Sinha calls for transparency in banking operations

By Our Special Correspondent

MUMBAI, OCT. 12. The Union Finance Minister, Mr. Yashwant Sinha, has pointed out to the need for a law to comprehensively deal with the problem of insolvency, breach of contract, defaults and enforcement of security.

Inaugurating BancIT 2001, a conference on banking and technology here today, he said wilful defaults were a major cause for non- performing assets (NPAs) lying with banks today. Stressing the need for transparency and accountability in banking operations, he said this was essential for ensuring sound and stable financial system.

Noting that the Basle core principles had identified a number of challenging areas for regulators and supervisors. Mr. Sinha said realistic valuation of assets, public disclosure norms and prudential reporting by banks would help depositors and investors form an informed opinion about the state of the financial system.

Noting that the financial markets were prone to herd mentality. Mr. Sinha said negative externalities could destabilise financial markets. He emphasised that a stable and healthy financial system was essential to do business with the rest of the world. He observed that public intervention policies in the form of explicit or implicit guarantees may have to be such that they do not lead to ``moral hazard'' in the form of undue risk taking by banks and laxity in observing market disciplines.

The Minister pointed out that the next couple of years were going to be crucial for the banking system in India. According to an estimate, about 75 per cent of all cash withdrawals were being done over by ATMs, said Mr. Sinha. ATM transaction costs just one-seventh of that of a teller transaction. Telephone banking was even cheaper, though Internet banking was by far the cheapest. Mr. Sinha said as inter-bank fund transfer started to take place through financial gateways over Internet, difference between clearing and transfer would blur.

Mr. Sinha called on the different pillars of the financial system - bank, insurance companies and non-banking financial companies - to achieve the maximum efficiency. He said the financial sector was both a propeller and a victim of the state of the economy. A healthy financial sector was essential to achieve a higher rate of growth of economy.

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Section  : Business
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