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Banks may have to tap markets, says RBI

New prudential norms being discussed by the Bank for International Settlements could force India's state-run banks to tap equity markets for fresh capital, the chief of the country's central bank said on Monday.

Fiscal and monetary constraints will prevent the federal government from providing fresh funding to the banks for tighter capital adequacy requirements, Bimal Jalan, governor of the Reserve Bank of India, told a bank economists' conference.

India's cash-strapped government, grappling with a stubborn fiscal deficit, introduced a bill in Parliament last month aimed at cutting its stake in state-run banks to 33 per cent from 51.

Jalan expressed concern at the high level of non-performing assets, or sticky loans, of state-run banks and called for a concerted effort to reduce them.

"...the provision-adjusted level of NPAs at 8.1 per cent of net advances for public sector banks in India is high," he said.

Jalan said an expert panel had called for Indian banks with an international presence to move to a zero NPA level.

The Indian banking sector's gross NPAs, or loans that yield no earnings, amounted to Rs 608.41 billion at the end of March 2000, up from Rs 587.22 billion a year earlier.

Analysts say the high level of NPAs is one factor that keeps banks from lowering lending rates, which are now at 12 to 13 per cent.

"If we believe in our resolve to build a banking system with an international orientation, this must be our top priority in the next two to three years," Jalan said.

Legislative changes were required to improve recovery of bad loans and impart greater operational independence to banks to allow them to function more efficiently, he said.

If this was not feasible, he said, the only alternative was for state-run banks to be transformed into widely-held banking corporations subject to transparency, regulations and accountability to shareholders.

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