Rbi Stake In State Bank To Stay Above 55%: Rangarajan

We can never go below 55 per cent. That is the statutory position, the RBI governor told Business Standard. He said RBI's holding in SBI would be between 60 and 65 per cent after the conclusion of SBI's upcoming GDR issue.

SBI chairman P G Kakodkar had been quoted earlier this week as saying that RBI's holding in the Bank could come down to 51 per cent in the future.

Rangarajan said maintaining low inflation would be a top priority in the coming year, and would be the key to less costly funds.

If inflationary expectations are broken by having a low inflation rate for the coming year, then it is possible to bring down deposit rates. As deposit rates are brought down, lending rates will also come down, he said. The RBI governor said he believed rates had already begun softening at the short end of the market.

 

He pointed out that growing deposits had led to better availability of funds. Deposit growth has been strong this year, he said, the banks do have the funds. The question still remains about the cost of the funds.

Reacting to criticism about an impen-ding crisis in the Indian banking system, Rangarajan said the country's banks were merely reflecting the neglect of previous years.

I can certainly say there is no crisis. But the banking system has gone through a difficult period be-cause of our insistence that they make provisions according to international standards. They are making up for what happened in the previous 10 years, he said.

An IMF study on banking soundness across the world, released during the annual meetings, concluded that India had a significant banking problem because of a high percentage of non-performing assets. Earlier, the IMF's annual study of the international capital markets had warned that asset quality remains a key source of concern because Indian banks were burdened with bad loans amounting to 5 percent of the GDP.

Rangarajan said RBI had taken steps to cope with the problems. The Indian banking system has a level of non-performing assets which is somewhat high, but we have taken steps in the last 2-3 years to bring it in line with the strictest standards available anywhere in the world, he said.

He said non-performing assets had grown in some banks because they had failed to make adequate provision in previous years.

Pointing to healthy signs in the system, he said about 16 banks had reached capital adequacy ratios, while a few banks were already tapping the markets for funds.

By going to the market to raise funds, the banks will be compelled to work more efficiently, earn more profits and be able to give dividends. I think that will be a good way of bringing about discipline, Rangarajan said.