Tarapore advocates privatisation of SBI

He was of the view that these measures would strengthen the financial sector, which is the critical precondition for successful implementation of CAC. He suggested amendment of the SBI Act to end central bank’s ownership of the State Bank, clearly separating ownership from regulation and supervision of banks.

However, he was non-committal on the time frame by which Indian rupee could become fully convertible. While the committee has set 2000 AD as target, it would depend on the fulfillment of certain preconditions such as bringing down the cash reserve ratio to three per cent and NPAs to five per cent, and a total deregulation of interest rates. Tarapore also underlined the need for sharp reduction in NPAs. In his view the matter of NPAs is a make or break issue for the Indian financial system.

As such early measures need to be taken up to shore up the bottomlines of banks and in an increasingly competitive environment, banks will have the option of widening their spreads to compensate for the high level of NPAs, he added. Referring to the East Asian crisis and its impact on the CAC, Tarapore said wrong conclusions should not be drawn from this. "It is totally erroneous to argue that if we refrain from moving to CAC, we would avoid the contagion effect", he said.