Financial Express: Weigh progress before second phase of financial reforms, says Rangarajan

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Weigh progress before second phase of financial reforms, says Rangarajan

Our Bureau

Hyderabad, Dec 18: Former RBI governor C Rangarajan has stressed on the need for considering the evolving shape of banking and the macro-economic status while implementing the second phase of reforms.

He visualised that the following picture of financial sector would emerge during the process of the implementation of the second phase of reforms suggested by Narasimham committee on the banking sector.

Greater specialistion by banks in different niches such as retail, agriculture, export, small-scale and corporate sector;

Greater reliance on non-fund business such as advisory and consultancy services, guarantee and custody services;

Greater overlap in product coverage between commercial banks and non-bank financial intermediaries; and

Greater financial disintermediation with large companies accessing securitised debt domestically and from financial markets abroad.

While delivering the inaugural address at the annual convention of Council of Chartered Financial Analystshere on Friday, Rangarajan said these will require the banks to prepare a corporate plan over the next five years taking into account its own strengths and the markets they are looking for. The second phase of reforms will have to focus on the organisational effectiveness of banks and the risk management.

The organisational improvement will have an in-depth corporate planning combined with organisational restructuring, which is necessary to achieve the desired results in terms of productivity and profitability, he said.

He said a properly designed management system that improves productivity and drives the behaviour of employees in delivering quality service must be clearly spelt out. To achieve all these banks need to be given greater autonomy with respect to recruitment and promotion of personnel. Greater accountability has to go with greater autonomy.

On risk management, he said all institutions must have proper risk management schemes to minimise the impact of unexpected changes. Most of the risksarise from mismatching. Risk is inherent and managing risk needs standards and reports, positon limits or rules, and investment guidelines or stategies.

These tools enable institutions to measure exposure, define procedures to manage these exposures and limit individual positions to acceptable levels. Risk-management systems have become standardised to some extent. He called financial analysts to extend the application of the core principles of risk management to other organisations, which are large and have exposures in foreign currencies.

Net Express

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