Need for corrective action: Subba

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Need for corrective action: Subba

BANGALORE: Reserve Bank governor D Subbarao on Friday said he couldn’t make a sweeping statement that there weren’t any illegal transactions happening in the banking system, but assured that the Indian system was safe and secure.

Responding to a question on the sting operation conducted by online portal Cobrapost on three private banks, Subbarao noted that the operation only showed bank executives canvassing for certain illegal transactions, but no such transaction had actually happened. But he admitted there was need for corrective action.

“Black money is an issue, but it is not just a banking issue, it’s a larger economic issue. We have anti-money laundering systems and processes that are regularly audited. But we have initiated an enquiry. We are going to the head offices of the three banks to audit their systems and processes for management level control over activities like this,” the governor said at a Bankers’ Club event held at the SBI headquarters in Bangalore on Friday.

He said RBI was conducting a thematic study across the Indian banking system to ensure there were enough control systems to prevent such incidents in the future.

Talking about the implementation of Basel III norms from April 1, Subbarao noted that the higher capital adequacy requirements it mandates would raise the cost of capital, putting pressure on credit rates in a transforming economy where demand for capital was expected to rise.

The governor urged public sector banks to improve their operational efficiency and customer service in order to compete better, especially with new private banking licenses set to be issued. “These new banks will compete with you largely on customer service,” he said.

Asked about proposals for loan restructuring for struggling infrastructure projects, Subbarao said banks would need to do it without compromising their stability.

“We have relaxed regulations for infrastructure financing. Further relaxation is not advisable,” he said.

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