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Former RBI Governor opposses direct control of SBI

SS Tarapore has opposed the government's attempt to take direct control and ownership of the country?s largest bank, SBI, reports KA Badarinath.

india Updated: Nov 15, 2006 21:45 IST

Former Reserve Bank of India (RBI) Deputy Governor SS Tarapore has opposed the government's attempt to take direct control and ownership of the country’s largest bank, State Bank of India (SBI).

Tarapore has asked the Government to refrain from acquiring majority equity in SBI from the RBI in a ‘cash-less’ transaction.

He has urged the Government and Parliament to block this "cashless" transaction. The Parliamentary Standing Committee on Finance headed by Major General BC Khanduri is vetting this proposal.

The Government proposes to take direct control through an amendment to the SBI Act.

In the proposed bill, the Government also seeks to merge the SBI 's seven subsidiary and associate banks with the parent bank. "The idea is to make SBI a world class bank with enough muscle and reach, apart from making the RBI a truly independent regulator," said a top Finance Ministry official.

At a FICCI seminar on Wednesday, Tarapore presently chairman of the Committee for Fuller Capital Account Convertibility said the move would delay the strengthening the capital base of state-owned banks.He added that the Narasimham Committee’s recommendations that RBI should be a regulator and not an owner of a bank has been grossly misinterpreted.

"Definitely, Narasimham Committee did not mean that SBI ownership should be transferred from a small regulator the RBI to a bigger regulator, the union government, and that too in a cash-less transaction” Tarapore said.

Tarapore set aside the argument that transferring SBI ownership to Government was technical. He said it was "bad in principle and disastrous in practice".

He stated that while the Government is already burdened with running nationalised banks, RBI should not transfer its own set of problems to the Government.

"The transfer of SBI ownership to government would be a major setback to the credibility and transparency in financial sector reform process built up so assiduously over the past 15-years," he said.

He defended the FCAC recommendation for gradual but full float of the rupee. He stated that strong macro-economic fundamentals and wiping out revenue deficit were pre-requisites to move towards free convertibility of rupee on capital account.


First Published: Nov 15, 2006 21:45 IST