Mumbai: Macro-finance institutions will not be allowed to accept public deposits as it would place public money at a risk judging from the recent experience of urban co-operative banks, Reserve Bank of India Governor Y V Reddy said today (Mar 25, 2004).

"Macro-finance activity was concentrated in Southern and Western part of the country. However, RBI cannot go ahead and allow such entities to accept public deposits," Reddy said speaking at the Indira Gandhi Institute of Development Research in Mumbai.

Macro-finance entities comprise self-help groups and non-government organisations.

On restructuring of banks, financial institutions and non-banking finance companies, he said all aspects, including legal, policy matters and interest of shareholders should be taken into account and RBI was willing to assist the Government on this issue, if the latter undertook studies in this respect.

This remark comes at time when there are talks about merging infrastructure entity IDFC with State Bank of India.

He also pointed out that it was proving difficult to make a "reasonable assessment of probability of default" with the prevailing uncertainty to get a prompt judgement from the judicial system and implement the same (for recovery cases).

"I would perhaps put a high priority to the whole issue of judicial process," he added.

Reddy, on Basel II norms, said Indian banking sector was committed to implement best practices "but at a pace suitable to the situation here".