| Banking on commodities? |
| Business Standard / New Delhi Jun 06, 2012, 00:08 IST |
This refers to the front-page news item “Govt backs banks’ entry into commodity futures trading” (June 4). Under the Banking Regulation Act, 1949, banks are not allowed to trade in commodities and amending the law to allow them to do so may not work well. As it is, banks have their own problems with increasing non-performing advances; lack of adequate skilled human resource to meet the challenges of modern banking that involves trading in derivatives, currencies, investments and gold; and finding adequate capital to meet the requirements of Basel-III. In the absence of an autonomous and independent regulator for commodity trading, involving banks will weaken their functioning and the Reserve Bank of India will have to bear the brunt in case something goes wrong with an otherwise sound banking system. Even the selling of gold by banks needs to be reviewed or even stopped to reduce the import of gold coins and save valuable foreign exchange. The government’s move to allow banks to trade in commodities needs to be thoroughly debated.
1 comment:
Your caution note is appropriate. In the name of globalisation we have embraced many western policies even without rudimentary or basic knowledge of the products that the banks sell on their counters. They are already selling insurance products without knowing an iota of risks involved and the re-insurance products. If they are enabled to enter into commodity markets also which function more on global signals the rating of banks in India would be subject to more fluctuations than now. Their otherwise good performance on the balance sheet would be beaten by the off-balance sheet derivatives. Yerram Raju
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