No case for raising deposit insurance: Axis Bank chiefVenkatesan Vembu / | Tuesday, 14 October , 2008, 11:14
Unlike the stomach-churning experience last fortnight of banks in the some of the developed economies, the Indian banking system has not been destabilised to the point where there is a compelling case to raise the threshold on bank deposit insurance, says Axis Bank chairman and CEO P J Nayak. Responding to questions from DNA Money in Hong Kong on Monday, after chairing a board meeting that declared strong revenue and profit growth during the second quarter of 2008, Nayak told Venkatesan Vembu, "I'm not entirely certain the case for a raise in the deposit insurance ceiling has been made out strongly enough... But certainly, the debate needs to be an active one, in the light of what's happened in other parts of the world." Excerpts: ‘Erroneous’ SMS frustrates ICICI Bank How serious are the strains imposed on India's banking sector by the financial turmoil? These are unsettled times for the financial sector and for the banking sector, but the ripples of this in India have been very, very minor. There are several economies, predominantly in Asia, where the ripples are not going to be very strongly felt and in that sense, many countries in Asia constitute a safe haven from the kind of problems we have seen in other markets. I believe that India is one of them. We will probably have some adverse ripples but they will be very contained. And they will be very minor. The first-order effects of what has happened overseas have come partly through the currency market and partly through the equity markets. Inevitably, when equity markets across the world begin to tumble, you are going to see markets in India also affected. That's because we are talking about a global pool of investors who also invest in India. But the Indian economy is resilient: It is a fast-growing economy and among the top 3 or 4 fastest growing economies in the world. It has, like China, a large domestic market, an interland market, and this permits the economy to absorb many of the cross-border shocks that come into it. Last week, one of India's biggest private banks faced a virtual run on its deposits — and saw its stock prices tumble — following rumours about its financial standing. Do you believe there is a case for raising the deposit insurance in India, as has been done in other countries, to prevent such potentially fatal shocks? We haven't had the kind of financial destabilisation that other counties have had. Inevitably, under such situations, there is nervousness which is manifest occasionally in very limited ways of panic. What we have seen is a little bit of nervousness but the bank that you are talking about is a very solid bank that is very strongly capitalised; it's been one of the very successful banks in India. I think that nervousness of this kind, when share prices are tumbling across the world, is something we must live with. I don't think it is anything tantamount to a concern about the stability and the adequate capitalisation of the banking system. It's not as if asset values have plunged the way they have in other parts of the world; in fact, they have held up very well in India. I would take the view that as far as credibility and the strength of the Indian banking system is concerned, we have no doubts at all. We've run a very strongly regulated banking system in India and among the regulatory requirements has been a high degree of capitalisation, so the capital adequacy of banks in India is very high. RBI asks banks not to stop disbursal of loans On deposit insurance, much will depend on whether there is a perception among the regulatory body that existing levels of deposit protection are inadequate. Today, protection is given for deposits of up to Rs 1 lakh. Should that be increased? I think the case has to be made out. I'm not sure it has been. But it would be nice to see a debate taking place in India as to whether we should or not increase the deposit insurance. It is necessary to have a debate on this, but I don't think India has been destabilised to the point where it is manifest that the insurance threshold on deposits needs to be increased. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
