Finance Minister P. Chidambaram on Thursday warned Indian banks that they needed to undertake massive reforms to be able to compete globally. He said that while several Indian companies like Telco, Wipro, Ranbaxy and Infosys were truly global companies, only 20 Indian banks were in the top 1,000 banks in the world. He said poor credit quality, bad loans and refusal to categorise them as Non Performing Assets (NPAs) had affected performance of banks. Calling for a new chapter on banking reforms, Chidambaram announced a slew of legislations to be brought by the government in the winter session of Parliament, including amendments to the Securitisation Act and Regulation of Credit Information Companies. Speaking at a special session during the bankers’ comnference BankCon, Chidambaram said the government would have to consider bringing in a legislation on lenders’ liability if banks failed to adhere to the Reserve Bank’s ‘‘fair practices’’ code on keeping privacy of information about borrowers. ‘‘While the Supreme Court has upheld the Securitisation and Reconstruction of Financial Assets Act, it has asked for amendments in Section 17(2) of the Act and these amendments will be brought in the winter session of the Parliament,’’ Chidambaram told bankers. The proposed amendments were aimed at dissuading borrowers from adopting ‘‘dilatory’’ tactics and enabling creditors to effect speedy recovery, he said. The FM also said the government proposed to bring Credit Information Companies Regulation Bill in the winter sesssion of Parliament,’’ he said. Stating that information was vital to credit quality, Chidambaram said it would not only do away with the hassles for the borrowers but also help banks in speedy appraisals. In order to protect creditors’ privacy, the FM said ‘‘we propose to bring about a law to provide legal sanctions for collection, sharing and regulated dissemination of credit information.’’ He said many of the borrowers, especially self-help groups and those seeking PMRY, were not informed about the interest rate being charged. In many countries, banks are mandated by law to respect the rights and interests of lenders, depositors and the other customers. There is a demand for similar law in India, the FM said. He said banks needed to get into a consolidation mode. However, mergers should be based on synergies and not merely creating bank behemoths. Warning that the high profitability of banks may not last long, Chidambaram outlined a seven-point agenda to tone up their functioning by building systemic capability to make them profitable and globally competitive. He said banks needed to ensure diversification of loans, raise non-fund income, reduce operating expenses, improve management of risks relating to markets and cut operational risks. He said banks needed to ensure that robust risk scoring ways are put in place to ensure better quality of loans and earn risk-adjusted returns. He also stressed on the need for improving quality credit monitoring systems to arrest slippage in asset quality.
