'M&As to drive sector'

Urging bank employees to reflect on consolidation, Finance Minister P Chidambaram today dismissed fears of job loss and said mergers and acquisitions were needed to make the sector competitive.

"Competition, convergence and consolidation will be the key drivers of the banking industry in the future," he said while inaugurating a Punjab National Bank branch.

"There are unions, associations in each bank.... Each one has a responsibility to communicate about the new drivers "" competition, convergence and consolidation of banking industry among the employers and staff," he said, adding the bank management had a responsibility to communicate at every level.

"I will urge employees and staff to reflect on consolidation. It adds size, scale, muscle, technology and reduces cost of operations," Chidambaram said.

"We need strong banks and I am confident we are on the right path. I spoke to the prime minister and we reflected on the issue.... This is the path we must take," he said.

Citing that there were apprehensions over competition and convergence when the banking sector was opened up in 1990s, he said the public sector banks had become stronger in the last 15 years with a wide array of products and services.

The next step was to consolidate, he said, adding it will make banks stronger, increase lending, reduce cost, expand business and allow them to foray into unchartered areas, unbanked areas and try out new ideas.

On convergence, he said the banks have become a one-stop shop providing various products and services and referred to the increasing tie-ups with insurers for bancassurance.

"Banks have tied up with insurance companies and insurance companies have tied up with post offices. A time will come when post offices will tie up with banks for selling their products," Chidambaram said.