ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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THE ECONOMY-Selective Transparency

government has been under tremendous pressure to restructure the banking and financial system and to introduce larger private sector involvement so as to bring about greater competition which alone can, it is believed, lead to higher productivity and efficiency. Thanks to the modicum of democracy still operating in the country and fear of public opinion, the government has found it difficult to accept the suggestion of outright privatisation of the banking system. Therefore, some surreptitious devices of back-door denationalisation have had to be adopted. The entire system is being turned topsyturvy without any comprehensive study, except for the report of a committee which was tailor-made to secure financial sector and structural adjustment loans from the multilateral agencies. Plans for separating the developmental and lending functions of the Industrial Development Bank of India (lDBl) have been deferred for a more opportune time, but the Industrial Financial Corporation of India (IFCl) has been converted into a company under the Companies Act on the pretext of enabling it to raise capital from the market, Many private sector banks are being encouraged to raise capital. And now the Reserve Bank has come out with detailed guidelines on the setting up of new private sector banks. On the face of it, the move seems innocuous enough. In any case, in the normal course the private entrepreneurial response to the guidelines may turn out to be meagre so that no significant threat may be posed to the role of public sector banking for some years to come. The danger is that the government may, under pressure to satisfy IMF-World Bank conditionality, seek to force the pace so that a number of private sector banks may be brought into being by various devices, including take-overs.

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