• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Our Bureau

Mumbai , Dec. 12

THE yet-to-be implemented, real time online clearing system (RTGS), will drive down margins of banks, said bankers at the Bank Economists' Conference.

RTGS is expected to be implemented on a stand-alone basis by January 2004 and on a full-fledged basis by June 2004, according to Reserve Bank of India's timetable.

"The loss is not going to be small. If we give online clearing, what happens to our float,'' posedMr Aditya Puri, Managing Director, HDFC Bank, at the panel discussion `Profit Pools: Emerging Trends.'Banks will have to price online clearing through Real Time Gross Settlement (RTGS) since the minute we give online clearing our float money disappears, elaborated Mr Puri.

Banks who bear the cost of increased infrastructure, telecommunications, training of people and so on should pass on the increased costs to the customer, otherwise the banking system will lose money. Retail payments made through RTGS was estimated to bring down payment revenues of banks by 35 per cent, he said.

This settlement system is primarily meant for inter-bank payments and will be extended to retail customers subsequently. With regards to profitability of banks, Mr M. Venugopalan, CMD, Bank of India, said, "Public sector banks are marketing many a product today which are not profitable...Some public sector banks will turn into niche markets.''

"Banks' excessive investments in government securities will be cause for concern when interest rates go up,'' Mr R.V. Shastri, CMD, Canara Bank, said. Commercial banks are deploying 40 per cent of their net demand and time liabilities in government bonds and reaping profits as interest rates have been falling over the last couple of years. But when interest rates begin to harden, the value of their portfolios will depreciate thereby putting forth a task before them.

The holding of large g-sec portfolios in the event of interest rates heading north was one of the issues thrown up by Mr Vinod Rai, Additional Secretary, Banking, Ministry of Finance, Government of India, at the outset of the discussion. Other points, which according to him, would have to be addressed by bankers include the potential threat of food credit turning into a non-profit centre, the high intermediation costs of 2-3 per cent of Indian banks and of the disappearance of developmental finance institutions.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Bridging the divide between RBI, banks

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line