RBI should look to bring in reforms on asset side of banks

MUMBAI: Despite many reforms in the banking system over the last two decades, challenges like diversified structure of financing and complexity of financial products should be addressed for long-term stability, industry experts said.

"Though there have been many reforms in the banking space in the last two decades, issues related to long-term financing, rising complexity of financial products with globalisation along with various sources of funding still remain. Regulators have to address these issues for long-term stability of the sector," Member of Financial Sector Legislative Reforms Commission (FSLRC), Y H Malegam said at Financial Planning Congress' 11 organised by Financial Planning Standards Board of India here.

He, however, said Indian banks are better placed than their global counterparts as far as capital adequacy and exposure to risky assets are concerned.

The banking sector has seen various reforms like entry of new sector private sector banks, reduction of cash reserve ratio ( CRR) and statutory liquidity ratio ( SLR), deregulation of interest rates, and introduction of base rate among others, in the past 20 years.

"In the recent past, many of the reforms are directed towards liabilities side of the business. However, there are little reforms on the asset side. Perhaps, the regulator should bring some reforms in the asset side so that a balance will be maintained," Joint Managing Director of Kotak Mahindra Bank, C Jayaram said.

He also said that basic banking experience will change in the next five to 10 years with the advent of technological solutions in the banking sector.

On consolidation in the banking space, Jayaram said consolidation within the public sector banking space should be done for higher productivity.