Upgrade to stay ahead; FM to banks

New Delhi: Finance Minister P Chidambaram has asked Indian banks to upgrade technology and raise capital so that they can remain competitive.

The minister added that the sector needs Rs 60,000 crore over the next five to six years to expand credit off take and remain competitive amid globalisation.

"If credit off take is to expand, banking capital has to be augmented by Rs 60,000 crore over the next five to six years," he said after inaugurating Punjab National Bank's (PNB) Network Operation Center here.

Chidambaram added that India's banking sector finances 30 per cent of the GDP (Rs 10 lakh crore) against 50 to 70 per cent in dynamic economies.

He further said "where and how public sector banks (PSBs) will raise this money from is a question I'll pose before CMDs of these banks when I meet them in November after they declare their half-yearly results".

Terming technology and capital as the two eyes of a bank, he said, "We have to promote both...we cannot favour the one and ignore the other".

Chidambaram said technology was critical in making banking sector world-class.

"Unless we change as fast as changes around us, we cannot remain competitive. PSBs have surrendered leadership to private sector banks. But you can easily overcome that through technology upgradation", he added.

Stating that there existed wide variation between banks on technology implementation, Chidambaram said PSBs had been given sufficient autonomy to chalk out their own growth path.

Research firm McKinsey also, in a recent white paper on the Indian banking sector, said, "...structural weakness such as a fragmented industry, restrictions on capital availability and deployment, lack of institutional support infrastructure...unless addressed could seriously weaken the health of the sector".

On inflation, Chidambaram said he expected the rate to remain moderate at about 5 per cent by the end of this fiscal. "We are keeping a close watch. I think the pass-through impact of oil prices on inflation is over".

He, however, parried questions on the monetary and credit policy, due to be released by the Reserve Bank of India (RBI) tomorrow.

Chidambaram had earlier said that interest rates were likely to remain stable in the short and medium term and the RBI would act if a rise in fuel prices made more than a moderate impact on inflation.