Banking

The debate around the conversion of Scheduled Urban Cooperative Banks into commercial banks warrants an investigation into their performance. The larger objective is to examine whether SUCBs are able to compete with their peer group and remain viable when subjected to stringent regulatory requirements, in the event of their conversion. The performance of SUCBs as a group is comparable with that of their peer group, that is, old private sector banks, with the exception of non-performing assets. Performance rankings reveal that the smaller SUCBs are better performers than larger ones, calling for a relook at the threshold for conversion. In the event of conversion of SUCBs into commercial banks, some of the converted entities will be as good as some of the existing OPSBs, or may even be a shade better.

An enquiry into the regional distribution of banking in Maharashtra comparing the rural and urban areas of the state and various divisions and districts dispels the commonly held notion that the state is a well-banked one. The aggregated indicators of banking development conceal the reality of an extremely wide divide in the distribution of banking between the urban and rural areas. This is essentially a reflection of the district-wise divide between Mumbai and the other districts, particularly those from central and eastern Maharashtra or Amravati, Nagpur and Aurangabad divisions, which have been identified in the literature as economically backward districts and have also been associated with a high incidence of agrarian distress in recent times. With a thrust on the policy of financial inclusion since 2005, there has been an increase in the number of bank branches in underbanked districts of the state. However, this increase has not helped in correcting the regional divide in bank credit and hence, most districts other than Mumbai continue to be significantly credit-deprived.

The politics and economics of interest rate formation in this country must be studied carefully. Lowering the interest rate raises stock prices in an environment where they themselves cannot move up thanks to the fundamentals of the economy that are not conducive.

Unified Financial Code: Is India Ready? A Critique on the Financial Sector Legislative Reforms Commission Report by S S Tarapore; Gurgaon: LexisNexis, 2015; pp xii+166, ₹295.

Foreign banks in developing countries are often found to indulge in "cream skimming," a lending strategy that targets only wealthy segments of the credit market and excludes small and marginal borrowers from the general pool of borrowers. This paper attempts to investigate whether lending patterns of foreign banks in urban regions of Indian states are indicative of such practices. Using credit data on urban regions of 21 states of India for 1999-2011, this paper finds empirical evidence of cream skimming by foreign banks in India.