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Growth pick-up slow: Rajan

Stresses need for reform in cooperative banking structures, resolution mechanisms

BS Reporter  |  Mumbai 

Raghuram Rajan

Reserve Bank of India Governor Raghuram Rajan on Monday said growth continues to be in a slow lane, despite the macroeconomic parameters picking up.

He emphasised the importance of fiscal consolidation, in both quantitative and qualitative dimensions. Adding that state governments had a critical role to play in this.

Rajan also highlighted the need for improvement in the governance structure, capitalisation and resolution mechanism in cooperative banking. "Without efficient governance, capital infusion would not benefit the sector, as it would function as a leaky bucket," he said while inaugurating a conference of high government functionaries in this regard.

To make the cooperative banking sector more accountable, he suggested evolving effective resolution mechanisms. For instance, one whereby the good parts of a bank could be identified and segregated from the bad, and the latter dealt with.

To check illegal deposit-taking and Ponzi schemes, Rajan said State Level Coordination Committees (SLCCs) should be made more active and effective. These SLCCs have the power to regulate such companies.

"SLCCs have been recently reconstituted in each state to monitor unauthorised collection of deposits and they meet more frequently under the chairmanship of chief secretaries/administrators, with participation of senior officials of states and the regulators," said RBI.

RBI Deputy Governor S S Mundra also highlighted the need to enact a Protection of Interest of Depositors' (PID) Act in states, to ensure a tough legal environment for the fraudulent entities. And, to set up economic offences wings and cyber crime cells in all states/UTs for speedier action.

RBI Deputy Governor Harun R Khan detailed the challenges in resource raising, given the increasing size of borrowing by central and state governments, and non-diversification of the investor base. Even so, the weighted average spread of borrowings by states vis-à-vis central government securities of corresponding maturity had come down to 38 basis points (bps) last year as against 75 bps the year before, he noted.

The Malegam panel recommendation on setting up of a board of management in addition to a board of directors, representation of depositors on the boards and decline in the 'cooperativeness' of cooperative banks were also discussed. RBI also raised the issue of resolution of negative net worth banks, appointment of statutory auditors and their rotation in the audit of urban cooperative banks and unauthorised functioning of unlicensed banks.

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First Published: Tue, May 26 2015. 00:30 IST