The Hindu Business Line : RBI asks banks to gear up for risks of full float of rupee

MUMBAI: Reserve Bank on Thursday said Indian banks should gear themselves to face the risks of fuller float of rupee which is expected to happen by 2011.

“The banking sector requires to develop appropriate capabilities to manage the varied and enhanced risks (on the implementation of fuller capital account convertibility),'' the central bank said in its report on currency and finance on Thursday.

The banking system in a freer capital account regime would be exposed to enhanced risks in terms of currency risk, counter party credit risk, legal risk, risk of regulatory arbitrage, risk in derivatives transactions and reputation risk, the report said.

A committee headed by S S Tarapore had recommended implementation of fuller capital account liberalisation by financial year 2011.

With this, banks are expected to undertake transactions in multiple currencies acting as channels for the flow of funds in and out of the country.

A fuller capital account regime is also expected to allow banks to receive deposits and raise borrowings from both residents and non-residents. Banks, then, can also lend and invest in both domestic and foreign jurisdictions.

“All these types of transactions add to the risks of the banking system that are not so evident in a less open domestic banking system,'' the RBI said. - PTI

Prev: StanChart targets premium customers to enhance credit quality
Next: HC questions Govt on PIL over N-deal, intl treaties

Business Line | NUS Index |