Union Finance Minister, Shri Pranab Mukherjee asked the Public Sector Banks (PSBs) to accelerate the financial deepening else it could constraint the full potential of the Indian economy. The Finance Minister said this is essential to maintain high GDP growth trajectory. The Finance Minister further added that in order to meet the needs of one of the fastest growing economies of the world, banks will have to constantly augment their capital base. The Finance Minister was addressing the Chief Executive Officers (CEOs) of all public sector banks and financial institutions during a review meeting here today. The meeting was also attended by Minister of State for Finance Shri Namo Narian Meena, Secretary,Financial Services Shri R.Gopalan, Deputy Governor, RBI, Chairman, NABARD and senior officials of the Ministry among others.
The Finance Minister asked the public sector banks to ensure convergence of Indian Accounting Standards (IAS) with the International Financial Reporting Standards by 2012, although the banks are required to adopt these standards by 2013.
The Finance Minister directed all the banks to focus on financial inclusion to reach out to those who are still left outside the banking network by using new technologies and business correspondents etc . He said that this is an important priority of the Government as only 37.2% of bank branches of Scheduled Commercial Banks are in rural areas and only about 40% of the country’s population has bank accounts. The Finance Minister directed the banks to make their Financial Inclusion Plans (FIPs) for covering those villages with a population of over 2000 (as per 2001 Census) in consultation with the State Governments by March 31, 2010. The Finance Minister said he understand that these Financial Inclusion Plans have been already finalized by most banks and are being scrutinized by the RBI.
In his concluding remarks, at the end of the meeting, the Finance Minister said that in order to meet the increasing demand and expectations of consumers and to provide and maintain high standard of services by the public sector banks and financial institutions, management of human resources and proper training of officers and staff of PSBs/FIs become very important in the coming years. The Finance Minister said although proper grievance redressal mechanism is in place, still many people do not get satisfied. He asked the banks not only to ensure that grievances are redressed properly on time but should ensure that proper reply to customers is also given.
Text of the Opening Address and Concluding Remarks made by the Union Finance Minister on this occasion are as follows:
Opening Remarks of Hon’ble FM
My colleague Shri Namo Narian Meena, Minister of State for Finance, Secretary, Financial Services Shri R.Gopalan, Deputy Governor, Reserve Bank of India, Chairman NABARD, Chief Executives of the Public Sector Banks (PSBs) and Financial Institutions(FIs) and other officers from the Ministry.
At the outset, let me first congratulate you on the annual results, which shows the hard work you have put in during the financial year 2009-10. I am happy to note that deposits of Public Sector Banks have grown from Rs.31,14,508 crore to Rs.36,93,540 crore between 01.04.2009 and 31.03.2010. This shows a growth of 18.59% and compares well with the expected deposit growth of 16.5%; PSBs recorded an Advances Growth of Rs.4,50,194 crore between 01.04.2009 to 31.03.2010 as outstanding advances grew from Rs.22,80,838 crore as on 01.04.2009 to Rs.27,31,032 crore as on 31.03.2010. In percentage terms, the growth stands at 19.74% which is approximately 25% higher than the credit growth of 16% estimated by RBI in its 3rd quarter review; agriculture advances grew from Rs.2,97,896 crore as on 01.04.2009 to Rs.3,70,465 crore as on 31.03.2010. This growth amounts to an annual increase of 24.36% in the outstanding agricultural advances. In order to encourage Micro and Small Enterprises, for the year 2009-10 specific growth targets were assigned to PSBs. Credit to MSE Sector has increased from Rs.2,44,921 crore to Rs.3,25,889 crore representing a growth of 33.06%; Excepting two PSBs, namely IDBI Bank (29.84%) and State Bank of Mysore (35.98%), all other PSBs have achieved the benchmark of 40% of Adjusted Net Bank Credit (ANBC) as applicable to Priority Sector Advances. I am also happy to know that 15 PSBs recorded an increase in their Return on Assets (ROA). Most banks have ROA around the benchmark of 1%.
However, I would also take this opportunity to mention that despite the good performance, challenges still remain. For instance, the cost of intermediation remains high and bank penetration is low. Financial deepening has to be accelerated, else it could constrain the full potential of the Indian economy. This is essential if we are to maintain India’s high GDP growth trajectory. In order to meet the needs of one of the fastest growing economies of the world, banks will have to constantly augment their capital base.
As part of the efforts to ensure convergence of the Indian Accounting Standards (IASs) with the International Financial Reporting Standards (IFRSs), the roadmap for banks has been finalized. All scheduled commercial banks will convert their opening balance sheet as on April 1, 2013 in compliance with the IFRS converged IASs. However, in order to give comfort to all the stakeholders and achieve visibility in the international markets, I feel that major Public Sector Banks may like to explore the possibility of adopting the IRFSs by 2012, although all banks are required to adopt these standards by 2013.
