Saturday, June 24 2006 13:42 Hrs (IST) - World Time -

Bangalore: Prime Minister Manmohan Singh today asked public sector banks to explore the possiblities of consolidation to take on their bigger rivals foreign banks in India and increase their presence in overseas market.

"They (PSU banks) need to seriously examine possibilities for consolidation of PSU banks to give them both depth and reach. They must also devise effective global strategies for improving their international presence," Singh said at the centenary celebration of Canara Bank here.

Pointing out that increased presence of foreign banks over time will pose further competitive challenges to domestic banks and also to the regulator, he said domestic banks are smaller in size relative to their international competitors, which are now very large indeed.

"If these large banks have emerged as a result of real economies of scale and scope, our own banking system will have to respond in kind both domestically and abroad," the Prime Minister said.

Singh said agriculture credit has been cause for considerable concern to his government as high interest rates and a serious debt overhang still affect millions of farmers.

"In spite of a doubling of agricultural credit in three years, which we will achieve by the end of the year, there are vast uncovered gaps. Many regions and many classes of farmers are completely outside the institutional credit delivery systems. This cannot be allowed to persist," he said.

The Prime Minister suggested to Finance Minister P Chidambaram to constitute a group to formulate policies that will promote financial inclusion.