"There has been no violation of the exposure limit by banks," Dr Reddy said after addressing the annual general meeting of Indian Banks' Association (IBA) and Bank's Sports Board.

Dr Reddy's statement is the first by a senior central bank official after the recent turbulence in the stock markets. It allayed fears that banks had overextended themselves in equity operations. It was largely believed that a few banks had broken their exposure norms with both fund and non-fund based limits to brokers.

It might be recalled that the central bank had sought the outstanding capital market exposure of banks as on 28 February, 2001. Further, it is also pertinent to note that RBI is all set to revisit banks' equity related operations, including the five per cent of outstanding loan ceiling in its upcoming monetary and credit policy review in April 2001. Referring to the Ahmedabad-based Madhavpura Mercantile Cooperative Bank, whose banking activities were frozen by the RBI over the last couple of days following a payment crisis on the bourses, Dr Reddy said that the RBI has requested the government to consider supercession of the bank's board and asked it to consider the appointment of an administrator. The RBI will lend full support for the operations of the administrator, Dr Reddy added. As far as the other cooperative banks are concerned, there has been a request for assistance from their associations in case customers demand for a premature withdrawal of deposits. Meanwhile, referring to the cash reserve ratio(CRR), Dr Reddy said the progressive reduction of the CRR was closely related to the pace of reduction in fiscal deficit, monetary developments and uncertainties in forex markets. "On all these fronts, greater comfort in the past could have helped more rapid reduction in CRR, to achieve the medium term objective," the RBI deputy governor said. In the medium-term perspective, the main challenge would be to subscribe to the proposed New Basel Capital Accord meant to replace the existing 1998 accord. The accord covers issues like prudential requirements including capital adequacy norms for the banks.

The new accord was likely to be finalised by 2001-end and mandated for adoption by 2004, Dr Reddy said, while adding, "It was likely to be more complex and more binding, warranting early and vigorous preparatory work by both banks and the central bank."