Govt, RBI working to lower banking costs: FM

Mumbai: Expressing concern over high costs and limited reach of banking services, Finance Minister Pranab Mukherjee on Sunday said that the government was working in collaboration with RBI to address these concerns.

"The cost of banking intermediaries in India is high and bank penetration is limited to only a few customer segments and geographies," Mukherjee said on Sunday.

"We are trying to address this in collaboration with the Reserve Bank of India, and with the active participation of the banking and non-banking financial entities," he added.

Mukherjee also said that there was a need to "reflect upon possible flaws in our system and address them to withstand adversities. We need to make our financial sector more competitive by enhancing efficiency and transparency."

"While greater competition is welcome, we have to guard against the competitive race to the bottom," he said, while expressing hope that this perspective would guide the growth of Indian banking system in the coming years.

Mukherjee was speaking at Sir Sorabji Pochkhanawala Memorial Lecture 2011 as part of the centenary celebrations of Central Bank of India. The PSU bank was set up by Sir Sorabji Pochkhanawala.

The Finance Minister said that PSU banks were playing a very important role in India's economic growth and they constitute over 72 per cent of the banking sector assets in the country.

"While they are expected to improve their outreach and scalability for sustaining high growth of the economy, they are second to none in retail banking practices and profitability.

"There are, however, several concerns that need to be fully addressed," Mukherjee said, in reference to the issues like high costs and need to expand the banks' reach to more customer segments and geographies.

The minister said that most of the financial sector policies in the past few decades were aimed at accelerating the penetration of the banking and financial services.

"However, as I said, the outcomes of these efforts are yet to show the desired results. Newer perspectives and approaches towards financial inclusion are the need of the hour.

"There is a case for the policy makers and other stake holders to re-strategize the financial policies that are meant to reach the un-reached and the unbanked sections of our country," he added.

To address the issue of capital constraints faced by the PSU banks, Mukherjee said the government had provided over Rs 20,000 crore towards recapitalisation of public sector banks during 2010-11.

"An additional amount of Rs 6,000 crore is also being provided for 2011-12. This will enable the PSBs to meet the credit requirements of the growing economy," he added.