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Jalan calls for credibility among corporates, sees case for rate cut

Reserve Bank governor Bimal Jalan today asked the captains of industry, particularly in the private sector, to find out the reason as to why the public at large do not have much confidence in their entities while investing their hard-earned money.

Inaugurating a conference on "Banking Sector Reforms: The Next Phase", organised by the Federation of Indian Chambers of Commerce and Industry in Bombay, Jalan said that there was a need to improve public confidence in the management of private sector corporates.

In this context, he referred to a study which shows that the public subscriptions in Industrial Development Bank of India are about 85 per cent more than those in private corporates.

Expressing concern over the rigid interest structure in the system, Jalan said that there was a strong case of reducing the interest rates considering the low rate of inflation and comfortable liquidity conditions.

However, this may not be possible in the immediate future since about two-thirds of savings in the banking system is blocked for longer terms at higher interest rates and this caused inflexibility in the deposit as well as lending rate structures.

Highlighting the achievements of Indian banking and financial sector, Jalan said that there was a need to generate greater confidence among the public in the system in order to make the ongoing financial reforms successful.

Banking sector reforms must go hand in hand with the reforms in other markets such as capital markets, government securities and debt markets, and money and foreign exchange markets.

"While our banking system has been recognised internationally as a safer system, there is lots to be improved in risk management system," he said.

While the problems related to weak banks and non-performing assets can not be solved overnight, the need to develop other markets and product delivery system as reinforcing channels is essential for the overall growth of the financial markets in India, he said.

Jalan also expressed concern over the social sector and public utility services. He preferred to call upon the financial institutions and corporate sector to work together for the development of public services such as research and development works undertaken by the unversities and infrastructure development projects. "Bypassing these, how could you improve the nation's economy?" he asked.

UNI

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