Tighter prudential norms for banks
Our Banking Bureau
13 October 2001

Mumbai: Finance Minister Yashwant Sinha has indicated that tougher prudential norms will be set for banks. Speaking at the inauguration of BancIT 2001, in Mumbai on 12 October, Sinha said stronger prudential norms and recapitalisation are a must for banks.

“The reason to follow international norms is mobility of capital and that is why it is necessary to make those prudential norms international and tougher. The health of the financial system is now an international concern. The willingness of the rest of the world to do business with us, or any other country, by way of trade or direct investment or any other kind of investments will depend on their confidence in us,” Sinha said.

Sinha also insisted that banks set up a proper system for asset-liability management. “A proper cushion needs to be kept by way of capital reserves against market exposure and capital size should set a limit for risk exposure of an individual financial institution. This, in turn, will require stricter accounting and reporting norms on the part of the banks.”

Addressing the question of public sector banks facing competition from private and foreign banks Sinha said the vast network of branches of public sector banks might turn from strength to liability. The branch concept may take a backseat in the next three-to-four years, as banks, even without branches, would be attracting customers. This was a clear hint to public sector banks to upgrade their technology to stay ahead in the race.

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