"Prompt action will be taken in a matter of days," he said. Under the new policy of transparency, any penalty imposed or any action taken against the bank would be put in public domain, Reddy said. He, however, said that we have to give an opportunity to the banks to explain how it happened.
"Till now, there are all indications that it is a violation, total violation of instructions by select branches of select people. But it would have absolutely no bearing on the banking system," he said. The RBI had detected a large number of fake accounts in both private and public sector banks, which were opened, primarily with an eye on money laundering.
IGF calls for a probe into 25 IPOs
The IPO scam came to light in 2005 when the private 'Yes Bank' launched its initial public offer, which saw one Roopalben Panchal of Ahmedabad opening multiple fake demat accounts and subsequently raising finances on the shares allotted to her through the Bharat Overseas Bank branches.
With regard to introduction of hybrid instruments for Tier-I capital, the RBI Governor said, "We have made an analysis about the options that are available within the legal framework and the options that are not available. We have to consider as immediate measures only those options, which can be taken within the existing legal framework.
"We are at an advanced stage in identifying some instruments that are totally consistent with the international practices and capable of being implemented immediately within the legal framework. We hope to complete this exercise soon," Reddy said.
On whether excess cash in the system would lead to inflationary pressures, he said, "I would not like to answer it straight in the current context. One has to recognise the underlying factors that build up debt. "Looking at the financial market conditions here, which are orderly and stable, one is tempted to conclude that the Gross Domestic Product growth and the elasticity of demand for money are living together."
To a question on the economic growth, Reddy said, "On a rough basis as of now I can say that it is on track. But a more detailed analysis would be possible after the meeting of technical advisory committee in a couple of weeks."
Congratulating the whole banking system for repaying the seven billion dollar to investors of the Indian Millennium Deposit without any adverse impact, Reddy said there were, however, some concerns with regard to the current liquidity condition in the market.
"The tightness of the liquidity was surely a matter of concern for us. While making a distinction between frictional problems and structural issues, I had indicated that it was purely a frictional problem in the background of the Indian Millennium Deposits happening.
In retrospect, we have been proved fortunately right," he said. The way the banking system functioned, which enabled us to repay the seven billion dollars within two days with no adverse impact, is a sign of maturity of the financial market. This indicates a developed state of our financial market, which was a very good sign, the RBI Governor said.