agricultural credit, which reached Rs 1,15,000 crore as against the targeted Rs 1,05,000 crore.

Consolidation in the banking sector is also likely to figure in the meeting as the finance minister has on various occasions stressed the need for large-sized Indian banks to compete globally.

The minister is expected to discuss the banks' plan to raise capital keeping in mind the requirements under the Basel II norms and the expected growth in business. While the government expects the banks to come up with plans to raise additional capital, it is committed to retaining at least 51 per cent stake in all PSU banks.

Banks will require additional capital to make provisions for market, credit and operational risks as per the Basel II norms. Chidambaram had recently stated that PSU banks would be required to raise about Rs 8,000-9,000 crore annually to meet their capital requirements to sustain growth and meet the Basel II norms.

With the government approving the setting up of the India Infrastructure Finance Company Ltd (IIFCL) for funding infrastructure projects, the banks may be asked to work with the new company to finance mega projects.