RBI collects information on banks' exposure in Satyam

The Reserve Bank of India has collected data on banks' exposure in scam-tainted IT firm Satyam Computer and an investigation in the matter
is on, a top RBI official said.

"We have collected data on direct and indirect exposure of banks to Satyam. The investigation in the matter is on," RBI Deputy Governor Shyamala Gopinath told reporters here on the sidelines a conference organised by the Indira Gandhi Institute of Development Research on Money and Finance.

The Reserve Bank of India (RBI) had asked banks to furnish information to the central bank on their fund and non-fund based exposures to Satyam and associate companies.

A communique to this effect had been sent to banks recently, Gopinath said.

Replying to a question on banks not cutting their interest rates on the ground that their cost of funds are still high, Gopinath said, "It is up to (the) banks to decide how to go about it. Banks are responding by cutting PLR and deposit rates."

The Indian financial markets are facing excessive pressure due to the substitution effect, subsequent to the drying up of alternative credit avenues during the current financial turmoil.

"The slowdown in the real sector is affecting the financial sector, which, in fact, has second order impact on the real sector," Gopinath said.

During a boom time, any asset is liquid and marketable, while when the market breaks down, the asset becomes illiquid, she said.

"There is a need to have government bonds in a portfolio of liquid assets," Gopinath said.

The Indian growth process is driven by domestic factors and the country has a comfortable foreign exchange reserve, Gopinath said.

The reversal of capital flows due to the de-leveraging of global markets has put pressure on India, she said, but expressed confidence in the Indian banking sector, saying ratios of Indian banks are better than their peers.

"Indian banks' average capital adequacy ratio is 13% as on March 31 as against the regulatory requirement of 9%," Gopinath said adding that their foreign units have suffered some mark-to-market losses due to the widening credit spread, the Deputy Governor Gopinath said.

Commenting on over the counter derivatives (OTC), Gopinath said, "there is a need for a central counter-party for OTC derivatives when volumes are high. The gap between prudential needs and accounting standards needed to be bridged and regulations in leveraging, transparency and liquidity must be ensured."

Financial sector entities need to be seen and regulated as risk repositories in the system-any notion of their risks being dissipated into or outside the system is inherently flawed.

There is, therefore, a need for limits, prudential safeguards and adequate capital to support the risks.