• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Our Bureau

Dr Bimal Jalan, Governor, RBI, Mr K. Cherian Verghese, Chairman and Managing Director, Corporation Bank (left), Dr Dalbir Singh, Chairman, IBA, and Dr B. Samal, Chairman, IBA Committee of Economists (right), at the Bank Economists' conference in Bangalore on Friday.

BANGALORE, Dec. 27

THE Reserve Bank of India (RBI) has expressed optimism about achieving the 8 per cent growth targeted by the National Development Council for the Tenth Plan period.

Inaugurating the 24th Bank Economists' Conference here today, the RBI Governor, Dr Bimal Jalan, said: "There are areas of concern, but the overall economic situation has seldom been better than in the past."

He said that despite the worst drought situation in the decade, inflation was under control. Besides, there were no problems on the balance of payments position of the country. This is "despite the high oil prices, and the tense border situation," he added. He said that the country's foreign exchange reserves were at the highest level and accretions were continuing. Besides, he added that the external debt situation was also very comfortable with no incremental accretion.

As a result, the RBI was encouraging prepayments of external debt by the corporate sector. But much of the debt was official in nature, implying borrowings from multilateral institutions. Consequently, there were no constraints about prepaying these debts, he added.

He said that interest rates, both short and long term was very low, despite the high fiscal deficit in the country. Liquidity availability was not a problem, he said. "Neither rupee nor foreign exchange resources are constraints for growth," he said. As a result, he added, the country's macroeconomic situation presented an opportunity for achieving the growth target envisaged in the 10th plan.

However, he said that the RBI was concerned about the low productivity in the economy. Consequently, he said, there was need to accelerate the productivity level in the country through efficient use of resources. "The tolerance for low productivity should go," he said.

Referring to the banking sector, he said, many of the banks had already achieved the prudential guidelines prescribed by the RBI. But, he hinted at a further tightening of the prudential guidelines, since the fundamental purpose was to ensure that the depositors' and public interests were fully protected.

Dr Jalan said that the banks would have to conform to the highest international standards. Accordingly, he said, the RBI had formed a consultative committee to examine the prudential guidelines prescribed for achieving the Basle two standards. He added that the RBI would participate fully and effectively in all the international discussions in this connection.

The latest international assessment, he said had already expressed satisfaction about the conformity of the Indian banking sector to international standards, except on the issue of non-performing assets. " These will however have to be taken up by the individual banks," he added.

He said that while overstaffing in the banking sector was a problem, "It is not the core problem." He identified the core problem as better utilisation of resources. The costs of the banking system in the country were high, he said, which was evident from the high spreads. Accordingly, the major challenge before the banking sector was to ensure efficient use of resources.

"The major management challenge is to keep costs low and raise productivity in the banking sector," Dr Jalan said.

Referring to problems in the co-operative banking sector, Dr Jalan said that the RBI had advised the Government, both the Centre and the States for setting up separate bodies for supervision. Legislative change would accordingly be taken up by the States in due course, he added.

Earlier the Chairman of the Indian Banks Association, Mr Dalbir Singh was in consultation with all the members for accelerating the transition to tighter prudential guidelines prescribed by Basle - II.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Exchange reserves management — Is there a bold new way out?

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line