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11/12/2013 08:50pm

RBI Governor unveils five point agenda for financial sector reforms

image RBI Governor unveils five point agenda for financial sector reforms
New Delhi, Dec 11 (KNN) While emphasizing job creation as a critical success parameter of policies, Governor of Reserve Bank of India, Raghuram G Rajan unveiled his agenda of reforms in the financial sector to be carried out in the medium term.

Delivering a special address during the 4th Delhi Economic Summit, the flagship event of the Department of Economic Affairs, Ministry of Finance, Government of India, which was inaugurated by Finance Minister P Chidambaram here today, Rajan presented his vision for financial sector reforms based on ‘five pillars’.

According to Governor the first pillar is to ‘clarify and strengthen’ the Monetary Policy.  He advocated a balance systemic approach based on several parameters rather than changing policies because of one factor, say inflation.  Alluding to a peculiar problem of low growth and high inflation, reducing interest rates may spur growth but make savings unattractive.  High inflation is always a manifestation of supply demand mismatch and addressing inflation ultimately requires balancing.  A Committee has been set up recently to spell out the agenda for Monetary Policy programme.

Secondly, he hinted at expanding bank branches and issuing more banks licences to expand the financial sector. He specially expressed his desire for the foreign banks to get domestically incorporated to bring them in the fold of RBI regulations. He had in mind the sudden withdrawals by Lehman Brothers from its foreign branches precipitating a greater risk during the 2008 financial crisis. Such reforms are intended to induce greater competition and also contain risks.

Thirdly, he intends to deepen the financial markets to bring in innovation by reducing the over reliance on bank credit which makes the whole financial sector risky. Such innovation may include products such as ones based on equity, exchange rate, Government security, money markets, corporate debt, short term debts, etc.

Fourthly, he said that financial services need to be made inclusive to be of use to a large number of day to day financial needs of people including MSMEs. Financial services should not just mean credit but a host of services whether paying medical bills, school fees, etc.

Further, the next level of impetus is to go beyond branch network and to use technology such as mobiles.  He desired the ‘bottom of pyramid’ to be served with profit but not through profiteering. The Nachiket More Committee is to soon make its recommendation on the issue.

Finally, he stressed the need for a mechanism to deal with financial distress (bankruptcy system) to put the assets to productive use again. Presenting a sequence of such a mechanism he outlined: a committee to deal with such issues early, plan revival, independent evaluation of revival plan and execution. People not willing to cooperate for revival- wilful defaulters, should find it difficult to get loans.

While he was sanguine for India becoming a healthier and richer society, he emphasized creation of productive jobs-not based on largesse or government support but arising out of competitive markets.

In order to do so, it may be necessary, he said, that we need to work on our regulations and get our education and training systems- especially vocational training, right.  (KNN/AB)
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