M&As won't alter public sector character of banks, says FM

Finance minister P Chidambaram today said that the mergers of state-owned banks will not affect the public sector character of the institution.

He further laid to rest the apprehension voiced by bank employees over possible loss of jobs, following the consolidation in public sector banks.

"We will not dilute the public sector character of the institutions. There will no retrenchment. There will be no closure of bank branches," Chidambaram said emphatically.

On the contrary, more branches are expected to be opened and excess staff would be redeployed, he added.

Incidentally, the finance minister met the board of directors and the senior officials of the Bank of India today at the bank's headquaters. Chidambaram in his one-hour address to the bank's top brass spoke about the dearth of large Indian banks which can compete on a global scale. According to him, India's infrastrcuture sector needs large investments.

"The Indian infrastructure sector requires over Rs 50,000 crore every year, and banks are not in a position to meet this demand. Indian banks can only fill this space if they consolidate, gain in scale, efficiency and reduce margins.

The government proposes to give further autonomy to public sector banks, provided the banks improve their functioning, the finance minister said.

He was speaking at the inauguration of Small Industries Development Bank of India's (Sidbi) new development centre for small and medium enterprise (SME).

"Size and scale matter in public sector banks. Hence irrational fears associated with consolidation need to be dispelled," said the finance minister.

Bank employees must realise consolidation, convergence and competition will be the key drivers of growth in the banking sector, he added.

His statement comes weeks after public sector bank employees went on a one-day strike opposing mergers and consolidation in the sector. The government has been urging the banking industry to consolidate since August 2004.

Talks on consolidation had gained momentum late last year with several bank chairmen claiming to have an appetite to take over other public sector banks.

The government is also understood to have been working on a proposal for the merger of the Bank of India with the Union Bank of India. Strong political opposition from the Left parties, however, seems to have put a roadblock.

Chidambaram told assembled bankers that despite the government ownership, "it's not an extended activity of the government to bail out sick public sector banks".

Public sector banks should learn from their mistakes in the past and follow sound, commercial business propositions in order to compete in the sector, he added.

Meanwhile, some public sector banks have taken advantage of the 'limited' autonomy. While the State Bank of India is working on a variable pay structure for its employees, Punjab National Bank is planning to introduce a new post of chief general manager. The Bank of Baroda meanwhile, is looking at increasing the number of general managers.

The government has so far allowed PSU banks to give variable pay within the overall pay structure, enter into new businesses, close down unviable branches and freely transfer and promote staff.