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

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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.

A Critique of RBI’s Trend and Progress of Banking in India

Over the last three years, the scope of the Reserve Bank of India’s Report on Trend and Progress of Banking in India has drastically come down. Information on important aspects of the operations of commercial banks and other financial institutions is now not presented in the report. A plea is made to restore the contents of the erstwhile reports and enhance the utility of the publication with additional data fromRBI’s existing database.

Were Public Sector Banks Victimised through AQR?

An inadvertent consequence of asset quality review by the Reserve Bank of India is that it portrayed public sector banks as inefficient managers of the burgeoning non-performing asset crisis relative to their private sector peers. A study, which used panel data regression to investigate the NPAs of 46 scheduled commercial banks between 2007 and 2016, has explored the myth by adopting a strategic orientation perspective to look into the antecedent periods of high uncertainties and jolts, leading to the build-up of NPAs, the changes in banks’ strategic orientations, and their effects on provisioning and NPA reduction. But no evidence was found to support the myth and to suggest that banks, across ownership, are incrementally exposing their NPAs ex post, subject to provisioning ex ante and that a moderate approach during periods of high uncertainty is most effective in managing NPAs. The study questions the received wisdom regarding the nature of risk-free sovereign debts and their impact on the NPA problem.

Public Sector Banks Are Adrift

With credit and deposit growth slowing in key sectors and only retail credit growing, low capital adequacy ratios of banks, senior management changes in the offi ng, and bank mergers, the National Democratic Alliance government needs to ask itself what it envisages for public sector banks, and indeed for the Indian economy.

Concentration, Collusion and Corruption in India’s Banks

Why would companies, for whom costs rise with higher interest rates, choose to amass credit as interest rates rise? Were more and more loans taken with the understanding that default would be inevitable? Only a commission of inquiry with a specifi c mandate to understand the years of loose lending by banks in India can answer these and other uncomfortable questions. These answers are needed in the interest of securing our economy, and indeed our democracy.

Trade Unions in Banks Remain Relevant

“Are Trade Unions Relevant in the Indian Banking Sector?” by Bino Paul G D and Pooja Gupta Mahurkar (EPW, 16 April 2016) contains surmises and generalisations without verifiable supporting data, apart from glaring contradictions. Further, it does not address the current challenges before bank unions.

‘On-tap’ Bank Licences

Critically evaluating the draft guidelines for “on-tap” bank licences put up by the Reserve Bank of India, it is argued that India’s banking system is already sufficiently competitive, and there appear to be few who would be willing to enter the banking business. Entry of newer players, especially those with corporate backing, cannot be the priority at the moment. The priority over the next two or three years has to be the resolution of the non-performing assets problem and strengthening of the existing players.

Do Foreign Banks in India Indulge in 'Cream Skimming'?

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.

The Changing Face of Indian Banking

Indian banking is passing through its most severe period of stress in over a decade. It is important, however, not to draw conclusions for banking policy from a snapshot of the most recent period--the totality of the post-reform experience must be taken into account. That larger experience shows that India's public sector-dominated banking system has served the economy well by improving its performance in respect of both efficiency and stability. Looking ahead, changes in governance and management are required, but it is possible to effect these within the framework of public ownership.

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