Consolidation a must for banking sector growth: FM

Union Finance Minister P Chidambaram today said consolidation holds the key for growth of the banking sector in the country and urged banks to embrace the "inevitable" change.

"Consolidation has to happen in the banking sector. There is no choice, until external forces impose their choices upon you," he at a function organised to mark the opening of 1,000th branch of Vijaya Bank. "I know there is opposition in the banking sector against consolidation... How long can you resist consolidation," he said, adding that two decades ago, the banking staff had even resisted computerisation.

"As we go along we have to consolidate our gains both organically and inorganically," Chidambaram said. "The way to grow forward is consolidation," he said.

Another big issue facing the banking sector is retraining employees for becoming multi-skilled so as to deal with the challenges posed by technological changes, he said, "All will have to be multi-skilled."

"Future organisations will be flat and driven by technology. Multi-skill will drive the banking sector," he said, pointing out that technology and "flat" organisation will result in breaking down of the traditional hierarchy of work division.

"Do not resist change, it is inevitable," he said. "Change will take place at a rate faster than we can comprehend today. Be prepared for changes," he said.

"Huge opportunities will open up for Indians," Chidambaram said, adding that the country would have to leverage its strengths including its human resources to "dream big". "What is holding us back is our baggage of the past which is too heavy... We must put our baggage away and sprint ahead," he said.

Investment in human resource, the country's biggest strength, was of pivotal importance while preparing to take on the future challenges, he said.

Though India did not lack in terms of the quantity of human resources, the same could not be said about the quality, he opined.

A considerable amount of students drop out from high school and just nine per cent of those that remain go to college, Chidambaram said, adding that only five per cent manage to get vocational education in the age group of 19-24.

Investment in developing human resources was of key importance given the fact that HR could drive growth, he said. Later, speaking to reporters on the government's decision to subscribe to a rights issue of the State Bank of India (SBI), he said: "There is no cash outflow on the rights issue subscription of the SBI. That will be done by bonds and we will create a redemption fund."

On whether the precedent would be followed in case of other banks, he said, "It would depend from bank to bank and whether they would be able to throw up additional dividends and additional taxes like the SBI."