Reddy dubbed the privatisation of banking sector as a very simplistic approach. "If the Government recapitalises banks, there will be pressure on the fisc. But privatisation is too simplistic a solution. If the banks are weak -- even if they are privately held -- the fisc will be hit," he said out.

He called upon public sector banks to adopt a new approach and start selling new products including mutual funds and insurance through their branches and even use NBFCs as an intermediary to penetrate the rural market.

According to him, the future for public sector banks' rural banking lies in providing a package of financial services in the rural areas. With their network, the public sector banks have a competitive advantage in delivering financial services to rural market which is ready to accept these services especially the semi-urban areas which are booming, he said. There was consensus among bank chiefs for redefining the rural banking structure and systems.

The need was felt for relaxing the regulatory constraint in the allocation of credit flow and providing sufficient elbowroom for making rural banking more effective and productive. Reddy said as the mechanisms for delivering priority sector lending had proved to be unproductive or were delivered at a high cost, offering a bundle of financial services along with banking could be a way of sustaining priority sector lending. There can be a paradigm shift in priority sector lending with banks taking responsibility for both mobilisation and allocation of resources through other available intermediaries and NBFCs, he said.

Reddy indicated that the days to come would be tough for the banks as they were going to be a just another part of a larger financial market. The development of debt markets would also reduce the dependence of corporates on banks, he said.

"All this requires enormous internal management and the crux of the solution likes in blending human resources with information technology," Reddy said.Reddy said the structural impediments to exercise flexibility and autonomy and bring about structural rehabilitation would need to be reviewed. The NIBM would be preparing a paper on the meet outlining the agenda for banking in the new millennium.