Khan panel moots bank-FI mergers, super-regulator

The group urged for granting top priority to speedy implementation of legal reforms in the debt recovery area of banks andFIs and also underlined the need to redraft other codified laws impacting operations of DFIs/banks on the grounds of redundancy and/or incompatibility. A super-regulator has been recommended to supervise and coordinate activities of multiple regulators in the sector in order to ensure uniformity in regulatory treatment.

The group said the gainful mergers recommended should be possible not only between banks but also between banks and DFIs and between strong and weak though viable entities as well as between two or more strong banks and DFIs. “Such restructuring/consolidation (mergers) should be brought about in a market-oriented fashion and should be led by viability and profitability considerations alone,” it said.

The group also felt that infrastructure, considering its critical role in any future development of the Indian economy, should be accorded the highest priority in financing. Besides recommending implementation of best practices in the area of corporate governance, such as imparting fulloperational autonomy and flexibility to managements and boards of banks and DFIs, the group has listed a series of initiatives in the area of human resources development (HRD) for the success of any organisational change in the service-oriented industry.

It has made interim recommendations for harmonising the roles of DFIs and banks on the premise that the basic functional differences between the two sets of financial intermediaries would continue at least for the present. The overlap between current business of banks and DFIs necessitates close co-ordination and harmonisation of lending policies with the objective that appropriate quantum of credit is made available to industry at a reasonable cost. For this purpose, the group has recommended a standing (coordination) committee on which both banks and DFIs would be represented.

The agenda for reform with regard to state-level corporations incorporates the eventual merger of state finance corporations, state industrial development corporations, smallscale industries development corporation in each state into a single entity. It has suggested that IDBI’s shareholding in state corporations should be transferred to Small Industries Development Bank of India, which takes care of credit requirements of SSIs. “Ownership of SIDBI should, as a logical corollary, should stand transferred to RBI/government on the same lines as NABARD,” the group observed.

It has recommended confining cash reserve ratio to cash and cash-line instruments and bringing it down progressively to international levels in a time-bound frame. The group has also suggested phasing out statutory liquidity requirement in line with international practice as government securities are issued at market determined rates.