Banking norms will not be relaxed: Jalan

CHANDIGARH, Feb 18: Dr Bimal Jalan, Governor, Reserve Bank of India RBI, today turned down the industry's request for relaxation in ban...

CHANDIGARH, Feb 18: Dr Bimal Jalan, Governor, Reserve Bank of India RBI, today turned down the industry8217;s request for relaxation in banking norms during the on-going recession.

In an interaction with the captains of North Indian industry organised at the CII Northern region headquarters here today, the RBI chief said the banking sector needed to adhere to regulatory and prudential norms conforming to international standards. In fact, the norms regarding non-performing assets NPAs needed to be stricter, he said.

Jalan said the banks should reduced NPAs from the present level of 9 to 11 per cent to five per cent by 2000 and three per cent by 2002. While the high NPAs were reducing the profits of the banks and flow of funds, what was heartening was the fact that the international community had faith in the Indian banking system, he observed. But things can go wrong if the industrial recession was allowed to be transmitted to the financial system.

The RBI Governor said the transaction cost in the Indian bank sector was 2.5 to 3 per cent, which was extremely high because of which real interest rates will not come down to the international level. But he was open to the CII suggestion on switching over to more contemporary technologies in the banking system to cut down these costs and improve efficiency.

Talking about the small scale sector, Jalan said in addition to SIDBI, all commercial banks were now permitted to do factoring for small industry. In response to a question about the status of state financial corporations and state industrial development corporations, the RBI chief said the apex bank had taken up the matter with the IDBI. The IDBI was planning to set up a high-level committee to review the policy, he said.

S. K. Munjal, Deputy Chairman, CII Northern region and I. S. Paul, Chairman, CII Chandigarh Council, raised issues related to directed credit and highly non-competitive exchange rates. CII also urged the RBI to relax curbs on foreign exchange transactions. Expressing the need for greater transparency in banking, CII expressed the view that the government should permit the banks to decide whether loss was caused by a bad business decision or malintent. In response, Jalan said the RBI had initiated a dialogue with the Central Vigilance Commission and the Central Bureau of Investigation. CII also raised the issue of creation of a true money market in India with an inter-bank rate which would, in turn, generate additional sources of long-term funding.

Meanwhile, the PHD Chamber of Commerce and Industry PHDCCI has pleaded for easy availability of bank finance to trade and industry, particularly the small and medium enterprises, in view of the present recessionary trends. PHDCCI president Ashok Khanna said the fear psychosis regarding non-performing assets affected, led to reluctance among the bankers to lend funds to SMEs.