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

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Income Diversification and Risk-adjusted Returns for Indian Banks

Of late, banks are under pressure to improve their performance and asset quality. Diversifying income might improve their performance at a time when interest incomes are under strain. This article covers trends in diversification from 2000 to 2017 and explores the relationship between income diversification and risk-adjusted returns for banks in India. Our research supports the hypothesis that banks diversifying into non-interest income category are able to get higher risk-adjusted returns. For public sector banks, it is found that it is the dividend and treasury income that is contributing positively and significantly to risk-adjusted return.

‘Stop Privatisation’: Why the Move to Privatise Public Sector Banks is Based on Flawed Assumptions

Unlike common assumptions, private banks do not inherently perform better than public sector banks. The reasons that are often cited for privatisation of public sector banks require deeper scrutiny.

Bad Bank, Bad Loans and the Indian Banking Mess

This article looks into the reasons for the large non-performing assets of the Indian banks, particularly public sector banks, and the various steps taken by the government and the Reserve Bank of India to tackle the issue of bad debts. It also examines if a bad bank is the magic wand that can...

Government and Its Adaptive Ignorance

Privatisation is no solution to the problems of the banking sector.

Bank Privatisation

There is a buzz in the air about privatisation of some of the public sector banks (PSBs). There has been talk of privatising Industrial Development Bank of India (IDBI Bank) in financial year (FY) 2020–21. Of the disinvestment target for the year of Rs 2.1 trillion, Rs 90 billion was to have come...

Engineering Banking Sector Recovery and Growth

The idea of “bail-in” in cases of serious banking instability has been widely discussed in India ever since the introduction of the Financial Resolution and Deposit Insurance Bill. Given the large non-performing loans of public sector banks, the Government of India and the Reserve Bank of India as the regulatory authority have to quickly act to ensure that public confidence in the soundness of commercial banks is not breached. In this context, three approaches are explored that could be adopted either individually or in a variety of combinations in different proportions essentially to secure banking stability. The bail-in idea should not be considered except in extreme conditions of large financial stress. The idea could be tried even before the extreme situation arises with provision of incentives.

‘Riskless Capitalism’ in India

A study of the financial processes underlying India’s high-growth trajectory of the 2000s and its relationship with “riskless capitalism,” a term first used by Raghuram Rajan in November 2014, finds that the Indian growth story cannot be over-simplistically explained as a result of “market-oriented” reforms. Public sector bank credit-financed investments, particularly in the infrastructure sector, played a significant role in sustaining growth, most crucially after the global economic crisis. Such a growth trajectory, however, proved to be unsustainable with the expansionary phase coming to an end in 2011–12 and bad loans piling up in the banking system.

Public Sector Bank Mergers

The slowdown in the economy and the resultant rise in bad loans have led to criticism of public sector banks and questioning of their raison d’être. While there is a rush to find a quick solution by merging PSBs, it would be wise to examine the ground realities closely. India needs a mix of efficiently run PSBs and aggressive private banks to achieve growth and development along with social justice.


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