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The Finance Minister, Mr P. Chidambaram, on 15th December has said in parliament that larger size would provide banks the where withal to take on international competition and would also enable them to manage their risks more efficiently.
Consolidation would allow economies of scale in terms of footprint, manpower and other resources. Having Indian banks of a larger size would also enable them to face competition arising from internationalisation of the economy. Larger size also entails better management of risk.
The Finance Minister said that small and weak banks pose systemic risks with their low capital adequacy ratio and high non-performing assets. Consolidation is a timely response to augment efficiency, which would lead to income generation and add to the GDP of the country.
However, he was of view that the initiative for consolidation have to come from the management of the banks themselves with the Government playing a supportive role as the common shareholder.
On FDI in private banks, he advised that the RBI would soon come out with operational guidelines on implementation of the Government policy to permit 74 per cent foreign holding.
He added that though 15 out of 19 nationalised banks have already come out with public offers, the percentage of Government holding in all the banks is well above the mandatory 51 per cent level.
Government to encourage level playing field for banks
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