Our Bureau

Mumbai , April 28

AFTER a hectic day in office, presenting the annual policy statement to bankers, and thereafter addressing media in a number of sessions, the Reserve Bank of India Governor, Dr Y.V. Reddy, seemed to be at peace with himself.

Setting the tone, the informally clad gentleman of firm convictions dwelt a while with Business Line on the `Overarching Design' holding the future plan of the RBI. Excerpts from the interview:

You talked of refocusing of the banking policy. There was a specific mention of deposit mobilisation by the banks. Will RBI be giving any directions?

Refocusing is basically different from taking measures. Recent trends show that banks have been taking recourse to non-deposit resources. Once having taken a bank licence, one of their major activities should be taking deposits. My expectation is that each bank will now automatically review its policies. It is in their interest as much as that of the system. Banks have to refocus on deposit mobilisation and provide better service.

In this policy there is a definite emphasis on depositor interest. Why?

Depositors' interest forms the focal point of the regulatory framework for banking in the country. The Tarapore Committee has given its report saying that those banks that give poor service will have to face a switch in loyalty. RBI will try and see that banks provide better service to small depositors.

What has been the reaction of bankers on the hike in reverse repo rates when your addressed them in the morning? Are they going to raise lending rates?

Lending rate depends on a number of factors. In the case of signal rate that has a direct and immediate impact on the financial market. In the case of banks' lending operations that is over a different set of customers, and now the pricing is also dependent on the competition as well as sector-wise specialisation. So it is getting very difficult to generalise how it will get translated in terms of the deposit rates as well as the lending rates.

Even before the signal there was some firming in the rates. It is a dynamic situation where sometimes you follow the market and on other occasions the market follows you. Sometimes the financial market has linkage with the credit market and sometimes not.

In the last credit policy, the risk weight on home loans was increased. The bankers expected a rollback. Comment?

As far as the housing sector loans are concerned, the growth is continuous and strong. Having arrived at this point, we do not see any particular reason to roll back.

Are Indian banks ready for compliance with Basel II norms?

They know the problem, we know the problem and we have been equipping them. We will encourage the banks to conform with Basel II norms. As far as compliance is concerned, timing is country specific. We will encourage and help them to be ready and then move on.

What is the level of RBI's interaction with state governments vis-a-vis the UCB issue?

We have had two rounds of discussions with select state governments where there is a concentration of co-operative banks, the top five States. At the moment, the discussions are going on. On mergers and acquisitions, we have given definite guidelines and some banks have approached us though we do not want to give any names. On some cases, for revival, we need the Government support.

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