The Hindu Business Line : Govt must exit all but SBI: Meghnad Desai

Future of banking: Dr. Anil K. Khandelwal (left), CMD, Bank of Baroda, and Lord Meghnad Desai, Member, House of Lords, UK, at a function in Mumbai on Tuesday. –

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Mumbai, Sept.18 Indian banks would be able to face foreign competition only if the government brings down its equity stake in them to zero. This would put Indian banks on a level playing field with foreign banks post-2009, said Lord Meghnad Desai, Emeritus Professor of Economics, London School of Economics.

He advocated denationalisation of all public sector banks, but suggested that the government can keep State Bank of India if it wants a bank.

Delivering the Maharaja Sir Sayajirao Gaekwad – III Memorial Lecture, here on Tuesday, Lord Desai said if even after 38 years of bank nationalisation, the government found it difficult to provide credit to the farmer, it is better to study why the traditional moneylender has thrived despite bank nationalisation.

“Will Indian banks have to compete with an increasing presence of foreign banks with both hands tied behind their backs, with norms imposed on capital structure, lending policy, staffing and no hope of acquiring large foreign banks abroad?” he said.

Drawing parallels with the manufacturing industry, Lord Desai said that in less than 15 years, after liberalisation, India has a manufacturing industry that is globally competitive. The industry gained thanks to lowering of tariffs and end of the license raj.

While Tata Steel is one of the world’s leading steel companies, there is not one Indian bank among the top 10 globally. The country’s largest bank, SBI, is only 70th in the global ranking.

Lord Desai also advocated India moving to full rupee convertibility, as soon as possible, because this will allow full access to global financial flows. The biggest problem Indian banks would face is not that of technology or raising money, but that of labour. There would be tremendous resistance from unions to changes. But strategies to protect jobs will lead to employment slowdown because there will be no innovation and no capital investment, Lord Desai said.

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