Finance Minister of India

2008.01.16

FM's statement regarding deployment of funds of Government Departments/PSUs

In my customary meeting with the CMDs of public sector banks, they brought to my notice that Government Departments were placing their funds with private sector banks rather than public sector banks.

2. Our banking system consists of three kinds of banks:

     (i) public sector banks;
     (ii) Indian private sector banks; and
     (iii) foreign banks.

3. We try to create a level playing field. However, public sector banks have been made responsible for advancing Government's social and economic objectives and that, in some cases, places them at a disadvantage vis-a-vis private sector banks. Those disadvantages ought not to be compounded by Government departments favouring private sector banks with their business; if at all they should lean in favour of any category of banks, Government departments should lean in favour of public sector banks.

4. I am not persuaded that the services rendered by public sector banks are in any way less than the services rendered by private sector banks. In fact, in terms of reach and cover, public sector banks are in a position to render better and more competitive services to their clients.

5. In order to redress the grievance voiced by public sector banks, the Department of Expenditure has, today, issued a circular. The circular contains the decision of the Government which advises Government departments to conduct their business, as far as possible, through public sector banks. Further, a decision has been taken that funds under the control of Ministries/Departments or funds amenable to their control (including funds disbursed by Ministries/Departments to agencies/entities) should, at least to the extent of 60 per cent, be placed with public sector banks.