core sector communique

‘Challenges before the Banking Sector in the present Economic Scenario’ In an Interactive Session organised by Merchants’ Chamber of Commerce (MCC) on ‘Challenges before the Banking Sector in the present Economic Scenario’ today, Shri Arun Kaul, Chairman & Managing Director of UCO Bank stated that Indian banks have better capital adequacy than many banks in the Western world with CAR for all scheduled commercial banks estimated to be 14.17 p.c. which was well above the minimum requirement of 9 p.c. But to meet Basel III norms, banks would be facing challenges in raising additional capital for growing at 8 p.c. He was of the opinion that illiquidity of banks could threaten its solvency and also adversely affect the stability of the financial system. In the days ahead, Indian Banks would face increased competition and there would be pressure on banks in managing profitability and maintaining asset quality. Shri Kaul stated that resource mobilisation through Euro issues during the first half of 2011-12 at Rs 1783 Cr. fell by more than 75 p.c. from Rs 7443 Cr. in the first half of 2010-11. If euro crisis lingered then it might affect the availability and cost of debt in future. He was of the opinion that the banking industry must find a solution to the complex challenge of formulating an economically viable model for financial inclusion. In view of the pressure on both corporate profitability and public finance, banks will have to bank on household savings for resource mobilisation. The de-regulation moves initiated by RBI will bring competition from foreign and private sector banks for the Indian banking sector. He said that NPAs of banks are rising due to building up stress in sectors like telecom, real estate, textiles, SMEs and construction. In the coming days, implementing IFRS w.e.f. 01 April, 2013, shortages of experienced human resources as senior officers would retire in next 2-3 years, entry of foreign banks, leveraging technology and bringing innovation by ensuring security would be the challenges that PSU banks have to face. Shri Deepak Jalan, Sr. Vice President, MCC in his welcome address mentioned that India had the highest number of households(145 million) excluded from Banking services and only 27 p.c. of total farm-households were indebted to formal sources despite the vast network of bank branches across the country. He felt that low credit deposit ratio (CDR) in West Bengal was perplexing which might be an outcome of bank’s aversion to extend credit to the SMEs in particular.