MUMBAI, May 27: The Reserve Bank of India Governor C Rangarajan on Tuesday blamed the poor mobilisation of funds from the primary market for the rise in interest rates. ``It was the shortfall in the amount raised in the capital market which put considerable pressure on the banking system which led to the rise in the rate of interest,'' Rangarajan said.

Countering the general belief that ``it is the high rate of interest which has led to less amount being raised in the primary market'', he said ``in 1995-96 the contrary is the case.

After having been used to raising fairly substantial funds from the primary market, the corporate sector is faced with a situation where the amounts raised have dropped substantially in the last two years, Rangarajan said while inaugurating the Second Annual Stock Exchanges Summit sponsored by the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Rangarajan said investor confidence built by good performance by corporates was as important as bringing about improvement in the functioning of the capital market to enable private sector to raise funds from the primary market.

``We need to go ahead with all the steps that are required to make our markets deep and liquid as well as efficient. But at the same time corporates must deliver on their promises,'' Rangarajan said.

He said the RBI would strive towards connecting all the ``important institutions'' of the financial sector to the VSAT-based electronic funds transfer (SFT) systems planned initially to link banks.

``RBI is fully conscious of the uniquely important role that the payments system plays in the creation of safe clearing system which require the minimum in working capital on the part of market participants,'' he said.The modern clearing house is a challenge of risk measurement and containment and the challenge in India is to develop strong institutions which have such skills, the RBI governor said.

The modern clearing house enables safe trading between strangers and hence, fosters a huge increase in market participation and market liquidity, he said.

He added that ``this is an important new phase in India's financial markets.''

Rangarajan said the experience of India's equity market is a singular one by international standards. ``Despite the existence of traditional equity exchanges, India's equity market has now completely transformed the market mechanisms used in trading, clearing and settlement,'' he said.

The electronic trading on the equity market in India is more modern than what is seen in many OECD (Organisation of Economic Cooperation and Development) countries and the transformation of clearing and settlement that the country has seen on the equity market over the last two years could easily have taken a decade in other countries, he said.

Rangarajan said the transformation in Indian stock markets has swept away a whole host of market practices which were once considered perfectly acceptable and should be viewed as a significant achievement of the liberalisation process.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.