DARE - Because Entrepreneurs Do

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has supported recommendation of Committee of Financial Sector Assessment headed by RBI Dy. Governor, Rakesh Mohan for consolidation in Indian banking system, adding that foreign banks should at once sell 26% of their stake in their local subsidiaries in India.

In a statement issued here, the ASSOCHAM Secretary General, D S Rawat said that after foreign banks start offloading their 26% stake in local subsidiaries, these will not only be treated on par with Indian banking system but also be able to open up local branches to help them achieve targets for priority sector lending.

The ASSOCHAM Secretary General said that currently in practice, the schedule commercial banking honor their priority sector lending targets as per stipulations and guidelines of Reserve Bank of India. MNC bank’s lending targets are different and therefore time has come when MNC bank’s should be asked to offload their 26% stakes to local institutions so that enough liquidity is raised for infrastructure funding.

On the other hand, the ASSOCHAM holds that while consolidation and mergers  should be expedited within schedule commercial banks as per existing stipulations of RBI.  However, on the issue of reducing government stake in schedule commercial banks below 51% should be done with a consensus approach and the government should take a cautious view on it so that the fundamentals of Indian financial system especially in its banking sector remain unaffected following meltdown which has arisen due to failure and collapse of financial systems in US.

Rawat said that banks consolidation is the need of hour and especially the consolidation process should hasten with State Bank of India but disinvestment of government equity below 51% in the Indian schedule commercial banks should be done cautiously and in a phased manner.

The ASSOCHAM on the other hand has recommended that interest rates should further come down for which the RBI should reduce the cash reserve ratio, reverse repo rate and repo rate by 50 basis points. By so doing, the housing, real estate, the textile, the auto sector would be able to access liquidity at rates around 8%.

The ASSOCHAM also feels that the scope for 50 basis points reduction in CRR, RR and RRR is still their and the RBI should declare its intention for so doing before its roll outs credit policy sometimes in the 3rd week of April 2009, said the Secretary General ASSOCHAM.

Source: ASSOCHAM

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