Reserve Bank of India (RBI) has warned banks that high profits emerging from trading in government securities (G-secs) should not lull them into a state of complacency. It has asked banks to put in place appropriate risk management systems, provisioning and build-up reserves.‘‘An analysis of the sources of profitability for scheduled commercial banks shows that much of the recent rise in profits emanates from trading income, reflecting the sustained softening of interest rates,’’ RBI said in its ‘Report of Trend and Progress of Banking in India 2002-03’.The large trading profits emanating from sustained rally in G-secs markets has helped boost banks’ bottomlines and provide resources of non-performing assets (NPA) provisioning. In the face of increasing competition in the banking sector, the future profitability of public sector banks will depend on their ability to generate greater non-interest income and control operating expenses, RBI said.LIFTING OF LIMIT OF VOTING RIGHTS PROPOSED: The RBI has proposed to the Centre to lift the limit of voting rights to facilitate foreign direct investment (FDI) in private sector banks up to 74 per cent.Finance Minister Jaswant Singh had announced in the 2003-04 Budget that the limit for FDI in banking companies would be raised from 49 per cent to 74 per cent.IDBI TO GET SLR EXEMPTION: The new banking entity to be formed after the repealing of the IDBI (transfer of undertaking and repeal) Bill 2002 will be given an exemption from maintaining the statutory liquidity ratio (SLR) for five years from the appointed date.The Bill was referred to the Standing Committee, which recommended some regulatory forbearances such as exemptions from maintenance of CRR for five years and certain tax exemptions for the newly converted banking company, according to RBI.
