Financial Daily from THE HINDU group of publications
Wednesday, Nov 03, 2004
Financial Daily from THE HINDU group of publications Wednesday, Nov 03, 2004 |
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Money & Banking
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Mergers & Acquisitions Columns - Financial Scan Foreign ownership of banks: Can it create more Tirupurs? S. Balakrishnan
THE policy on foreign ownership of banks continues to dominate the headlines. Last week, the Finance Minister announced that the Government would allow a creeping increase — at the rate of 10 per cent every year. Over a period of time and combined with equivalent voting rights, this would enable foreign investors to acquire complete control of private sector Indian banks. Foreign banks, have, of course, been in the forefront in bringing consumer finance products such as credit cards and auto loans to the market. But the pioneer in credit cards was an Indian bank — Andhra Bank — and a public sector one at that. Among the new generation of private sector banks, barring an exception or two (UTI Bank comes to mind), the emphasis is more on non-fund based business — investment banking, private banking and wealth management — which bring in lucrative fees with no risk. Clearly, foreign investors would target the old-generation private sector banks, which are usually very community-centric, but have been playing an extremely strong role in supporting small and medium scale manufacturing and trade. Some promoters and big shareholders would undoubtedly sell out at the right price. In the process, the new owners would acquire a valuable franchise of well-established SMEs with a track record and the high net worth customer base that comes along with it. Does it matter very much? The loss would clearly be the nation's. For, the public sector and old-generation private sector banks, despite their many faults and drawbacks, have proved to be the sinews of economic growth. But for them, would Tirupur, for example, have become the world's largest hosiery manufacturing and export centre? Can any foreign bank claim to have financed a single currently successful unit in that town, from the beginning? Today's stockmarket favourite, Infosys, was first funded by the now much-derided State-level financial institutions, after being turned down by a high-profile foreign bank! And it is obvious that we, as a nation, need not one, but a hundred Tirupurs and Faridabads and Infosys. This is not to find fault with the foreign banks in India. After all, their Indian representatives have been given a mandate and they are bound to follow that. The larger issues of development are beyond their ken. It is only Indian banks that could be expected to have the feel and empathy necessary to help struggling entrepreneurs. Merchant banking for disinvestments, IPOs, pension fund management and financial services for the rich ought to be part of any banking landscape, but they are at the far end of the value chain, after wealth has actually been created from globally efficient production of goods and services. Policy priorities lie in how to finance the sectors of the economy which foster growth — agriculture, infrastructure, manufacturing, IT, etc — and evolve and support institutions which can achieve it. Dr. Manmohan Singh surely knows this better than anyone else.
More Stories on : Mergers & Acquisitions | Foreign Banks | Financial Scan
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