Madhavpura Brass Completely Violated Prudent Banking

Jagdish Capoor stepped down on June 30 as the deputy governor of the Reserve Bank of India (RBI). He blames the management of the Gujarat-based Madhavpura Mercantile Cooperative Bank (MMCB) for throwing all prudential norms to the winds.

Extracts from the interview:

How do you look back at your tenure in RBI?

I have completed 39 years with the RBI. During this period, I have witnessed significant changes in policies and their implementation. There was a phase when regulations were getting tighter.

But for the last about 12 years or so a steady process of liberalisation has been taking place. Rigid control over foreign exchange, credit authorisation scheme, complex interest rate prescriptions on bank advances are now matters of history.

Policy formulation now is more participative... Being a part of this exercise has been an extremely satisfying exercise.

Who do you blame for the recent MMCB crisis?

It is the top management of the MMCB which should take full responsibility for conducting themselves against all norms of prudent banking and guidelines issued by the RBI.

What ails the urban cooperative banks? How do you bring back the sector to health?

It is not correct to say that the urban banking sector is ailing. Majority of the 2000 urban cooperative banks have been doing well. There are a few weak banks. This sector is playing a useful role by providing financial assistance to people of small means. They are relatively easily accessible.

Things have gone wrong in some of these banks due to various reasons for which we should not condemn the entire lot. Several reforms have been carried out in the light of recommendations of the Madhav Rao Committee report. There are a number of very efficiently run cooperative banks.

The RBI seems to the most over-manned central bank in the world. Is there any plan to cut the flab?

RBI offices have to manage a very large volume of currency in circulation which is largely done manually. It has to service about 500 points in the country ... In addition, needs of various banks, railways and large public utilities have to be looked after. This requires a large staff.

Large staff is also needed to carry out periodic inspection of commercial banks, financial institutions, non-banking finance companies, forex dealers, etc. It also has to manage the public debt of the Centre as well as the states.

All these are done through its 22 regional office spread across the country. Every central bank in the world does not handle such a wide variety of functions.

However, our work procedures are always under review. We have also started mechanisation in currency handling. This has enabled us to redeploy staff. The role and responsibilities of the RBI are changing.

What is the gravest concern before the Indian banking industry?

The size of NPAs is the most worrying factor though it is coming down gradually. The problem is that defaults are still being viewed very casually.

Extremely slow pace of legal procedures is the most important contributing factor. Another area which needs attention is the high transaction cost of banks.

Tell us about your unfinished agenda.

On a personal note, I wish that the recommendations of the task force headed by me for strengthening the cooperatives is implemented soon. I do realise that it takes time to finalise issues where several angles are involved.