FM reassures PSU banks

Gives bankers green signal to tap capital markets.

Union finance minister P Chidambaram has assured public sector banks that they can go ahead with their plans to tap the capital market provided the Centre's stake does not fall below 51 per cent.

The minister also stated that while banks will be allowed full functional autonomy, they will also be accountable.

Chidambaram, who met bankers on Wednesday evening to clear their doubts about how the economic reforms will be taken forward by the new government and how banks can contribute to it, said the pace of reforms would accelerate as the United Progressive Alliance government stabilises.

As the government will not extend capital support to public sector banks, they could raise resources from the market within the available headroom.

"The minister observed that the fruits of liberalisation should reach those living in rural and semi-urban areas via employment generation. The public sector banks, which have a large network of branches in the hinterland, have assured him that they will not restrict themselves to only crop loans but extend credit to silos, warehouses, borewells, etc so that the rural economy is revitalised," V Leeladhar, chairman, Indian Banks' Association, said.

Leeladhar, who is also chairman and managing director of Union Bank of India, said the minister was informed that banks have already made strides in lending to infrastructure projects and the recent RBI permission allowing them to raise long-term bonds came as a big boon, solving the problem of asset-liability mismatches.

Chidambaram emphasised that there was no directed lending to agriculture. The government will not meddle in pricing and the risk adjustment exercise of banks for agri-lending and that concern about sticky assets on this account was misplaced.

With almost 70 per cent of the country's population depending on agriculture for its livelihood, prime minister Manmohan Singh, releasing the Common Minimum Programme, said that while the tempo of social and economic change will be stepped up, emphasis will be placed on the needs of farmers, agricultural labour, workers and the weaker sections of society.

Banking gameplan

• Chidambaram stated that while banks would be allowed full autonomy, they would also be accountable
• The pace of reforms would accelerate as the government stabilises
• The recent RBI permission allowing PSU banks to raise long-term bonds has helped the banking sector
• Government would not meddle in the risk adjustment exercise for agri-lending