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Jalan seeks quality, foreign banks flexibility

BS Banking Bureau

For the Reserve Bank of India governor Bimal Jalan, big is not beautiful.

"Soundness is more important than size," Jalan said on Tuesday delivering his valedictory address at the Confederation of Indian Industry Banking Summit.

"Our banks don't have to be world leaders in market capitalisation or in price earning ratios. They must be sound. They must have the ability to take and absorb risk," he said.

He was referring to the Boston Consulting Group presentation on how small and fragmented Indian banks are lagging behind global players in terms of marketcap, profitability and other financial parameters.

Jalan is in favour of a competitive financial structure where foreign banks will have a larger role to play.

"Competition makes you accountable. We are not bothered about ownership of banks," he told the bankers even as Corporation Bank chairman K Cherian Verghese made a strong pitch for closing the doors to foreign banks keeping the national interest in mind."

In 1991, during the crisis, these foreign banks did not help us," Verghese said.

Zarir J Cama, CEO of HSBC India, refused to be drawn into the Swadeshi controversy but said the problem lies in the government ownership of banks.

"I am not going to say whether HLL should be closed down for making Amul the market leader. But the point is why should the government continue to own banks. Why do you want to bring down the government stake to 33 per cent? Why not to zero per cent? There are too many nationalised banks. May be you can start by bringing down the government stake to zero in 50 per cent of them," he said.

Both Cama and Citibank CEO Nanoo G Pamnani made it clear that they should have the right to recast their organisational structure as and when they decide to take over any Indian bank.

"In Poland, Citi has taken over a PSU bank and closed branches. In Mexico also we are recasting a bank, which we have taken over. We must have the flexibility to recast and after that we are ready to play on a level playing field," he said.

Cama said it is not right to expect that once the doors are opened hundreds of foreign bank will come to take over Indian banks.

"In Brazil we have taken over a bank with 1,700 branches. We will not ask for special rules for us. Even priority sector lending is profitable and we will not ask for its waiver. But we mush be able to recast the organisation," he pointed out.

State Bank of India chairman Janaki Ballabh put up a brave face and said that competition is a reality and one has to face it and beat it.

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