Tuesday, June 7 2005 17:41 Hrs (IST) - World Time -

Dusseldof (Germany): Finance Minister P Chidambaram has said crucial financial sector reforms are required, if India has to maintain a seven per cent growth rate, listing out banking, insurance, pension and capital markets as immediate priority areas.

"Without financial sector reforms, we cannot maintain a growth rate of about seven per cent and our Government will carry them forward in the next six months," Chidambaram said in Dusseldof, late last evening (Jun 6, 2005).

Addressing members of the Indo-German Chamber of Commerce, the Finance Minister said that even as the Government had taken steps to liberalise the banking sector, Indian banks required to provide resources for meeting growing demand of trade.

"If India has to have a seven per cent growth rate, India must also provide the credit required for foreign trade, which is growing at about 24 per cent a year. Indian banks would have to raise about $ 10 billion of additional capital in next 2-4 years," he said.

Even as he advocated for "major reforms" in the banking sector, Chidambaram said the Indian banking sector was far ahead of China.

"As of March 31, 2005, non-performing loans of our banks were a shade below three per cent. This year, our intention is that this should go down below two per cent. In China, non-performing loans stand as much as 40 per cent," the Finance Minister said.

Chidambaram said that India has already raised the FDI cap in Banks to 74 per cent and sectoral caps were constantly being reviewed.

On the insurance front, he said that the Government has the intention to raise the cap to 49 per cent from the present 26 per cent. "We will introduce a bill for this in the Parliament shortly and it may take a few months to pass," he said.

Chidambaram said that the entry of private players in life and non-life insurance had broken the monopoly of State-owned companies and made the sector more competitive and efficient.

"Today, private insurance companies occupy 25 per cent market share and insurance penetration and insurance premium to GDP improved drastically," he said, though adding that India was "still behind world standards" and thus required reforms in the sector.

On pensions, the Government has kicked of efforts to make the system self-sufficient. "As per our plans, every worker in government or private sector can save for his pension during his working life," he said, adding that a Bill for regulating the sector was already in the Parliament.

Chidambaram said that India has one of the best-regulated capital market structures in the world. He pointed out to the May 17, 2004, market crash and said the strong monitoring and regulatory structure ensured that there was not a single payment default and every trade was settled and paid for.

He said that National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) were one of the biggest stock exchanges in the world. "Both have national foot-print and surveillance is extremely strong in both," he pointed out.