Union Finance Minister Shri Pranab Mukherjee’s Speech at Business World Best Bank Awards in Mumbai on November 19, 2011
Following is the text of the speech :
I am very happy to be here at the Businessworld Best Bank awards once again. Your event is becoming popular in highlighting the importance of banking activities and their expansion for economic development. I am happy to see some of our distinguished bankers in this room today.
2. The global financial scenario continues to be volatile and uncertain. The Global Financial Stability Report of the International Monetary Fund states that the financial crisis is deepening. The indications are that we may have to face prolonged repercussions. Unlike the financial crisis in 2008-09 when the banking system in the US was the source of instability, the current round of troubles comes from the fear of sovereign default in Greece, Italy and some other Euro-zone peripheral countries.
3. As a globalised economy, India cannot remain unaffected by these developments. Our external trade and capital flows are likely to face pressures from these developments. At the same time, these developments are markers of shifting balance in the global economy, presenting new opportunities for us. India’s robust performance in difficult times shows that we could actually come out stronger from these crises. We have to be alert to shape real-time policy responses, reform systems, improve the regulatory framework of our institutions and make the most of the opportunities coming our way. Indeed, we have the necessary fundamentals to take the economy on a path of sustained high growth in the medium to long-term.
4. Banks can play a critical role in this context. The economic growth India has achieved in the last decade could not have been achieved without the banking sector’s response to corporate and small industry entrepreneurship. They provided the needed finance, at a price that was affordable at that time and without compromising on the business fundamentals of banking. A broad-based banking system is an important means to convert physical savings into financial savings, which has the potential to unlock value for consumers, financial institutions and for the nation. Indeed, financial deepening is imperative for meeting the huge resource requirement for infrastructure development.
5. In contrast to the financial system in the west, Indian financial system remains well capitalized with moderate levels of leverage, a stable deposit base, and relatively safe investments. With sustained growth in the real sector, banking is bound to see a huge scale-up in the present decade with new operating systems, delivery channels and methods and techniques to manage the risks associated with such growth. There is significant scope for the growth of banking assets from the current level of about 30 per cent of GDP and a change in their composition between the public and the private sector. In short, a paradigm shift in banking systems and technology is possible and desirable.
6. The Businessworld Best Banks survey reiterates my own views – that the Indian banking system is more stable than those that operate in many of the developed countries. The prudent risk practices that the Indian Banks follow make them far safer than many of their global peers. I would like to commend the banks present here for their performance so far.
7. Going ahead, the momentum of expansion in domestic banking services needs to be sustained, even as global growth remains weak and uncertain. The financial sector has to be prepared for the possibility of systemic impact of sovereign debt crisis in Euro-zone countries. We also need to overcome domestic concerns including those related to risk management practices, capitalization issues of the public sector banks and the threat posed, in some cases, by their growing non-performing assets.
8. I would like to share that the financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. We have taken steps in recent months, to take this process forward. Legislations have been introduced in the Parliament to address some issues in the financial sector including insurance, banking, and pension sectors. The Banking Laws (Amendment) Bill, 2011 seeks to strengthen RBI’s regulatory and supervisory powers in the Banking Regulation Act, 1949. Some amendments are also proposed to the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 and 1980 to grant greater flexibility to nationalized banks in raising capital to meet the requirements of expanding banking business.
9. We have set up Financial Sector Legislative Reforms Commission to review financial sector laws with the objective of bringing them in tune with current requirements and global best practices. An apex-level Financial Stability and Development Council has been established and is functioning to strengthen and institutionalize the mechanisms for maintaining financial stability and improving the inter-regulatory coordination.
10. There is one area where I would like our banks to do much more than they have been doing so far. And this is in the area of financial inclusion. A sizeable area of the country – especially the rural areas – remains under-banked. While our public sector banks have set up many branches in remote villages, I would like our private sector banks to also cater to the banking needs of the rural poor. It will go a long way in mitigating the problems that our farmers face in accessing credit properly. That is also the area of future growth for banks.
11. Financial inclusion is an important priority of the Government as only about 38 per cent of Scheduled Commercial Banks branches are in rural areas and only about 40 per cent (of the country’s population has bank accounts. As per National Sample Survey Organization’s data as many as 46 million farmer households in the country representing over 51 per cent of the total households do not have access to credit from formal institutional or non-institutional sources. Of the total farmer households, only 27 per cent access formal sources of credit.
12. Inclusive growth as a strategy for economic development aims at making products and services, including financial services, available to those who for various reasons stand excluded. Financial inclusion is important as it provides an avenue to the poor for bringing their savings into the formal financial system, an avenue to remit money to their family in villages, besides weaning them away from the clutches of the usurious money lenders. It is essential to extend banking services in the rural hinterland at the earliest in order to include these regions in India’s growing prosperity. The provision of banking and financial services to the rural hinterland would be an enabler for inclusive growth.
13. I appreciate the fact that the Businessworld Best Bank awards have a separate category for financial inclusion. It recognizes the bank that has the best performance in bringing banking services to the poor.
14. Good work is generally noticed and appreciated. That itself is a reward for good work. I feel that an annual event, such as this one, is a great contribution to that process. It is also an occasion to introspect and set new benchmarks for improved performance in the future. Let me conclude by thanking the organizers for having invited me for this function. My congratulations to all the winners of today’s awards. May you all do even better next year and many more join your ranks with their renewed efforts to do better.
