Jalan unveils 7-point agenda for banking sector reforms

By Our Special Correspondent

MUMBAI, FEB. 3. The Reserve Bank of India Governor, Dr. Bimal Jalan, unveiled a seven point agenda for continuing with the reforms in the banking sector. This included a close look at the interest rate rigidities in India, development of the debt market, resolution of NPAs, restructuring weak banks, legal reforms, human resource development and revamping delivery systems.

Inaugurating the National Conference on Banking Sector Reforms organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), here Dr. Jalan called for greater attention to improving the image of the private sector. He said the investing public was reposing greater faith in the debt instruments of public sector undertakings especially that of IDBI. ``We have to introspect together the reasons for such public behaviour and take corrective steps to increase the faith of the investing public in private sector debt instruments,'' Dr. Jalan added.

Mentioning that of the 25 per cent domestic savings in GDP, 10 per cent was being accounted for by the financial sector, Dr. Jalan said there should be an all out effort for enhancing the savings for more investment. As the Indian financial sector was getting globally linked, there would be both negative and positive externalities which India had to put up with. The banking sector, he said, should be seen as a link of the financial sector which included the capital market, debt market and foreign exchange market.

Giving the valedictory address, Mr. M. Narasimham, former RBI Governor, who headed the committee on banking sector reforms, said, it was time to consider repealing the Bank Nationalisation Act and State Bank of India Act to convert banks into companies under the Companies Act and bring them under the regulating discipline of the Reserve Bank of India.

He said government ownership in banks should be brought down to 33 per cent and foreign ownership to the extent of 33 per cent allowed. At any point of time, two-thirds of the equity should be in Indian hands and two-thirds in private hands. ``A measure of foreign ownership would help in operational and technological modernisation and provide greater access to international funding,'' he added.

Mr. Narasimham also laid emphasis on staff rationalisation, re- deployment and retraining. Wherever required there should be mutually negotiated voluntary retirement scheme. Mentioning that underlying the high level of non-performing assets (NPAs) were the deficiencies and weaknesses of the legal system, he said there was inadequate protection for enforcement of contracts.

According to him, a reform of the legal system which provided for equality of treatment between debtor and creditor and for expeditious settlement of claims and enforcement of contracts were required.

He said he was opposed to the recapitalisation of banks in principle but added that, ``I see merit in the Verma panel suggestions with regard to recapitalising the weak banks''. At the same time, he mentioned that one should look at the various options with regard to weak banks not excluding closure after taking into account the interests of depositors and labour.

Mr. A. Pannir Selvam, Chairman, Indian Banks Association (IBA), said NPAs could never be got rid off under the present legal system. He said the NPA had peaked to Rs. 58,000 crores. Said Mr. Selvam,

``The shake out in industry and commerce has not yet manifested in full. What that happens, let it not surprise anyone that the figure will balloon past Rs. 100,000 crores, may be in the next three to four years.''

Mr. G. P. Goenka, President, FICCI, said closure of banks was certainly not the answer or solution to this problem. ``We cannot afford to simply pass on the deposits of these banks which are to the tune of Rs. 48,000 crores to the healthy banks,'' he said, concluding, ``these are not large accounts, but small accounts spread over the country and secondly, we cannot simply by a stroke of the pen take away 75,000 jobs.''

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