Focus on unbanked, FM tells SBI

Finance Minister P Chidambaram today asked State Bank of India (SBI), the country's largest bank, to step up efforts for bringing a large number of under-banked areas within its fold and also increase its coverage of districts with substantial minority population.

SBI has 3,882 branches, about 42 per cent of its total branch network, in rural areas, but only 10 million of its about 100 million customers are from rural areas.

SBI sources said Chidambaram, at a meeting with members of SBI's board in Mumbai, exhorted the bank management to enhance the pace of financial inclusion initiatives.

He also suggested that the bank should tone up its delivery mechanism to address the needs of customers promptly, particularly to deploy a "human touch" while disbursing loans.

SBI officials said the finance minister's obvious reference was to borrowers like farmers, where the credit needs are very different from the customers in urban areas.

SBI is already busy drawing up a "Rural-Plus" strategy to reach one lakh unbanked villages in about two years and add 50-100 million new ruralcustomers over the next 5-8 years.

The sources said Chidambaram also encouraged SBI management to stay on course for consolidating its seven associate banks with itself.

SBI has already made a beginning with the proposed merger of State Bank of Saurashtra, the smallest of the associate banks, with itself, but has not set any timeframe for absorbing other associate banks.

Chidambaram also acknowledged the problems being faced by public sectorbanks, including SBI, in providing better compensation packages to their employees and therefore, the challenge in retaining talent given the highly competitive environment, the sources said.

He also extended the government's support to SBI's capital raising plan. SBI would be raising about Rs 17,600 crore through a rights issue in early 2008.

The government, which bought 59.73 per cent stake in the bank from the Reserve Bank of India (RBI) earlier this year, would have to invest about Rs 10,000 crore as part of its entitlement in the rights issue and maintain its stake at the current level. SBI's rights issue is likely to be on the cabinet's agenda when it meets next week.