FM pulls up banks for lower growth projections

Reports from the 18th annual general meeting of Indian Banks Association in Mumbai.

Finance minister P Chidambaram on Saturday blasted public sector banks for making lower growth projections for 2005-06.

A few frontline state-owned banks have projected a lower deposit growth in comparison to that of the previous fiscal and some have reported a decelaration in growth of advances and deposits, despite robust economic activity, Chidambaram said at the annual general meeting of the Indian Banks' Association (IBA).

"We cannot accept targets which do not strategically mobilise the inherent advantages of public sector banks in terms of their footprint, manpower and above all, sovereign ownership for achieving sustained improvement in efficiency, profitability and growth," the finance minister said.

"If the rate of growth of the economy in 2005-06 is maintained at 7 per cent, it is difficult to understand how business projections by public sector banks, especially deposits and advances, can evidence deceleration in growth," he stated.

The strong comments of the finance minister evinced immediate reactions from bankers who said they would go back to their boards to redraw business plans for 2005-06.

"All Indian Banks' Association members will review their business targets. SBI (State Bank of India) will also go back to its board," A K Purwar, chief of IBA and SBI, said after the meeting.

Speaking at the annual general meeting of the IBA, Chidambaram drew attention towards distressing projections on efficiency parameters.

He said banks ought to report bouncing back of profitability and efficiency in 2005-06, but the statements of intent submitted by PSBs do not hold out hope on this count, with stagnation or decline projected in the profitability parameters for most PSBs.

He cited figures on return on assets of Indian banks, which stood at 0.7 per cent as against 1.2 per cent for Singapore and 1.6 per cent for Brazil. The Reserve Bank of India (RBI) has projected growth in advances at 19 per cent and that of deposits at 15 per cent.

Union Bank of India's chairman and managing director, Cherian Varghese said, "The banks' projections, in this fiscal, has been in line with RBI's growth estimates."

In the fiscal 2004-05, the total credit extended by nationalised banks grew by 33.6 per cent while that of the SBI group was up 26 per cent. Chidambaram said the implementation of Basel-II norms could see many PSBs tap the capital markets.

However, he clarified that government's stake could not fall below 51 per cent and hence banks would have to design innovative instruments to meet their capital requirements.