The Hindu : Micro-finance entities cannot accept deposits: RBI

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Friday, Mar 26, 2004

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Micro-finance entities cannot accept deposits: RBI

By Our Special CorrespondentPTI

MUMBAI, MARCH 25. Micro-finance institutions will not be allowed to accept public deposits as it would place public money at a risk judging from the recent experience of urban co-operative banks, the Reserve Bank of India Governor, Y. V. Reddy, said today.

"Micro-finance activity was concentrated in Southern and Western parts of the country. However, the RBI cannot go ahead and allow such entities to accept public deposits,'' Dr. Reddy said at the Indira Gandhi Institute of Development Research here.

Micro-finance entities comprise self-help groups and non-government organisations.

On restructuring of banks, financial institutions and non-banking finance companies, he said all aspects, including legal, policy matters and interest of shareholders should be taken into account and the RBI was willing to assist the Government on this issue, if the latter undertook studies in this respect.

This remark comes at a time when there are talks about merging infrastructure entity IDFC with State Bank of India.

He also pointed out that it was proving difficult to make a "reasonable assessment of probability of default'' with the prevailing uncertainty to get a prompt judgment from the judicial system and implement the same (for recovery cases).

"I would perhaps put a high priority to the whole issue of judicial process,'' he added.

On Basel II norms, Dr. Reddy said the Indian banking sector was committed to implement best practices "but at a pace suitable to the situation here.''

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