Expressing his views on the second generation reforms in the banking sector at a bankers gathering organised jointly by Indian Bank Association and Bombay Chamber of Commerce and Industry (BCCI) on Friday, he said, "If there is to be a CRR differential, non resident deposits should be subject to a higher prescription."

He said, "The present zero CRR prescription on non-resident deposits is totally bereft of inter-bank equity and needs to be remedied expeditiously."Reacting to abolition of CRR on FCNR (B) deposits announced in the busy season credit policy, he said: "It is very unfortunate as CRR on these deposits have been abolished despite the present comfortable external payments position. It is not clear as to what would be done when pressure develops in the future."

"The RBI should consciously use every opportunity to reduce CRR rather than enhance refinance and maintain overall monetary control through aggressive open market operation (OMO)," he said.

He further said that a CRR cut will not encourage a reduction in the prime lending rates (PLR) of the banks.

"I do not see a fall in the interest rates," he said. On the deregulation of saving deposits, Tarapore is of the view that banking sector is not yet ready for it. The former deputy governor urged the central bank to fix a prudential limit on money market borrowing by banks on a regular basis.On the war between the two regulatory body-RBI and SEBI-to regulate the market, he said that banks have not voiced their grievance.

"The fact that small interest income from banks is taxable while unlimited income from mutual funds are free from tax. Banks should thus put a severe restriction on money market operations of all mutual funds," he said. He said that the monetary policy of RBI should provide price stability and encourage growth.

Reacting on the MS Verma panel recommendation on weak banks, he said that the Centre should not provide funds to weak banks to pull them out of red.

"The Government in is no position to provide capital to the tune of Rs 35,000 to 40,000 crore to the banking sector to put them on the growth track," he said, adding: "If an asset reconstruction fund is to be set up, the capital of Rs 15 crore as suggested by Verma Panel should come from private sector with a matching grant from the Government".