Indian Banks Must Gear Up To Meet Euro Induction

The adoption of the Euro by major European nations as their common currency is expected to lead to a shakeout in the banking system in India and unless Indian banks change their systems to accomodate it.

Revealing this, Geoffrey T Leden of Standard Chartered Bank, said that unless banks were equipped to deal with the Euro they would lose business. In fact, it was pointed out the even the RBI would have to change the composition of its reserves.

Leden said companies and banks anywhere in the world having business with Europe need to consider urgently how the EMU would likely to affect them. Siemens, Philips and Daimler Benz are amongst the companies which have already announced their intention to switch to the Euro from January 1999.

 

In fact, Siemens has imformed its suppliers that from that date they would require price lists in Euros and they would pay in Euos.

With the Euro, a lot of banks trading in cross currencies like the DM versus Franc will be out of business. This is as there would be only one currency.

That apart, even though the other currencies will exist as denominations of the Euro till 2002 they would operate on a fixed exchange rate basis. Leden said with the political will behind the fixed exchange rates the market will not be able to punt against a currency.

Leden said that Standard Chartered would be one of the clearing banks for the Euro in London. The bank had set up an EMU planning group in mid-1995 to prepare both the bank and its major corporate and personal customers.

He said that during the three year transition period the national currencies will contiue to exist as sub units, or denominations of the Euro. The priniciple of no compulsion no prohibition means that corporates, institutions and individual are free to decided whether to conduct their business in the national currency or the euro.

In simple terms, the payer will pay in the currency of his choce and the beneficiary will be credit in the currency of his acount.

The threat to bank is that if they cannot offer customers the advice and service that they need, they will turn to one that can, Leden states. The major challence facing all banks with international business is the inability to perform on the day. Moreover customers will need fewer banks.

The opportunity is for well prepared banks to pick up new busines and perhaps reduce costs through rationalisation of nostro accounts and better liquidity management, Leden said.