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Our Bureau

New Delhi, Feb. 1 In what will be widely seen as a riposte to previous reports on the subject, the Government and the Reserve Bank of India will come out with their plan for financial sector development and reform in a couple of weeks from now.

Called the Report of the Committee on Financial Sector Assessment, the document pragmatically assesses the entire financial sector and identifies the weaknesses in it. It also makes literally hundreds of suggestions on how to remove these weaknesses, without being overwhelmed by ideology.

The report has the joint imprimatur of the Finance Ministry and the RBI. The Committee that has authored the report had the RBI Deputy Governor, Dr Rakesh Mohan, and the Finance Secretary of the time as co-chairmen.

Overall, the assessment has found that “the financial system is essentially sound and resilient, and that systemic stability is robust. Compliance with international standards and codes is generally satisfactory, and India is broadly compliant with most of the standards and codes. The assessment documents the areas of non-compliance, partial or otherwise.”

It goes on to say that “Stress tests have revealed that banking system can withstand significant shocks due to changes in credit quality, interest rate and liquidity conditions.”

It says there is an urgent need to reform bankruptcy laws. In many ways, it thinks of this issue as being one of the five most crucial issues.

On banks, it says, “As a first step, Government could consider amalgamating those banks which are in the borderline of 51 per cent shareholding with those banks having higher than stipulated minimum of 51 per cent keeping in view synergies in mind.” On foreign banks it says “The roadmap will be reviewed in March 2009.”

On accounting standards, the report says, “The International Auditing Standards (ISAs) are widely accepted in India. Some gaps need to be addressed in areas relating to convergence with ISAs, implementation of auditing standards, strengthening the peer review, access to working papers and independence of auditors.”

On the management of the public debt, it says, “…While most members of the Certified Financial Services Auditor (CFSA) concurred with the proposal to set up a DMO, one member felt that the DMO (Debt Management Office) should be an independent body.

The Chairman felt that the time is not ripe for the complete separation of debt management at the current juncture as “it may not be appropriate for a Central Government authority to also do State Government debt management.”

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