The Hindu Business Line : IMD redemption may put pressure on liquidity: Reddy

THE redemption of the India Millennium Deposits (IMD) worth $5.5 billion, by State Bank of India, could cause some liquidity pressure, said Dr Y.V. Reddy, Governor, Reserve Bank of India.

Speaking to newspersons at the sidelines of a seminar on corporate governance, Dr Reddy said, "Some liquidity pressure is anticipated due to IMD redemption."

However, overall liquidity conditions show that market movements are orderly, he said. "There is an increase in demand in the overall liquidity. But liquidity management continues to be orderly," he added.

The IMD redemption is coming up on December 29 and RBI estimates an outflow of $7.3 billion, including the interest portion. In a release issued earlier this week, RBI said it would meet the entire foreign exchange outflow by way of sale out of its reserves to SBI.

Supporting the action taken by SEBI regarding the irregularities in the IPO of YES Bank, Dr Reddy said RBI has been emphasising on `Know Your Customer' norms and in the recent past has imposed heavy penalty on banks in similar cases.

"There is no evidence of systemic loopholes. Whatever information given by SEBI will be useful in bringing to book and taking prompt action," he said.

About the change in the stance on interest rates by the US Federal Reserve, Dr Reddy said it is relevant, but not a dominant factor.

Addressing the seminar on corporate governance in banks, Dr Reddy said, as a step towards distancing the regulator from functioning of boards of directors, RBI has withdrawn its nominee directors from almost all the private sector banks. Observers have been appointed as a transitional measure in banks, which are yet to fully comply with RBI's guidelines of ownership of governance.

To bring public sector banks on par with private banks, it has been proposed to remove the provisions for mandatory nomination of RBI officers on the boards of State-run banks, Dr Reddy said.

Regarding urban co-operative banks (UCBs), he said it is trying to work out a memorandum of understanding with the State governments. RBI has entered into such MoUs with Andhra Pradesh, Gujarat and Karnataka and is providing facilities for upgrading the skills of the members of the board and the management of the UCBs in these States.