India suggests regulation of banks through CRR rather than bailout

07 Jun 2010

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India's proposal for regulation of banks rather than imposing a tax to fund future bailouts was more or less accepted at the recently concluded meeting of G-20 Finance Ministers in South Korea.

Finance minister Pranab Mukherjee, who returned from Busan yesterday, said that India's suggestion to rich nations that it was better to regulate banks through policy instruments like the Cash Reserve Ratio (CRR) rather than imposing a tax had found many takers.

CRR is the portion of deposits that banks are supposed to keep with the central bank. Mukherjee said that India mooted financial regulation instead of taxing and the suggestion was by and large accepted.

Mukherjee advised European and American policymakers to set up regulatory mechanisms on the lines of the Indian banking system.

Though India, Australia and Canada remain opposed to the proposal to tax banks to fund costs of future bailouts, the EU, the US and Britain are in its favour.

Referring to the risks arising from the crisis in Greece, the finance minister said it was Europe's responsibility to contain the contagion... because faster recovery in Europe was essential for the developing countries both for FDI and exports.

Exports to Europe make up around 20-22 per cent of India's exports of about $176 billion. Mukherjee told the assembled finance ministers and the chiefs of the central banks of the 20 most influential countries that the global recovery was still fragile.

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