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RBI to issue discussion paper on banking sector reforms

The Reserve Bank of India has decided to prepare a discussion paper containing its draft proposals for bringing about greater clarity in the respective roles of banks and financial institutions and for greater harmonisation of facilities and obligations applicable to them.

In a statement on the first-half monetary and credit policy, governor Bimal Jalan said the paper would take into account those recommendations of the Narasimham and Khan committees which have a bearing on the issues considered by the working group.

Deliberating on the recommendations of the Gupta and Kapur committees on credit delivery system in rural and agricultural areas, and the khan committee's suggestion on universal banking concept, Jalan said the Indian Banks Association had been requested to work out simplified application forms for agricultural loans, and banks were asked to delegate sufficient powers to their branch managers.

He hoped the procedural improvements suggested by the committees would lead to a substantial reduction in paper work and simplify the delivery mechanism for flow of credit to farmers. On the Narasimham committee's suggestions, the governor proposed further strengthening of prudential regulations to cover risks such as short-term foreign currency loans and other cross-border operations, keeping in view the international best practices.

On the concept of universal banking and abolishing the distinction between commercial banks and financial institutions, he said the concept should be implemented in countries like India where the debt and securities markets are not fully developed and where financing of development projects presents special problems.

UNI