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Stability is the most important factor for banks now: FM

business Updated: Jul 14, 2010 13:36 IST

Finance Minister Pranab Mukherjee on Wednesday said stability is the most important factor for banks in the wake of the global meltdown that has changed the financial architecture altogether.

"The global meltdown has changed the financial architecture altogether. Now the banks are focusing on financial stability, not size and scale and how to keep the confidence of public on banking. Risk management is looked upon as a deciding factor at this juncture," Pranab Mukherjee said at a bank awards function organised by the Financial Express.

Indian banks have to adopt the best management practices to keep in tune with global developments, he said.

Keeping in view the need to enhance the resilience of the global system, several prescriptions are being considered by policy makers, Mukherjee said.

These mostly cover issues such as enhancing transparency, strengthening risk management, a framework including government arrangements in banks and financial institutions, regulating ratings agencies and modifying monetary policy makers' operational frameworks, he said.

Speaking about financial inclusion, the Finance Minister said competing needs for the financial resources required for high growth necessitate that these resources should be used at the maximum possible efficiency.

"The financial intermediation for these financial resources should be cost-efficient and allocation efficiency should be high," Mukherjee said.

The role of the banking sector is to safeguard the citizens who were left out of the growth process. It also raised a lot of questions on the financial integration of people of small ticket size who needs basic financial services, he said.

A robust banking sector working under a strong regulatory framework can become a boon to a large section of smaller but important customers that have a direct bearing on the economic environment by participating in economic activities, the Finance Minister said.

Clearly, this activity highlights the importance of banking of the uncovered population. However, in order to achieve this objective, there are numerous challenges, especially relating to an integrated and coherent policy approach, he said.

This also highlights the need for pursuing an effective institutional mechanism that supports equitable and inclusive development, Mukherjee said.