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Jalan hopes for early decision on FII cap — Sees little impact from crude price spurt

Our Bureau

Dr Bimal Jalan

MUMBAI, Sept. 12

THE Governor of the Reserve Bank of India, Dr Bimal Jalan, today said he hoped the Government would soon decide on the level of foreign institutional investment (FII) in the banking sector.

Speaking on the sidelines of a seminar `Indian banking: Global benchmarks' organised by FICCI here, Dr Jalan said the Government was yet to take a decision on the FII ceiling in different sectors, including banking. Asked whether he expected a decision soon, he said, "I hope they do (take a decision)."

Answering queries from the media on the spiralling crude prices, Dr Jalan said, "(oil) prices are always a matter of concern, and no oil importing country welcomes it (price rise). We do not see any impact on our economy (due to the oil price rise) from the foreign exchange and interest rate point of view."

International crude oil prices have jumped to year-high levels and the benchmark Brent crude is hovering around the $30-a-barrel mark after the US and the UK conducted joint air raids on Iraq.

About the rising inflation in the economy, the Governor said, "we are watching the situation and will see how far the prices will rise."

He said the RBI would continue to maintain a soft interest rate bias but there were no thoughts of an immediate rate cut. "The real interest rates in the economy should be lower than what they are. Over the long term, the rates should come down," he said.

While foreign direct investment is allowed up to 49 per cent, investments by portfolio investors in banks is still a grey area as the Government has not yet specified how much FIIs can hold in banking companies.

Even though several foreign investors are keen to acquire equity stake in Indian banks, the Government's ambiguity vis-a-vis the issue is keeping them away.

Later, at an interactive session of CEOs of banks and FIs chaired by Dr Jalan, the General Manager of Bank for International Settlements, Mr Andrew Crockett, said the Basel Committee was trying to lay down clear principles rather than rules.

"It is important that the Basel Committee, which is dominated by members from monetary supervisors from industrial nations, become more and more democratic and consultative so that it accommodates views and concerns of emerging economies... It wants to lay down principles rather than a straitjacket of rules," Mr Crockett said.

Some speakers such as Mr P.P. Vora, CMD of IDBI, and Mr V.P. Singh, CMD of IFCI, said prudential norms should not be the same for developed and developing countries.

Supporting the view, Mr Bart Hellemans, Deputy Managing Director, Vysya Bank, said it did "not make a difference whether you are in an emerging market or elsewhere. Banks are in the business of risk management and they have to accept the responsibility (of risk management)."

Mr Janki Ballabh, Chairman, State Bank of India, said even though Indian banks should attempt to be global class, they should not compromise on national, economic and social issues unique to the country.

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