MUMBAI, March 1: Several bankers feel the time is not yet ripe to pull down the barriers between banks and development financial institutions and go in for universal banking. They are against an immediate harmonisation of the role and functions of the two sets of intermediaries.The Indian Banks' Association will formally present bankers' views on the issue on Monday to a seven-member working group set up by the Reserve Bank of India to look into the matter. The working group, headed by the IDBI chariman SH Khan, is likely to submit its report within a week.
An internal IBA panel, called the banking operations committee, headed by Central Bank of India chairman and managing director KC Chowdhary met in Mumbai on February 23 to formalise the association's views on the matter. Punjab & Sind Bank executive director BD Narang is the alternate chairman of the 19-member commitee.
The Reserve Bank set up the working group on December 8 last year. The group, consisting of SBI chairman MS Verma, ICICI chief KVKamath, IFCI chairman and managing director KD Agrawal, Bank of India chief MG Bhide and Union Bank chairman AT Pannir Selvam and RBI executive Director V Subramanyam, is expected to submit its report in three months. The deadline expires on March 8.
The panel's terms of reference include a review of the role and operations of banks and development financial institutions; suggestions to harmonise lending and working capital finances by banks and institutions.
It is also expected to take up the issue of granting financial institutions increased access to short-term funds.
Most of the IBA member banks feel banks and institutions should continue to retain their specific line of activities. In other words, banks should continue to finance primarily working-capital requirements, while institutions should grant term loans.
"We are into wholesale and retail banking. The time is not yet ready for taking the plunge into universal banking," a senior banker said.
"It is true that the institutions have beenincreasingly taking exposure in working-capital loans. Similarly, banks are gearing up to advance term loans. But, fundamentally, there is no change in roles, and there is no fight between the two as the pie is big enough to accommodate every player. In fact, banks and institutions collectively will not be able to meet the entire term-lending requirements when the infrastructure sector takes off," another banker said. Bankers are, however, in favour of sharing expertise on project appraisal and information on clients.
There is a virtual consensus among bankers that institutions should not be encouraged to mobilise short-term funds as they are not subject to cash reserve ratio.
"Banks can pick up institutional bonds, and thereby help them meet short-term fund requirements. In case they are allowed to access retail deposits, they should be subject to reserve requirements to create a level playing field between the two," a banker said. Bankers are also in favour of paring the stipulated limit onpriority-sector lendings."
The 40 per cent cap should be brought down substantially, and both banks and institutions should be asked to conform to priority-sector lending norms," another banker said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
