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"The competitive structure is what makes you accountable ultimately, so we would have to promote a more competitive financial structure rather than the identity of ownership, in the medium-term," Dr Jalan said.

The RBI Governor, Dr Bimal Jalan, with (from left) the HDFC Chairman, Mr Deepak Parekh, the former SBI Chairman, Mr M.S. Verma, the CEO and MD, ICICI, Mr K.V. Kamath, and the IDBI CMD, Mr P.P. Vora, at the Banking Summit in Mumbai.

MUMBAI, April 2

THE Reserve Bank of India's aim is to create a monetary environment where there are no major concerns over liquidity domestically and externally, according to the RBI Governor, Dr Bimal Jalan.

"I can say today that we are in a position where we are unlikely to get into a balance of payment problem," Dr Jalan said.

Internally, development of bond and debt markets was the top priority though this was one of the most unregulated aspects of the economy.

"There is liquidity in the system; but the instruments we have are not liquid, the private sector instruments in particular," Dr Jalan said addressing bankers at the CII Banking Summit 2002 here on Tuesday.

It was imperative to have a financial market that was diversified and not bank-dominated, Dr Jalan said.

"Banks need competition from other financial institutions. Mutual funds, pension funds, and the insurance sector are all important for the stability of the financial system," he said.

Dr Jalan said the RBI would like to encourage a more competitive financial economy where foreign banks, private and public sector banks, large or small, all had a role to play.

"The competitive structure is what makes you accountable ultimately, so we would have to promote a more competitive financial structure rather than the identity of ownership, in the medium-term," he said.

"Soundness of the banking and financial system is more important than size. It is the ability to take and absorb the risks in the financial system that needs to be cultivated and is the most important," said Dr Jalan. "We may not be world leaders in terms of market capitalisation of our banks, the size of our loans, in terms of our PE ratios, but we have to be world leaders in terms of the soundness of our banking system," he said.

The Argentine crisis, Dr Jalan said, was an example that these things could happen anywhere, because three years ago, it was a very sound economy. While the 1990s had been witness to a lot of changes in the regulatory framework and integration of economies, etc, it was also the decade that saw the most banking crisis than any other post-War decade both quantitatively and in terms of intensity, he said.

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