Finance minister bats for consolidation in banking sector


Bangalore : Union Finance Minister P. Chidambaram Saturday favoured consolidation in the Indian banking sector to accelerate the pace of growth.

Support TwoCircles

In a veiled reference to the recent nationwide protest by employees of State Bank of India (SBI) associate banks against merging with the parent bank (SBI), Chidambaram said that despite opposition, consolidation was bound to happen for the benefit of the sector as well as its employees.

“Consolidation is a two-way process by which banks will be able to benefit mutually. There may be opposition to such a move, but eventually stakeholders will stand to gain by leveraging their strengths and resources,” Chidambaram said after inaugurating the 1,000th branch of the state-run Vijaya Bank here.

With consolidation through mergers and acquisitions becoming the norm across sectors, especially in services and manufacturing, the minister said bank employees in the public or private segment would have to reconcile with the reality and welcome the emergence of large entities.

“For instance, Tatas bought over steel major Corus early this year. Similarly, Indian biotech firms are acquiring overseas companies. Consolidation, be it organic or inorganic, is the best way to go forward for expanding business and achieving inclusive growth,” Chidambaram pointed out.

Recalling a similar opposition to the introduction of computerisation in the banking system two decades ago, he said the initiative had subsequently proved that it was the right thing to do for banks and their customers.

“Otherwise, public sector banks will be left behind in the face of increasing competition and consolidation in the private sector. Bank employees need not fear about their job security,” the minister averred.

Chidambaram added that the banking industry would have to keep pace with the multiple requirements of its new generation customers by investing in training and retaining people in the light of competition for hiring them with multiple skills, including IT.

“In the coming months, the existing divisions or barriers between top officers and their subordinates or messengers will be a thing of past. The future banking industry will be flat and technology-driven and accessible a click away,” he said.

Later, Chidambaram defended the decision of the Industrial Finance Corporation of India (IFCI) board to reject the Sterlite-Morgan Stanley consortium bid, as it was the sole bid and that too conditional.

“In my view it was a correct decision because the bid was single and conditional. We hope more players will bid for the equity stake in IFCI when the process for renewed bids begin afresh, the finance minister told reporters on the sidelines of the event.

The beleaguered state-run IFCI decided to sell 26 percent of its stake Dec 20 to raise funds for managing its growing NPAs (non-performing assets).

On the occasion, the bank unveiled a new product ‘V-Gen Uth’ for the younger generation. Designed for children from age day one and above, the savings bank account can be opened with a minimum initial deposit of Rs.10 and can continue with zero balance, Vijaya Bank chairman and managing director P. Mallya said.