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

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Fatal Flaw in Private Banking Systems

It is in the interest of banks to expand the supply of credit, and most banking regulations are designed to limit this tendency. It is in the interest of private bank managers to give in to this tendency (in self-interest) and provide credit indiscriminately, irrespective of macroeconomic considerations, as the 2007 crisis has shown. Perhaps we could all learn from India’s risk-averse public sector banks, which are stressed from time to time, but have never seen multiple bank failures.

Insights into Privatisation

Privatisation in India: Challenging Economic Orthodoxy by T T Ram Mohan; RoutledgeCurzon, New York, 2005; pp 213, price not mentioned.

Credit Growth and Response to Capital Requirements

This paper makes an attempt to assess the impact of imposition of uniform capital requirement norm on flow of credit to the business sector by the most important segment of the Indian banking sector, i e, Indian public sector banks. A simple decomposition analysis of growth in assets portfolio as well as a model based analysis of credit growth for the Indian public sector banks corroborated that (a) in the post reform period, public sector banks did shift their portfolio in a way that reduce their capital requirements and (b) adoption of stricter risk management practice in respect of bank lending in the post reform period and its interplay with minimum capital requirements (regulatory pressure) have had a dampening effect on the overall credit supply.

Public Sector Banks in India

An examination of the main arguments extended to build a case for privatisation of the public sector banks (PSBs) in India reveals that the arguments are based on (a) perceptions rather than factual analysis; (b) the use of partial information; and (c) evidence on international experience which is not unambiguous. It can be concluded that the case for privatisation of PSBs in India is not strong enough at least on the grounds usually proposed by the advocates of privatisation. Private sector banking would have a larger probability of crisis if the supporting legal and regulatory framework were not sound enough to insulate the systems from extraneous pressures. It may, therefore, be safer to maintain the public sector character of the banks till the conditions for privatisation are conducive enough.

Some Issues of Growth and Profitability in Indian Public Sector Banks

Public sector banks face a triple jeopardy. First, they are losing market share; second, their profitability is being seriously squeezed; and, third, their balance sheets are not strong and their sovereign support, which had buttressed them so far, is becoming open to question. The reasons for this less-than-enviable condition of the public sector banks are many, but a principal operative factor derives from the nature of their ownership and what that translates into in terms of goals and priorities.

Governance Culture and Adaptive Efficiency

The progressive deregulation of the financial market has brought about major changes in the relative position of the different players in the market. Against the backdrop of the evolving relationship between the state and the market, this essay focuses on three interrelated issues the current institutional environment, adaptive efficiency and issues of governance.

How Well Have Public Sector Banks Done?

The efficiency of the public sector banks has declined during the 1990s when measured by the spread/working fund ratio. Though the turnover/employee ratio of the public sector banks improved, the ratio for the private and foreign banks doubled relative to that of the public sector banks. The profitability of the public sector banks did improve relative to the private and foreign banks, but they have lost ground in their ability to attract deposits at favourable interest rates, in their slow technological upgradation, and in their staffing and employment practices, which has implications for their longer-term profitability.

Issues in Asset Liability Management - II

From the angle of pricing assets and liabilities a clear and quantified articulation of a bank's strategic objective is needed and this will need to be an adequate return on investment. This is the second of a series of articles discussing the different issues involved in asset liability management by banks.

Deregulation and Performance of Public Sector Banks

How have India's public sector banks (PSBs) performed in the years since bank deregulation was set in motion in 1992-93? The banking system has not collapsed nor has there been a banking crisis and the efficiency of the system as a whole measured by declining spreads has improved. This paper documents and evaluates the performance of PSBs since deregulation in absolute and relative terms and attempts to understand the factors underlying their improved performance.

Banking Sector Reforms

The traditional face of banking is undergoing change - from one of mere intermediator to that of provider of quick cost effective and efficient services. In most emerging economies the banking sector is having to face difficult challenges. A discussion on these challenges and issues arising as a result of the ongoing financial sector reforms is important. What are the weaknesses in the system and how may it cope with the critical issues which will arise as a result of the reform process?

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