The Telegraph
Since 1st March, 1999
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Banks incur FM wrath

Mumbai, Aug. 27: Union finance minister P. Chidambaram today rapped public sector banks for stumbling badly on their performance this year just when the economy has been projected to rebound.

Chidambaram blasted the bankers for projecting lower growth in deposits and advances during the current fiscal. He also chided them for forecasting profitability parameters that were either stagnant or lower than the previous year.

“Public sector banks have been consistently outperformed by the new private sector banks in deposit mobilisation. Some of the frontline public sector banks have projected a deposit growth in 2005-06 which is lower than that of 2004-05,” Chidambaran said.

“I am constrained to point out that some frontline public sector banks have projected a deposit growth in 2005-06, which is lower than that of 2004-05. As if this was not enough, in some cases, a deceleration is projected in the growth of advances as well,” he added.

The finance minister told the bankers that the Centre would not accept targets that did not leverage the inherent advantages that the state-owned banks had in terms of their footprint, manpower and sovereign ownership.

The Centre was clearly asserting its authority as owner ' it holds at least 51 per cent in all the nationalised banks ' at the annual general meeting of the Indian Banks’ Association (IBA) here today.

Chidambaram’s caustic remarks were made in the presence of leading bankers including State Bank of India chairman A.K. Purwar, Union Bank of India chairman K. Cherian Verghese, Bank of India chairman M. Balachandran, and Bank of Baroda chairman A.K. Khandelwal.

The finance minister said the banks had greater autonomy and the government was only monitoring their performance through the statements of intent drawn up by their management.

Referring to the statements submitted by the nationalised banks for 2005-06, he said that though they remain committed to farm credit with growth forecast at above 20 per cent, the areas of concern were growth and efficiency parameters.

The finance minister wondered why the business projections by the banks, particularly deposits and advances, were showing a deceleration in growth when the rate of growth of the economy in this fiscal had been maintained at 7 per cent.

“Even more distressing are the projections on the efficiency parameters,” he went on to add. In 2004-05, the fall in treasury income would have exerted pressure on the profitability parameters. Therefore, one ought to see the profitability and efficiency bouncing back in the current fiscal, he added.

However, the statements by banks do not hold out hope on this count, with the stagnation or decline projected in the profitability parameters for most of them, he said.

He said the Indian banking sector also has not been yielding very good returns on capital and the return on assets were lower compared with other countries.

Chidambaram also said there was a growing concern over the level of bad debts in the banking system. “We would also insist that cash recoveries should more than offset the fresh write-offs in non-performing accounts (NPAs),” he said. During 2004-05, the net NPAs for public sector banks declined by more than Rs 2100 crore, with the bulk of the decline attributed to write-offs.

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