• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Port Info

• Ships in Ports
  
  

Archives

• Yesterday
• Datewise
• Resources

Group Sites

• The Hindu
• Business Line
• The Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

P. Devarajan

The Interim Report reads more like a political leaflet from the Left (with a mandatory reference to China as that country can do no wrong even if it has one of the frailest banking systems) than an analysis of the financial system.

SOMETIME in November 2004, Mr T.R. Bhat, Joint General Secretary, All-India Bank Officers' Confederation (AIBOC), set up an Independent Commission on Banking & Financial Policies with Mr S.P. Shukla, former Finance Secretary, as Chairman.

The Commission has come up with an Interim Report which reads more like a political leaflet from the Left (with a mandatory reference to China as that country can do no wrong even if it has one of the frailest banking systems) than an analysis of the financial system.

That was to be expected as the members of the Commission belong to the deep pink breed and they are: Mr Amiya Bagchi, Mr Prabhat Patnaik, Mr S.L. Shetty, Mr N.A. Mujumdar, Mr N.K. Thingalaya, Mr C.P. Chandrasekhar and Mr Sushil Khanna.

The RBI will be surely appreciative of the strong dislike of the Commission for foreign investment in the Indian banking system. The Report says: "Further restructuring through liberalisation has been suggested in the recent official pronouncements relating to foreign direct investment in banking and merger of PSBs. The international experience and the accumulated Indian evidence of the past 10 years show the futility and the dangers inherent in pursuing this neo-liberal strategy of bank restructuring. ... International experience suggests that raising the FDI cap, permitting FII investments in domestic banks and linking voting rights of private shareholders to their equity stake does not serve the objective of raising the rate of economic and industrial growth."

One hopes it was true, but it is not. By any measure the banking system has helped growth in India, got the financial system out of the 1991 crisis and believes that profits are not to be spat upon. Dollar or euro inflows into banking have not led to a sell-off; it has helped private and public sector banks to augment their capital base as otherwise the job would have fallen upon the Government (famed fiscal deficit).

The government has sunk Rs 30,000 crore of tax-payers' money into turning round public sector banks and yet there is trouble in some of them. Government banks have become private khajanas of the ruling class and the Report has not a word on the abuse of the banking system from 1970 till today.

Is it not enough for the Government to hold just 33 per cent stake in government banks (the second Narasimham Committee)? In the search of profits (there is nothing wrong in it), bankers have forgotten the rural sector and the Report is sure there is something amiss. One agrees with the statement though the Report has not suggested any viable solutions.

Sans a healthy rural sector, India will never grow at 10 per cent per annum. " ... the incessant dilution of the definition of priority sector advances that undermines the scheme needs to be reversed," says the Report and it is right. The Report does not go beyond.

Should not Nabard be turned into an agricultural bank as co-operatives and RRBs have gone inert while the Government banks are simply not interested? A point which Mr Bhat may note is that bank trade unions have not helped any with its members refusing to take up rural postings.

Again, the writers of the Report seem to be throwing the clock back and refusing to look ahead when they argue for the revival of development financial institutions. With banks offering working capital and long-term loans there is no case for DFIs who cannot access cheap retail deposits.

"Even while the gap created by the transformation of institutions such as IDBI and ICICI into universal banks needs to be filled immediately, the further decline of development banking should be halted through the restructuring of institutions like IFCI and the strengthening of the state financial institutions, SIDBI for example," says the Interim Report.

No bank has enjoyed more Government bounty than IDBI Bank while IFCI is a near-dead entity despite infusion of funds. These two were run down by Government directors appointed by New Delhi with loans granted on political know-how. One expected some quality analysis from the members of the Commission. That has not happened.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bush stokes anti-US embers — `Shock-and-awe' dispenser as World Bank chief

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line