Worsening bank asset quality poses near-term risk to India, says IMF but RBI disagrees

"Use of capital markets to refinance infrastructure loans would help alleviate pressures on banks," it said.

According to the IMF report, the multiple roles of Reserve Bank of India (RBI) create the potential for conflicting goals.

RBI officers are nominated as directors on the Boards of public banks, while at the same time RBI serves as the prudential supervisor of these banks, it said.

It would be preferable for the government to focus on policies that ensure the appointment of well-qualified, independent Board members that are not from the RBI, it said.

"And while there may be some synergies, RBI's role as monetary authority, bank regulator, and government debt manager may have led it to require banks to hold larger holdings of government debt than might be needed on prudential

grounds.

Finally, using the banking system rather than government programmes in meeting the needs of priority sectors (agriculture, small and micro credit, education, health) and

underserved areas may conflict with RBI's supervisory role," the report said.

In light of its commitment to retain the public sector character of state-owned banks, the government needs to consider how to manage its ownership in ways that are

compatible with the public banks prudently financing a rapidly growing economy, the IMF said.

To perform competitively, banks need the flexibility to attract top notch financial talent, innovate, enhance risk management, and build-up capital.

Public ownership should not impose obligations or restrictions that limit banks' ability to remain competitive and sound, it said

RBI disagrees with IMF, says regulators function independently

Mumbai (PTI): Disagreeing with IMF's assessment of India's financial sector, the Reserve Bank of India (RBI) today said the government does not interfere with the working of regulators and the country's banks cannot follow international group exposure norms as it would hamper economic growth.

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