This Article is From Oct 30, 2013

NSEL crisis: RBI says no risks to banking system

NSEL crisis: RBI says no risks to banking system

A day after flagging concerns over the National Spot Exchange Ltd (NSEL) scam, the Reserve Bank of India (RBI) on Tuesday ruled out any threat to the banking system from the Rs 5,600-crore payment crisis.

"We have no issue with the NSEL crisis as at present there is no problem to the banking system because of the scam," RBI Governor Raghuram Rajan told reporters at the customary post-policy press meeting in Mumbai.

He was asked about the apex bank's views on the three-month long payment crisis at the commodity bourse.

Echoing similar views, Deputy Governor K C Chakrabarty said the NSE issue does not fall under RBI's purview but there are no risks to the banking system from the crisis.

On Monday, for the first time, the RBI reacted to the crisis at the crippled NSEL, which owes close to Rs 5,600 crore to over 13,000 investors.

"The NSEL crisis exposes regulatory gaps prevailing in systemic institutions... A loss in one segment of their (brokerage firms) operations can have a cascading effect on other segments, in turn, propagating contagion effects throughout the market," the RBI said in macroeconomic and monetary developments report.

NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs 5,600 crore to members after it suspended trade on July 31 on government directions.

The crisis at NSEL has raised the issue of inter-connectedness of financial institutions, it said, adding many brokerage firms are active in multiple segments, including equity, commodity and forex.

In August, the beleaguered spot commodity bourse had announced an elaborate plan, spread over 30 weeks, to settle the investor dues.

But so far, NSEL has defaulted 11 times and has been able to settle only about Rs 209 crore as against estimated Rs 5,600-crore dues.