Following is the text of the speech :
I am very happy to be here at the Businessworld Best Bank awards once again. Your event is becoming popular in highlighting the importance of banking activities and their expansion for economic development. I am happy to see some of our distinguished bankers in this room today.
2. The global financial scenario continues to be volatile and uncertain. The Global Financial Stability Report of the International Monetary Fund states that the financial crisis is deepening. The indications are that we may have to face prolonged repercussions. Unlike the financial crisis in 2008-09 when the banking system in the US was the source of instability, the current round of troubles comes from the fear of sovereign default in Greece, Italy and some other Euro-zone peripheral countries.
3. As a globalised economy, India cannot remain unaffected by these developments. Our external trade and capital flows are likely to face pressures from these developments. At the same time, these developments are markers of shifting balance in the global economy, presenting new opportunities for us. India’s robust performance in difficult times shows that we could actually come out stronger from these crises. We have to be alert to shape real-time policy responses, reform systems, improve the regulatory framework of our institutions and make the most of the opportunities coming our way. Indeed, we have the necessary fundamentals to take the economy on a path of sustained high growth in the medium to long-term.
4. Banks can play a critical role in this context. The economic growth India has achieved in the last decade could not have been achieved without the banking sector’s response to corporate and small industry entrepreneurship. They provided the needed finance, at a price that was affordable at that time and without compromising on the business fundamentals of banking. A broad-based banking system is an important means to convert physical savings into financial savings, which has the potential to unlock value for consumers, financial institutions and for the nation. Indeed, financial deepening is imperative for meeting the huge resource requirement for infrastructure development.
5. In contrast to the financial system in the west, Indian financial system remains well capitalized with moderate levels of leverage, a stable deposit base, and relatively safe investments. With sustained growth in the real sector, banking is bound to see a huge scale-up in the present decade with new operating systems, delivery channels and methods and techniques to manage the risks associated with such growth. There is significant scope for the growth of banking assets from the current level of about 30 per cent of GDP and a change in their composition between the public and the private sector. In short, a paradigm shift in banking systems and technology is possible and desirable.
6. The Businessworld Best Banks survey reiterates my own views – that the Indian banking system is more stable than those that operate in many of the developed countries. The prudent risk practices that the Indian Banks follow make them far safer than many of their global peers. I would like to commend the banks present here for their performance so far.
7. Going ahead, the momentum of expansion in domestic banking services needs to be sustained, even as global growth remains weak and uncertain. The financial sector has to be prepared for the possibility of systemic impact of sovereign debt crisis in Euro-zone countries. We also need to overcome domestic concerns including those related to risk management practices, capitalization issues of the public sector banks and the threat posed, in some cases, by their growing non-performing assets.
8. I would like to share that the financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. We have taken steps in recent months, to take this process forward. Legislations have been introduced in the Parliament to address some issues in the financial sector including insurance, banking, and pension sectors. The Banking Laws (Amendment) Bill, 2011 seeks to strengthen RBI’s regulatory and supervisory powers in the Banking Regulation Act, 1949. Some amendments are also proposed to the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 and 1980 to grant greater flexibility to nationalized banks in raising capital to meet the requirements of expanding banking business.
9. We have set up Financial Sector Legislative Reforms Commission to review financial sector laws with the objective of bringing them in tune with current requirements and global best practices. An apex-level Financial Stability and Development Council has been established and is functioning to strengthen and institutionalize the mechanisms for maintaining financial stability and improving the inter-regulatory coordination.
10. There is one area where I would like our banks to do much more than they have been doing so far. And this is in the area of financial inclusion. A sizeable area of the country – especially the rural areas – remains under-banked. While our public sector banks have set up many branches in remote villages, I would like our private sector banks to also cater to the banking needs of the rural poor. It will go a long way in mitigating the problems that our farmers face in accessing credit properly. That is also the area of future growth for banks.
11. Financial inclusion is an important priority of the Government as only about 38 per cent of Scheduled Commercial Banks branches are in rural areas and only about 40 per cent (of the country’s population has bank accounts. As per National Sample Survey Organization’s data as many as 46 million farmer households in the country representing over 51 per cent of the total households do not have access to credit from formal institutional or non-institutional sources. Of the total farmer households, only 27 per cent access formal sources of credit.
12. Inclusive growth as a strategy for economic development aims at making products and services, including financial services, available to those who for various reasons stand excluded. Financial inclusion is important as it provides an avenue to the poor for bringing their savings into the formal financial system, an avenue to remit money to their family in villages, besides weaning them away from the clutches of the usurious money lenders. It is essential to extend banking services in the rural hinterland at the earliest in order to include these regions in India’s growing prosperity. The provision of banking and financial services to the rural hinterland would be an enabler for inclusive growth.
13. I appreciate the fact that the Businessworld Best Bank awards have a separate category for financial inclusion. It recognizes the bank that has the best performance in bringing banking services to the poor.
14. Good work is generally noticed and appreciated. That itself is a reward for good work. I feel that an annual event, such as this one, is a great contribution to that process. It is also an occasion to introspect and set new benchmarks for improved performance in the future. Let me conclude by thanking the organizers for having invited me for this function. My congratulations to all the winners of today’s awards. May you all do even better next year and many more join your ranks with their renewed efforts to do better.
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