Banks should not use public deposits to finance risky projects: Ex RBI Deputy Governor

New Delhi [India]: Projects with implementation risks should normally be financed by the capital markets and not by banks using public deposits, N S Vishwanathan, Former Deputy Governor, Reserve Bank of India, said on Thursday.

Speaking at an event organised by the industry body Assocham, Vishwanathan said India needs a very strong bond market that can fund projects and manage its risks.
“The fundamental risk management and providing liquidity needs to come from the bond market. IBC is one of the legal frameworks enabling the development of the bond market,” he said.

He pointed out that if the bond markets develop, the banks must brace up to a situation of higher disintermediation. “The biggest contributor for the net interest margin being higher is the high NPAs. Going forward, we are looking at the Indian banking system having NPAs of globally accepted standards,” he said.

Vishwanathan highlighted that credit culture in India is a function of many things. “The quality of credit in the bank, the post-credit follow-up and the legal system for recovery are some of the factors which determine it. If you don’t have all these things, you reduce the probability of default and bring down the loss given default,” he said. (ANI)


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