Balanced view on FDI in pvt banks emphasised

Chairman of the Administrative Staff College of India M Narasimham, who is considered to be the architect of banking sector reforms in the country, has emphasised the need for taking a balanced view on the extent of foreign direct investment in private banks.

"Instead of debating what the ceiling for such investment should be, I believe, it is more important to see what the foreign investor brings to the table by way of resources, technology and management and access to international markets," he said in his inaugural address at a seminar on 'Banking Sector Reforms - Looking Ahead'.

The seminar was organised here by the Indian Institute of Economics and the Federation of Andhra Pradesh Chambers of Commerce and Industry.

Narasimham said that organic growth of foreign banks in India through branches would be preferable to inorganic growth in the form of acquisitions of existing private sector banks. He also wanted the private banks to be governed by the same discipline of public sector banks with regard to capital adequacy and prudential norms and also in being proactive in areas of national priority like agriculture and small industry.

Referring to the 1991 Committee on the Financial System recommendation of having 2 or 3 banks of international size and 9 or 10 national level banks in lieu of the existing 27 to 28 public sector banks, he said mergers of banks should not be forced. Mergers should not be undertaken for their own sake to enlarge the balance sheets of the institutions but seek to take advantage of synergies and complementaries in the functioning of the respective institutions.

According to Narasimham, we should "resist the temptation of merging weak public sector banks with stronger units. Such mergers may not strengthen the weak but could weaken the strong".

He expressed concern over the future of the regional rural banks as many of them were weak and straining the levels of sustainability. He wanted review of their functioning and suggested that merger with other rural banks or with their sponsor banks could be a possible solution.

Stating that banking essentially was a service industry, he pointed out that the customers in the country, whether a depositor or banker, "has been taken for granted for too long. This has to change in terms of attitudes and through means of new technology such as IT and the electronification of banking".

Chairperson of the National Bank for Agricultural and Rural Development (Nabard) Ranjana Kumar said that people in the rural areas should not be taken for granted and they, like the customers in urban areas, should have the choice of selecting a bank.