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`Efficient financial system essential to boost economy'

By Our Staff Correspondent

MANGALORE, FEB. 16. The Executive Director of the Reserve Bank of India, Shyamala Gopinath, has said that a strong and efficient financial system is crucial to boost the economy to support higher investment and growth.

She was delivering the keynote address after inaugurating a national seminar on "World Trade Organisation (WTO) and the banking sector in India" organised by the Corporation Bank Chair in Bank Management, Mangalore University, at Mangalagangotri on Monday.

She said the financial crisis gripping the world had exposed the fact that weak financial systems and their lax supervision were contributing to macro instability.

Financial markets were different from real-sector markets, she said and added that there was a need for increased regulation and supervision.

Ms. Gopinath said the authorities concerned should focus on macroeconomic policies, building strong domestic institutions, and good governance to prepare the Indian financial institutions to face the challenges of liberalisation.

As on January 24, 2004, 34 foreign banks from 21 countries were operating in India. An empirical research had found that over the years, there had been a discernible improvement in the efficiency of Indian banks.

This was irrespective of the ownership pattern.

However, there was scope for further improvement. As on March 31, 2003, the market share of the State Bank of India and its associates was 29.3 per cent, nationalised banks 46 per cent, private banks 17.4 per cent, and foreign banks 7.3 per cent. The Vice-Chancellor of Mangalore University, B. Hanumaiah, presided over the function. The coordinator of the Chair, G.V. Joshi, welcomed the gathering.

Well-equipped

The Chairman and Managing Director of Corporation Bank, K. Cherian Varghese, who addressed the gathering, said the Indian banking sector was well-equipped to deal with the implications of the WTO on the sector.

While becoming a member of the WTO had opened several opportunities for the Indian industry, including the banking sector, "we need to do our homework extremely well and improve our efficiency to seize the opportunities and face the challenges", he said.

"Singing praise of the WTO without understanding its implications will be like handling fire", Mr. Varghese said and added that with new opportunities unfolding themselves, Indians should strive to ensure that the country emerges as a global power in the banking sector in the next two decades. With the quota system for the textile sector likely to go in 2005, the Indian textile sector was likely to benefit, he said. Already, the Indian textile industry was gearing up to meet the challenges by adopting latest technology and expansion of capacity. Textile exports would thus expand substantially, he said and added that this would create employment opportunities and lending opportunities to the banking sector. At the same time, the Indian small-scale industry (SSIs) was bound to go through a rough patch with cheaper imports coming into the country. This would affect employment generation in this segment and the availability of finance to SSIs.

Mr. Varghese said that while the goals of the WTO were noble, its implications should be studied in the domestic context of each nation. Unfair competition and dumping could create a situation where strong nations might take undue advantage and disputes might arise, he warned. Domestic political compulsions could also create situations where free trade might be questioned.

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