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 in Mumbai 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 recapitalization 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.
Convert tax gains into higher investments: FM to cos
Finance Minister Pranab Mukherjee sought higher investments from companies in return for boosting their business margins through budget proposals like sparing any hike in excise duty rates.
He also sought help from Corporate India in pushing further the government's economic growth and reforms agenda and said this support was necessary for him to meet their expectations.
"Just as I have to meet up to your expectations to get you to scale new heights of productivity and growth, you also have to meet my hopes, in the process strengthening my hands," he said in opening remarks at post-budget conference organised by industry chamber Assocham in Mumbai on Sunday.
"Reforms are not a one shot exercise; they have to be pursued continuously in keeping with the changing contexts and the growing aspirations of the people. I can do more, when I have the space to do more. You have to do your bit to create that space for me," he added.
Speaking about this year's budget proposals, Mukherjee said that he had "the option to roll back the central excise duty to levels prevailing in November 2008. I have chosen not to do so and retain the rates at 10 per cent for two reasons."
"I would like to see improved business margins translated into higher investment rates. I would also like to stay my course towards GST," he added.
Mukherjee said that he wanted to address some "topical and emerging concerns" through his budget proposals.
"It is only then that I could hope to bring a convergence in the expectations of our investors, entrepreneurs and consumers on the macroeconomic prospects of the economy, and elicit the required response from them," he said.
He listed out five principal objectives for this year's budget proposals, the first being stronger fiscal consolidation to enlarge the resource space for private enterprise.
"Secondly, improving the supply response of agriculture to the expanding domestic demand. Together with fiscal consolidation, it would help in addressing inflationary pressures in the medium term.
The third objective, he said, was to take forward the process of reforms including in the financial sector, and the fourth was a continued thrust on an inclusive development process.
Mukherjee said that the final objective was to undertake reforms for simplifying and placing the administrative procedures concerning taxation, trade and tariffs and subsidies on electronic interface, free of discretion and bureaucratic delays.
"This would also prepare the ground for the implementation of the DTC and hopefully the GST as well, from April 2012," he said.
