Planning Commission member N K Singh said, on Friday, the government should stop managing the functioning of the banks and sought early passage of the Bill on reducing government equity in banks to 33 per cent.

"There is heavy hand of the government in micro-managing banks. This needs to change," Singh told a conference of bank economists, Becon, 2002. Chairing the CEOs' session, Singh said the Fiscal Responsibility Bill and the Bill to reduce the government holding in banks to 33 per cent should be passed immediately.

"This will fundamentally change the operations of banks. The government can be seen in every act of decision making including appointments of heads of banks. We need to have a change in attitude."

Apart from these two bills, the area of human resources development and application of modern technology for seamless transition across the banks are part of the unfinished agenda of banking reforms.

He said one of the reasons for the high cost of finance was because of the cost of financial intermediation, which continues to increase. On the problem of growth in non-performing assets, he said the banks need to guard against manipulating them.

"Are we clear in the hearts of hearts that it is not a product of financial re-engineering?" He said that with the Tenth Plan being approved, a new kind of infrastructure lending has opened up, which should give tremendous opportunity to the banks.

Another area is the Rs 50,000 crore (Rs 500 billion) investment planned for the Golden Quadrilateral. He expected around Rs 100,000 crore (Rs 1,000 billion) investment in the telecoms sector.

Singh said in another 10-15 years, the population of youth will increase, which will open up tremendous opportunity for the banking sector. Canara Bank chairman and managing director R V Shastri, who was part of the panel discussion, said there was need for a new banking order, which will make the banks more competitive, profitable and efficient.

"A new banking order will lend greater role for merger and acquisitions. Some of the criteria for mergers will be the need to be synergy-based mergers for reaping economies of size and scale, mergers which are market-driven rather than bailout considerations, mergers between banks as well as non-banks and financial institutions for furthering bailout considerations."

Shastri said the mergers need also to be scale and location driven and added that better regulatory leeway will provide an enabling environment for mergers.

Union Bank of India chairman and managing director V Leeladhar said the only unchallenged role of the banks was as providers of transaction and settlement systems. "This role is now being challenged by technology with its capability to run the entire transaction and settlement system."

Leeladhar said the branch would eventually emerge as a link between the traditional cost ineffective banking to revenue generating, service providing outlets which increase business volumes by building on quality customer relations and also shape customer behaviour.