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SBI chief hints at phased convertibility, active derivatives market

State Bank of India chairman M P Radhakrishnan today said the woes in the forex market, where some of the leading Asian currencies have taken a beating, perhaps justifies India's guarded approach to introduction of rupee convertibility on the capital account. The Reserve Bank of India is therefore likely to implement convertibility only in a phased manner.

Addressing management students in New Bombay, Radhakrishnan said, in the wake of such currency crises, he foresees an active market for derivatives in the future, as corporates would increasingly need risk hedging mechanisms like options and futures.

In the next millennium, there would be a widening and deepening of the Indian financial market as restrictions on cross-border flows disappear and there would also be a larger deregulation of financial services by the government, the SBI chief said.

The member countries of the World Trade Organisation have recently reached a deal to significantly ease international trade barriers in the financial services, industry covering trade in banking, services, securities and financial information.

Increased competition from abroad could also mean more failures and ultimately only the most efficient would survive, he added.

Radhakrishnan felt that corporate governance in the country is much below international levels. He said though under the aegis of the Confederation of Indian Industry, a committee had been set up, "but we still have a long way to go before reforms on the lines of the Cadbury Committee recommendations in the UK are introduced in our country," he said.

The need for corporate governance arises on account of the need to be accountable to shareholders, provide transparency of disclosures, ensure quality of directors and maintain independence in decision-making, he added.

UNI

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