Speaking at the annual general meeting of the Indian Institute of Bankers (IIB), Jalan pointed out: "NPAs of the banking system continues to be a matter of grave concern for all of us. The ratio of net NPAs to net advances has been as high as 8.6 per cent and in absolute term, the amount is over Rs 40,000 crore. Banks will have to address themselves to this problem in order to qualify themselves for securing/availing the autonomy package announced by the government of India in 1997."

Meanwhile, former Reserve Bank deputy governor S S Tarapore has warned that the exchange rate guarantee given by the government on the Resurgent India Bonds (RIBs) should be a cause for worry to the Reserve Bank of India (RBI).

``The granting of exchange rate guarantees by the government isequally hazardous for the central bank as it is a sin once removed,'' Tarapore said in his inaugural address at a seminar on `RBI's balance sheet management' organised by Bankers' Training College.

While dwelling on certain imprudent practices which he called as ``moral sins'' of central banking that can cause a loss, Tarapore said the experience of early 1990s was a chastening one for the RBI and the present policy is one of apex bank refusing to provide any form of exchange rate guarantees. State Bank of India (SBI) mopped up $ 4.21 billion through RIBs.

The other sins he listed are paying interest on cash reserve ratio (CRR) balances, automatic monetisation of the fiscal deficit at artificially low rates of interest and borrowing by the central bank. If there is a macro economic strengthening, there would be a pressure on RBI's profits and it is necessary that the government should recognise that such a pressure is inevitable he said, adding recent signals on the fiscal side are a cause for concern asthe government appears to look at RBI profits as a source of financing.

Tarapore said swelling RBI profits so as to ensure larger profit transfers to the government is a dangerous policy. The government in recent times has raised its budget estimates year after year on profit transfers from RBI. ``The profit transfer to the government should really be a single figure and the unusual situation arising out of Foreign Currency Non-resident Account (FCNRA) scheme should not be a precedent for earmarking profit transfers for specific purposes, he said.

The FCNRA exchange guarantee was an RBI liability and when the government took over this liability, it was understood that to the extent possible RBI would transfer additional profits to the government to enable the government to meet the exchange guarantee liabilities, he stated.