'Weak' public sector banks to merge with stronger ones: FM

The government is expecting  a couple  of "weak" public sector banks to
merge with stronger ones in 2006-07.

Addressing the annual general meeting of the Indian Banks' Association,
Finance Minister P Chidambaram today said: "We expect one or two cases of consolidation this year, which would be driven by the need to acquire size and muscle and not driven by regulatory considerations."

He said weak banks have no option but to merge with banks which have excess capital. The finance minister did not specify how he defines a weak bank, but bankers said Chidambaram must have had in mind inability to grow as the criterion for describing a weak bank.

Consolidation is being driven by the need for revenue growth, savings in
cost and to improve efficiency, he said.

He pointed out that Indian banks would need Rs 42,000 crore of capital by 2010 to meet the stringent Basel II norms. Basel II is the revised capital
adequacy framework that requires capital allocation for operational risk, in
addition to credit and market risks and also allows stronger banks to make
more efficient capital allocation.

The government has also appointed a committee headed by former Reserve Bank  of India Governor C Rangarajan for ensuring greater financial inclusion. Chidambaram expects banks to give priority for financial inclusion and said banks need to find business opportunities at the bottom of the pyramid as poor are bankable and creditworthy.

He also said the government planning to bring a comprehensive legislation on micro-finance.

Earlier, addressing large tax paying units, the finance minister said
companies need to improve tax compliance and pointed out that it has not
become part of corporate governance.