Be competitive, FM tells small banks

Union finance minister P Chidambaram today said consolidation and increased competitiveness are key to smaller banks' survival.

He was speaking at the launch of the internet banking service of United Bank of India (UBI) here.

The minister praised UBI for its turnaround in the last two years but cautioned that it should not be complacent about this. The bank had paid Rs 46 crore dividend to the government after 14 years recently.

Chidambaram assured UBI help from the government for its capital restructuring and initial public offering but also gave an ultimatum that it had to grow faster to reach a respectable size in the next five years.

UBI's capital restructuring plan envisages reduction of equity capital from Rs 1,532 crore to Rs 332 crore by converting Rs 1,200 crore worth existing equity to preference shares.

"UBI has achieved Rs 50,000 crore business in the current financial year, but it took 56 years to achieve this size. I will be happy if it achieves Rs 100,000 crore in the next five years. I do not think it is impossible and the bank has to go for the era of competition," he said.

The minister said UBI could achieve the target of Rs 100,000 crore business if it grows at 18 per cent for the next couple of years.

"Small is beautiful but that does not mean that you remain weak. The business philosophy of banks now should be based on 3 Cs - convergence, competitiveness and consolidation," he said.

Chidambaram criticised UBI for not implementing core banking solution (CBS) and termed the bank's internet banking initiative as just 'a baby initiative' in today's tech-savvy banking world.

He said UBI was planning to introduce core banking solution from December this year when many banks had completed computerisation.

"I am sorry to say technologically UBI is 3-4 years behind its peers," he added. Chidambaram advised the bank's management to catch up with others in the next 1-2 years. He urged UBI to utilise its vast human resources.

"When UBI was nationalised it was sixth in ranking among nationalised banks but now it is 14th - it is time to catch up," he added.

Speaking on the banking sector, the Union finance minister advised public sector banks to go in for a portfolio rebalancing.

"You have to extend credit to the priority sector too and excessive weightage on real estate is not desirable," he added.

FM for insurance penetration

The penetration of insurance in the country was low and needed to improve dramatically, Finance Minister P Chidambaram said today.

The country would not feel the pinch of lagging other nations, in the sector, till 2040 "� when it was expected to have a predominantly young working population, but thereafter the scenario was likely to change for the worse, he added.

Chidambaram was speaking at the centenary celebration of the National Insurance Company (NIC). President A P J Abdul Kalam and West Bengal Governor Gopal Krishna Gandhi were also present on the occasion.

"All non-life insurance products in India together will account for a mere four crore policies. In a country of billion people this number is a just drop in the ocean. More and more Indian lives need to be insured. Also, all non-life insurance premiums account for a very low percentage of the gross domestic product," the minister said.

He advised people of the country to concentrate on long-term savings in the form of insurance, pension and other such products, alongside short-term savings in banks and other institutions.

"Political parties have been unable to reach a consensus over insurance policy in the country. I appeal to the general public to bear upon the political parties to complete this task," Chidambaram stated.

The minister congratulated the NIC on having completed 100 years of operations, with over Rs 4,000 crore in insurance premium and over 10 million customers.