Dear Mr Chidambaram, The Indian banking community has never let you down. After the United Progressive Alliance (UPA)-led government came to power, you had exhorted the public sector banks to double their exposure to agriculture loans in three years.They have obliged you. You had also directed them to offer small farm loans at a concessional rate of 7%.
The bankers never said no to it. The CEOs of public sector banks that account for close to 70% of the industry have a special affinity for you as very few Indian finance ministers in the past have understood the sector the way you do.
You played a major role in opening up the health insurance business ahead of life and general insurance sectors. You were also instrumental in setting up the Infrastructure Development Finance Corp.
and local area banks. Every time the CEOs meet you, they find in you an ally, a great believer in financial sector reforms and consolidation in the banking landscape.
Despite your best efforts you have not been able to do much on this front but they don�t blame you for this as they are aware of the opposition from the Left, without whose support the UPA government cannot survive. Successive budgets have turned into empty promises as far as the Indian banking sector is concerned.
For instance, in 2000, your predecessor Yashwant Sinha made a big-bang announcement of bringing down the government holding in public sector banks to 33%. But nothing has happened on this front yet.
Another long-pending issue is the removal of cap on voting rights for private banks. Both Sinha and Jaswant Singh, former finance minister, announced the removal of 10% cap on voting rights in private sector banks.
You too promised this in the 2005 budget but the necessary amendment to the Banking Regulation Act, 1949, is still awaited. Another contentious issue is foreign investments in Indian banks.
While private banks can offer up to 74% stake to foreign investors, public sector banks cannot offer them more than 20%. Naturally, both sets of banks are bound of have different valuations on bourses.
No finance minister has dared to discuss this in Parliament as this is again a politically sensitive issue. But there are other issues that need your attention.
They will not raise the red flag for the Left but if you address them, they will create a level playing field for the public sector banks. One such issue is the different tax structure for different savings instruments.
For instance, one does not need to pay tax when one earns dividend from investments in mutual funds. Also, there is no capital gains tax if one stays invested in stock market for a year.
http://in.news.yahoo.com/mint/20080225/r_t_mint_bs_budget08/tbs-an-open-letter-to-the-finance-minist-a839eca.html
