G-20 accepted our opposition to bank tax: Pranab | business | Hindustan Times
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G-20 accepted our opposition to bank tax: Pranab

business Updated: Jun 07, 2010 20:39 IST
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Finance minister Pranab Mukherjee today said the country's opposition to global bank tax to fund bailouts and its support to prudential regulations to avert financial meltdowns in future have been "by and large accepted" by the G-20 finance ministers.

"We are not in favour of having taxation on the banks. We suggested that ultimately you please take it up through the regulatory route...By and large, it was accepted," Mukherjee told reporters in New Delhi today, a day after his return from the G-20 ministerial at Busan in South Korea.

Besides India, Australia and Canada are also opposed to the proposal to tax banks, while the European Union, the US, and Britain favour the idea. Even as the G-20 communique did not directly mention bank tax, it called for contribution from the financial sector players to the measures taken by governments to prop up economies so that taxpayers can be protected from funding future bailouts.

Mukherjee said our way of regulating the banking system can help the developed world prevent bank failures. "We have CRR, SLR through which we regulate our banks, and if there is well- placed regulatory mechanism, perhaps the type of problems which European and American banks are facing could be avoided," the minister said.

Regulatory tools like cash reserve ratio (CRR) and statutory liquidity ratio (SLR) not only help the RBI to manage liquidity in the system, but also build cushion against sudden demand from depositors. While CRR is the portion of deposits that banks are required to keep with RBI, SLR is the portion of deposits that banks keep in form of government securities, gold or cash.

The Reserve Bank is often credited with prudential regulatory norms and its cautious approach towards new financial products that helped the banks avoid direct impact of global financial crisis. Much of the problems in the world that led to the financial meltdown is attributed to lax norms for investment banks that ultimately resulted in huge borrowings by financial sector to invest in complex derivative instruments.

Referring to the risks that the crisis in Greece could pose to the global economy, Mukherjee said, "it is Europe's responsibility to contain the contagian...because faster recovery in Europe is essential for the developing countries both for FDI and exports."

Europe accounts for 20-22 per cent of the country's exports of about USD 176 billion. Mukherjee conveyed it to the his G-20 counterparts and the central bankers that the global recovery is still fragile.