The Telegraph
Since 1st March, 1999
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FM plays bank union tune

Calcutta, Nov. 11: Finance minister P. Chidambaram has lobbed the bank-consolidation ball into the court of unions, saying they must arrive at a “consensus on the issue”.

The remarks almost immediately sparked off a fresh controversy with the Left unions opposing the idea, even though the minister indicated there was some acceptance.

“At the bank level, unions have agreed to it. They will now have to convince their national leaders on how this will be done,” the finance minister said on the sidelines of BanCon 2005, which kicked off in the city today.

However, Gurudas Dasgupta, CPI MP and general secretary of Aituc, countered whatever the minister said at the event. “It is not true that unions at the bank level have accepted the idea of consolidation. We are against it. This will give rise to monopolistic growth. If they try to do it, they are bound to get into confrontation,” Dasgupta told The Telegraph from Chandigarh.

Chidambaram, a strong votary of consolidation among banks, said only 22 Indian entities figure in the top 1000 banks of the world. State Bank of India ranks 93rd; in Asia, however, its position is 11th among the region’s top 25.

“The largest bank in China, six times as large as SBI, has grabbed the 11th spot in the list of top 1000 banks. Size does matter,” the finance minister told BanCon.

Explaining why he wants consolidation, Chidambaram said it was needed to raise banks’ contribution to national income (GDP) from 35 per cent now. “The sector should set a goal of raising that contribution to 50 per cent. And, this would only be possible by raising the size of the banks,” the minister added.

The average rate of return on capital is 32.8 per cent for Indian banks, 16 per cent for those in China and 19.9 per cent in Singapore, the finance minister said. Dasgupta said if the returns were as high as Chidambaram mentioned, the case for consolidation did not stand. “China is not a role model for us,” he said in reference to mergers that boosted capital efficiency there.

The Aituc general secretary is not the only one balking at mergers. Senior Citu leaders are also not comfortable with the idea. “United Forum of Bank Unions (UFBU), of which Intuc is a member, is against the plan.”

Earlier, inaugurating the conference, Chidambaram said banks in the country would have to raise Rs 60,000 crore as additional capital over the next five years. The issue will be discussed at the November 18 meeting of their chiefs.

Banks do not have scope to raise their tier I capital, so they would boost their funds under the tier II category. The funds could come from improved profits, better loan recovery and market mop-ups.

Chidambaram urged banks to increase their lending. “Banks focus on the bottom of the pyramid by giving loans to tenant-farmers, small and medium enterprises and extending micro-credit in villages. Lending is skewed in favour of a few industrial houses.”

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