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Indian banks need not blindly ape Japanese mega-merger, says Mankad

Finance Secretary P G Mankad today said that India could not follow Japan or any other country in determining banks' size. The banks should focus more on creating value for their shareholders, he said.

Presiding over the national conference on financial sector reforms organised by the Confederation of Indian Industry in New Delhi, Mankad said India should not take a rigid stand on either big or small banks. It should be the shareholders' interest which should be given the maximum importance, he said.

Majority shareholding in most of the Indian banks is held by the Union government.

''Just because three top banks have merged in Japan, we cannot do the same,'' Mankad said. India should have its own model of size, he added.

CII president Rahul Bajaj and CRISIL managing director R Ravimohan raised the issue of the size of the banks in India. Ravimohan said a lot of consolidation is taking place in the global banking sector and wanted to know the mind of the Indian government about the trend.

Bajaj was more forthcoming and said, ''We cannot run away from the fact that we need two or three banks of global size and efficiency.

"This is not possible as long as the banks remain in the public sector''. He said the government should divest its stake in a couple of major banks and give them freedom to decide for themselves what size they want to have.

The Narasimham Committee on financial sector reforms had also suggested consolidation of a few banks so that some of the Indian banks could face the global competition.

Mankad said the structural and legal changes were an important issue facing the Indian banking industry. It is argued that further autonomy and performance of reforms would depend on the structural changes, including the question of the ownership by the government.

Mankad asked the bank managements to be firm in implementation of the state-of-the-art technology to keep pace with the rest of the world.

If there are doubts in the minds of employees about redundancy, the managments should remove the same. But if there are deliberate attempts to create road-blocks for technology inflow, the managements have to take ''firm and corrective steps''.

He said while a lot of criticism is levelled against the banks for not implementing many of the reforms, many positive initiatives have already been taken. The impact of the criticism ''is so strong that it detracts some commendable work done by the banks''.

There is no lack of talent in the public sector banks but ''we need to create an environment for efficiency''.

Mankad said over the last few years, the Indian banking industry has seen changes like dismantling of the administered interest rates, rise in capital adequacy ratio and adoption of international prudential norms.

The emergence of the private sector banks and aggressive marketing by foreign banks has brought in competition and options for the end-users.

The M S Verma Committee on weak banks, instituted by the Reserve Bank of India will submit its report within the next ten days and might even suggest changes in managements of the banks in the red.

When asked whether the committee would suggest change in managements of the weak banks, its chairman M S Verma said, ''All aspects will have to be considered''.

Verma said that the committee was looking at various aspects of improving the weak banks and would not do a rush job. ''After all, the issue was pending for the last six months,'' he said.

Indian Bank, UCO Bank and the United Bank of India have piled up huge losses and are awaiting capital infusion by the government which would depend on the recommendations of the RBI.

The non-performing assets of the nationalised banks have become an issue of debate in the government and financial circles.

These banks have collectively accumulated NPAs equivalent to Rs 450 billion which experts feel are unsustainable.

However, the Indian Banks Association chairman A T Pannir Selvam said that the level of NPAs is not ''as much as made out to be''. He said in reality the NPAs are Rs 250 billion as the banks have collaterals for the rest.

He regretted that not much credit has been given to the banks for realising as much as Rs 250 billion from NPAs in the last three years.

The IBA will create a Credit Bureau for preparing a list of loan defaulters which will be shared among the banks, Selvam said.

''The Credit Bureau will become effective in the next 12-18 months. The details of the composition, scope and working of the bureau is yet to be worked out,'' Selvam who is also the chairman and managing director of Union Bank of India, said.

He said the information on defaulters will be shared only with the banks in the initial stages.

''In the next stage, this information will be exchanged with non-banking financial institutions too. But the defaulters' list will not be made public as the creditors are bound by the secrecy laws,'' he added.

Central Vigilance Commissioner N Vittal had been suggesting creation of this mechanism for a long time to plug the loopholes generally used by wilful defaulters.

CVC had issued instructions to the banks to computerise their operations so that information sharing is made possible.

UNI

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