However, perhaps the most daunting task for banks in my opinion is going to be management of human resources in the coming years. PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organizational performance ethic. Banks could have technology/business process re-engineering to reduce the gap created by the shortage of staff and improve overall manpower efficiency. In addition, a pool of talent for occupying leadership positions could be built up by banks by training and preparing promising officers to assume future leadership roles.
Recently, I have reviewed the working of the Regional Rural Banks (RRBs) of the country. I have given a target of Rs.40,000 crore to be disbursed to agriculture sector by RRBs. Further, I have advised the RRBs that the target for opening of 2,000 new branches should be achieved by the end of March 2011 and the new branches should be with CBS and the RRBs having NPA level of above 5% should try to reduce it. I have also advised the sponsor banks that the chairman should be given minimum 3 years to continue in the RRBs and no chairman should be withdrawn abruptly unless and until there are exceptional circumstances. I expect that the public sector banks, being sponsor of most of the RRBs shall extend all support to their RRBs in achieving their targets in a time bound manner.
I would now like to turn to a subject close to my heart, that is, financial inclusion. This is an important priority of the Government as only 37.2% of bank branches of Scheduled Commercial Banks are in rural areas and only about 40% of the country’s population has bank accounts. The Banks were directed to make their Financial Inclusion Plans (FIPs) for covering these villages with a population over 2000 (as per 2001 Census) in consultation with the State Governments by March 31, 2010. I understand that these Financial Inclusion Plans have been finalized by most banks and are being scrutinized by the RBI.
Kisan Credit Cards
Lastly I will like to stress the need for effective implementation of Kisan Credit Card (KCC) Scheme. You are aware that the Task Force constituted to examine and suggest measures for improving the effectiveness of Kisan Credit Card Scheme had made several recommendations. I feel that much of the credit related problems of the farmers can be taken care of by making the Kisan Credit and General Card operational in a meaningful manner.
I will like you to explore the possibility of issuing Kisan Credit Card (KCC) in the form of Smart Cards with a provision for carrying the Unique Identity Number on each card. In addition, if the KCC can carry the information regarding the land holding of the kisans, it will help us to move closer to the system of payment of subsidies for fertilisers directly to the beneficiaries. The KCC can also include information regarding the BPL or AAY status of the cardholder. This will help us to improve the efficiency of our targeted public distribution system.
In the end I would like to emphasize the need for adoptions of appropriate technology to not only increase the penetration of banks into the rural hinterland, but also to improve efficiency and increase business.
Thank you.
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Concluding Remarks of Hon’ble FM
I am sure that after the detailed discussions, you would go back and implement these decisions with full vigour. You have worked hard for the good results during the financial year 2010-11 and I am confident that you will surely be able to come up to the expectations of the Government.
To face the challenges in the banking sector today, you have to take into account the uncertain pace of global recovery, exit policy, containment of NPA levels, higher provisioning norms fixed, reduction in operational costs and cost of funds and the rising expectations of the people.
I need not reiterate that financial inclusion is being accorded very high priority by the Government and I am sure that you will make all out efforts to meet the targets set for you within the prescribed time frame. As you are aware, Financial Inclusion provides an avenue to the poor for bringing their savings into the formal financial system, an avenue to remit money to their families in villages besides weaning away the poor from the clutches of the money lenders. It is thus essential to extend banking services to the rural hinterland at the earliest in order to include these regions in India’s growth story.
The all India Cumulative CD ratio in March, 2009 was 72.5% and in December, 2009 it was 71.2%, showing a decline of 1.3%. We have to be very careful about this also.
Recently, in end July, we conducted a meeting of the Chairmen of RRBs and took a number of decisions, which now you are aware of. As sponsor Banks, you have a very pivotal role in ensuring that these decisions are implemented in right earnest, within a definite time span.
I have to appeal to you for effective implementation of the Kisan Credit Card Scheme. All of you were present in the Zonal meetings with the Chief Ministers, where it was decided to increase the number of Kisan Credit Cards by 20%. We also decided that there should be a minimum 20% increase in the amount disbursed through Kisan Credit Card during this Financial Year.
The market is seeing growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. Furthermore, given the demographic shifts resulting from changes in each profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. Therefore, management of human resources and proper training becomes very important in the coming years.
In the end, I would like to mention that although proper grievance redressal mechanism is in place, still many people do not get satisfied. Not only should we ensure that grievances are redressed properly on time, but should ensure that proper reply to customer is given.
Thank you.
