Committed to infusing funds in public sector banks,says FM

A slowdown in Indias economic growth could impact the quality of assets in the banking system, he said.

Although Mukherjee did not elaborate on the subject,he said since 2008,the global turmoil has been hurting the banking sector and observed that fresh challenges were emerging that merited the attention of policy makers.

Speaking at a banking conference in the city,Mukherjee observed that while the US sub-prime mortgages were the major source of global worries in 2008,the sovereign debt crisis in Europe was now adding to economic woes.

Indias GDP is forecast to grow at 6.9 per cent for the fiscal year 2011-12,and 7.6 per cent for the fiscal year 2012-13. This is lower than the 8.4 per cent growth in 2010-11. He said that in these times of distress,the need for a sound banking system,robust liquidity management,settlement and payment system and risk managing ability becomes vital.

The finance minister also stressed the need for transparency,risk management frameworks and capital adequacy based on Basel III norms.

Lauding the banking regulatory framework in the country,Mukherjee referred to to the Reserve Bank of Indias Financial Stability Report,released in December 2011,saying the domestic financial system had remained stable and robust at a time when the banking sector has been a troubled industry globally.

The success of the banking system has been thanks to its cautious approach. The Indian banking industry did not have to receive any protection or bailouts, he said.

The finance minister said banks also needed to lay more stress on financial inclusion to bridge the divide between India and Bharat. Calling for the need to reach more unbanked areas,the FM said that path-breaking programmes like the Swabhiman scheme,business correspondents as well as micro branches need to be nurtured.

The finance minister,however,stressed on the need for Indian banks to raise fresh capital to meet the Basel III capital adequacy norms.

Under these guidelines,the quality of the 9 per cent capital required to meet capital adequacy requirements is higher. At present,capital is split almost evenly between tier 1 and tier 2.

Under Basel III,tier 1 will constitute 7 per cent out of the total 9 per cent.

The other change is that banks will be required to have a capital conservation buffer,comprising common equity,of 2.5 per cent. That takes the total capital requirement to 11.5per cent.