October 26, 2015
Relevance of banks
This refers to C R L Narasimhan’s article “Diminishing a bank’s traditional role” (The Hindu, Financial Scene, October 26). The article is immensely relevant in the context of the reforms in the financial sector, now under way. The prime objective of the reforms is to retain the health of the banking system and to ensure that (i) banking business remains with banks regulated by RBI under Banking Regulation Act, 1949 and RBI Act, 1934 and (ii) banks are able to live up to the role expectations in regard to mobilising and managing deposits ensuring safety and liquidity and a reasonable return to the savers while deploying the funds mobilised to promote economic growth and financial inclusion.
RBI’s recent efforts to help banks reduce their stressed assets, bring more players who are already doing ‘banking business’ into regulatory and supervisory discipline applicable to the existing mainstream banks and consider possible structural changes within the banking system to infuse professionalism and efficiency should be viewed in the above context. The changes hopefully will help banking system work with less NIMs(presently these have reached the level of 4 per cent in the case of some banks) which will result in reduction of interest rates on loans without reducing rates on deposits which are already low.  The success of these measures is crucial to the retention of the savers and borrowers within the formal banking system.

M G Warrier, Mumbai  


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