The Hindu Business Line : `Micro-finance entities will not be allowed to accept public deposits'

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`Micro-finance entities will not be allowed to accept public deposits'

Our Bureau

Dr Y.V. Reddy

Mumbai , March 25

MICRO-finance institutions will not be allowed to accept public deposits as it puts public money at risk... the Reserve Bank of India cannot allow such entities to accept public deposits, the RBI Governor, Dr Y.V. Reddy, has said.

This is going by the recent experience of urban co-operative banks in the country. Micro-finance entities comprise self-help groups and non-governmental organisations, which engage in micro-finance. Micro-finance activity is concentrated in the southern and western parts of the country.

Dr Reddy was speaking at the Indira Gandhi Institute of Development Research here on Thursday.

Regarding restructuring of banks, FIs and non-banking finance companies, he Reddy said all aspects, including legal, policy matters and interest of shareholders should be taken into account. He also expressed RBI's willingness to assist the Government on the issue if need be.

This remark assumes importance in the context of the proposed merger of Infrastructure Development Finance Co Ltd with the State Bank of India and IFCI with Punjab National Bank.

On endless litigation for debt recovery, he pointed out that it was proving difficult to make a "reasonable assessment of probability of default'' with the prevailing uncertainty to get a prompt judgment from the judicial system and implement the same (for recovery cases). "I would perhaps put a high priority to the whole issue of judicial process''.

On the implementation of Basel II norms, he said the Indian banking sector was committed to implement best practices "but at a pace suitable to the situation here."

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