Saturday, August 27 2005 15:03 Hrs (IST) - World Time -

MUMBAI: The Government today (Aug 27, 2005) pulled up public sector banks for projecting a slowdown in deposit mobilisation and credit disbursal targets.

"Public sector banks have been consistently outperformed by the new private sector banks in deposit mobilisation. Some of the frontline public sector banks have projected a deposit growth in 2005-06 which is lower than that of 2004-05," Union Finance Minister P Chidambaran said here today (Aug 27, 2005).

Chidambaram, speaking at the Indian Banks' Association annual general meeting, said some of the public sector banks have projected deceleration in advances as well.

"If the rate of growth of the economy in 2005-06 is maintained at seven per cent, it is difficult to understand how business projections by public sector banks, especially desposits and advances, can evidence deceleration in growth," said the Finance Minister.

Chidambaram said that bank credit has to grow with the needs of the economy and deposits have also to be shored up with aggressive mobilisation strategies. "How can the perception of the bankers be so different from that of the rest of the economy? This perception has to be remedied," he said.

The projections of efficiency parameters of public sector banks are also distressing, he said adding the Indian banking sector is known not to have offered very good returns of Capital.

There is gap between the return on assets in India compared with other emerging markets, he said and pointed out that the return on assets of Indian banks stood at 0.7 per cent against 1.2 per cent for Singapore, 1.36 per cent for Malaysia, 1.42 per cent for Korea and 1.6 per cent for Brazil.

In 2004-05, the fall in treasury income would have exerted pressure on the profitability parameters. In the year 2005-06, therefore, one ought to see the profitability and efficiency bouncing back but the Statement of Intent furnished by the banks does not hold out hope on this count, with the stagnation or decline projected in the profitability parameters for most public sector banks, the minister said.

"I do not intend to prod public sector banks to indicate over-ambitious and unrealistic tragets. However, we cannot accept targets which do not strategically mobilise the inherent advantages of these banks in terms of their footprint, manpower and sovereign ownership for achieving sustained improvement in efficiency, profitability and growth," he said.

Referring to the autonomy to the public sector banks, Chidambaram said the government would monitor their performance through the Statement of Intent which have been drawn up by the bank managements.

"The Statement of Intent is limited to the aspects relating to growth and profitability parameters, performance in respect of national priorities and credit management," the minister said.

Measures have already been announced to grant complete managerial autonomy to these banks in keeping with the clearly delineated ownership role, he said. "Government is examining further areas of improvement identified by the IBA such as remuneration package for retaining the top management, delegation of powers to the respective board for appointing statutory central auditors and doing away with the jurisdiction of CBI/CVC over the officers of the public sector banks," he said.

He also said that the transparency and disclosure standards are important constituents of a sound corporate governance mechanism aligned with international best practices.