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Chidambaram defends reforms in banking
Wednesday, 15 December 2004, 20:30 IST
NEW DELHI: Amid criticism by the opposition, Finance Minister P. Chidambaram Wednesday defended the process of consolidation in India's banking sector, including a move to allow foreign banks to acquire equity in private banks.
In a statement in response to a calling attention notice in the Lok Sabha, the finance minister said consolidation in the system would allow economies of scale and help state-run banks face competition and manage risks better.
"It may be seen that all changes in the banking policy are being contemplated to strengthen the banking sector in India for the benefit of customers and preserve their trust in the banking industry," Chidambaram told the lower house.
The finance minister said the government had already issued a notification on March 5 to enhance the limit of foreign direct investment in private banks from 49 percent to 74 percent.
"The operational guidelines on implementation of this policy are to be issued by the Reserve Bank of India. The government does not have any direct equity stake in the equity of private sector banks."
According to him, the revision in the foreign investment limit would create an enabling environment for higher inflow of capital, along with the infusion of new management technologies and practices, resulting in enhanced competition.
Chidambaram said the 27 public sector banks - comprising the State Bank of India, its seven associate banks and 19 other nationalised entities - account for 76 percent of the banking business in the country.
He said in order to bring them to global levels, new initiatives were being contemplated, which included moves to consolidate operations as had been suggested in 1991 by a high-powered committee.
As per the existing laws, the government shall at all times hold 51 percent stake in these banks, he said, adding the percentage had been maintained despite 15 out of the 19 nationalised banks opting for public issues to raise funds.
Source: IANS
Source: IANS