FM rules out privatisation of PSU banks

"There should be no fear that we will privatise PSU banks. The UPA government will not privatise PSU banks," P Chidambaram, Finance Minister said.

While making it clear that government holding in PSU banks will not be allowed to go below 51 per cent at any point of time, he said, "Ideas like convergence and consolidation will gain acceptance."

"We want large and strong banks," he said, adding that only strong banks would be able to push up credit growth, which in turn will push up the overall economic growth.

"Bank credit has to expand rapidly for which banks' capital has to expand rapidly. That is why we are asking banks to grow in size," Chidambaram said suggesting that banks should go for M&As.

He also asked banks to expand their network to all parts of the country instead of remaining concentrated in certain geographical areas.

Chidambaram said the government was "willing to give banks more autonomy" provided they were "accountable." Unless a bank transforms itself and caters to the needs of changing customer preferences, he said it was bound to fail. 

PSU banks will have to sign an agreement with government for attaining various financial targets by this month end.

"I have called them (banks). They have to sign MoUs by June 30," P Chidambaram, Finance Minister said in New Delhi on Wednesday.

Banks will have to sign a MoU with government to improve their financial parameters like profit and business growth, return on assets and equity.

The finance ministry is holding a meeting this week with some of the banks, which were facing financial stress, including Punjab & Sind Bank and Dena Bank, he said.

Five other banks in the borderline have been asked to adopt multi-pronged strategy to bring down NPA. Banks have been asked to cut net NPAs to 2 per cent this fiscal from 3 per cent in most banks during 2004-05.

While setting a new farm credit target of Rs 1,41,000 crore (Rs 1410 billion) for 2005-06 as against Rs 1,15,000 crore (Rs 1150 billion) disbursed last fiscal, Chidambaram stressed on higher credit flow to small and medium enterprises.